The demand for builders and building materials has soared since the country started to unlock in May. But even so, smaller contractors and building firms are experiencing significant problems. Difficulties include a scarcity of resources, the rising cost of materials, and delays in obtaining the resources they need for the job. Issues such as these can be disastrous for smaller companies. Here we take a look at how UK construction companies are being affected by explosions in material prices as we emerge from COVID-19 restrictions and the aftermath of Brexit.
Why Are Prices Rising?
In light of Brexit, a number of Eastern European workers have returned to their respective countries, leading to a shortage of labour in the UK. Where demand outstrips labour supply, it’s inevitable that labour rates rocket, leading to price increases. In addition, Brexit related issues have caused reductions in imported stock and disruption and lengthening of supply lines.
Then there is the global pandemic. With COVID-19 and the lockdowns, people have turned to home improvements and DIY, including extensions, conservatories for home working or schooling, and home offices. Construction materials have been in great demand. However, COVID-19 has led to a slow down of factories and factory closures outside the UK, which has in turn affected supplies coming into the UK. The result? There may have been increased demand for building materials, builders, and contractors, but there have also been rising costs.
Timber prices have doubled, and between May 2020 and May 2021, the cost of materials rose 10.2% for all construction work.
Materials in Short Supply
Supply chains have been hit by Brexit-related issues and site closures due to COVID-19. There have been issues with the availability of all core materials, especially timber and cement, and shortages of steel, roof tiles, plaster, paint, sealants, some electrical components, and more. Severe shortages of construction products and materials are another reason for the record increase in price rises.
Problems Faced by Contractors and Smaller Building Firms
Typically, the building industry works on the basis of lump sum bids. Under a lump sum contract, before a construction company begins work, they agree to carry out the work for a lump sum price.
The problem is that a contractor’s quote is based on the price of the building materials they’ll need for the job. So if the prices of those materials increase and the company has to honour the contract, they are
forced to absorb the cost, which affects their profit margin. And, while prices are lower when materials are bought in bulk, it can be more difficult for smaller contractors and building firms to benefit from bulk buying if they are unable to get enough credit.
Despite the uncertainty surrounding costs, developers want contractors to commit to fixed prices well in advance of projects; sometimes, they ask for a contract as much as a year in advance of a project’s start date. In addition, if materials are delayed, and dates have to be pushed back, contractors might be faced with having to pay damages to the developers, causing them further financial hardship. Taking shortcuts is not an option; problems will occur further along the road.
Working With Builders and Contractors
The building industry may be busy, but contractors and builders are cautious about taking on work. The scarcity of resources, risk of materials increasing in price, and delays in sourcing materials can cause major problems. As a result, there is a risk that the country won’t be able to meet the demand for homes, warehouses and regeneration projects. What can we do? We can work with builders and contractors, show patience and empathy, and maintain open lines of communication to resolve any issues that arise.