Northern Ireland construction sector 'lurching back to 2008 recession levels'
THE north's construction industry is “facing as uncertain a future as it has done since the 2008 recession” despite rebounding in the second half of last year and recovering virtually all of the turnover it lost due to lockdown restrictions.
The Construction Employers' Federation's quarterly 'state of trade' survey paints a picture of a generally resilient sector in the second half of 2020 – but one with significant concerns about short to medium term workloads, profit margins and delays in their supply chains.
“Our members, their employees and supply chains did so much last year to put in place the infrastructure that enabled our health and wider public services across these islands to meet the challenges of the pandemic head on, and we're so proud of that,” CEF managing director Mark Spence said.
“The easing of restrictions on construction activity in the second half of 2020 saw many firms able to recover a large part of sales lost in the first half and, crucially, do it in a Covid-secure manner.
“But what's apparent from this survey is that many contractors believe we are facing into a perfect storm.
“With a challenging commercial market into this year, and likely next, there will be more competition for public works.
“But this is occurring at a time when a significant number of public sector works are being procured as ‘price only’. The absence of ‘quality’ with respect to tender scoring has the capacity to drive the market down to unsustainably low pricing.
“The challenges are exacerbated by early year impacts on materials supply and pricing, and while issues on matters like steel imports will likely begin to resolve themselves on the supply side, where the price will settle is harder to gauge.
“That puts massive pressure on contractors now to price appropriately for both one off projects and, more alarmingly, longer term arrangements such as measured term contracts.”
Ulster Bank economist Richard Ramsey went further when he said: “Given that Northern Ireland’s public procurement tenders are awarded on ‘price only’ evaluations this presents risks to both firms’ profitability and the quality of the projects undertaken, and a lack of sufficient workloads could lead to a race to the bottom on price.”
Data in the latest CEF barometer was gathered in late December/early January and contained the responses of 80 Northern Ireland-headquartered construction firms with a combined annual turnover of £1.5 billion. Key findings include:
- Two-thirds of turnover was completed in the second half, though on average it was down 20 to 25 per cent on 2019.
- Firms reporting a deterioration in profit margins outnumbered those reporting an improvement by 11 to one.
- Only 53 per cent of firms are operating at full or nearly full capacity.
- 82 per cent of respondents expect furloughed staff to be retained.
- 64 per cent saw increases in labour costs, 95 per cent in material costs and 67 per cent in plant costs.
- 79 per cent have experienced delays in supply chains as a result of Covid-19 and Brexit.
- 43 per cent of firms expect reduced opportunities in the public sector.
Spence added: “We know from the experience of the 2008 recession that the construction industry always feels a lag in terms of the worst effects of an economic downturn.
“The warning signs are already there. It is incumbent on those that value the sector to ensure it doesn’t come to pass.”