The construction industry, like most sectors in the United Kingdom and Ireland, has faced much adversity in 2021 thanks to the ongoing impacts of COVID-19 and Brexit. Whilst the past year has not been all bad news, 2021 will forever be synonymous with material shortages, inflated prices and delayed or failed construction projects thanks to these issues, coupled with the impacts of the pandemic on labour. These issues are still ongoing and many fear that a recession will be the result of inflation and rising interest rates. Whilst the government deny any imminent threat of a recession, it is not wholly unlikely. With the conclusion of 2021, this article looks forward to what 2022 may bring for the industry.
The Supply Chain in 2022
Whilst the government are working to fix the supply chain issues in the UK, disruptions continue to spread and many have noted that these issues existed before COVID-19 and Brexit – these events have only served to exacerbate the problem in 2020 and 2021. There is now new uncertainty surrounding questions of wider post-Brexit trade as Brexit Minister Lord Frost resigned from the UK government in December 2021. Furthermore, the new Omicron COVID-19 variant threatens to extend the saga of lockdowns and restrictions once again. Hopefully 2022 will see less misplaced cargo vessels in strategic bottlenecks, but the continued threat to timber supplies from large scale forest fires cannot be ruled out. The limits of labour availability in the construction sector will only continue to be tested as opportunities for remote employment have rocketed during the pandemic, and those with technological skills will have their choice of employment due to the demands of modern online working. These changes to the trading environment will most likely mean that prices will continue to go up as the supply of materials and labour continues to be outstripped by the demands of the market.
Click here for our advice on how to contract in these uncertain times.
With the above concerns in mind, those in the construction and procurement industry need to look ahead to 2022 with strategic plans in place. In October 2021 the government announced the Budget and Spending Review. The Review points to what are bound to be procurement hotspots in 2022 as it reveals what projects the government will be pumping money into in the coming years.
There was a particular focus on strong and innovative public services and levelling up on existing infrastructure. £2.3 billion is being allocated to help transform diagnostic health services over the next three years with a view to at least 100 such community centres being set up and a further £1.5 billion is being allocated for new surgical hubs. Beyond public healthcare services, £2.6 billion has been allocated to build new school places for children with special educational needs and disabilities. The government will also invest £11.5 billion in the Affordable Homes Programme in England to help construct 180,000 affordable homes (65% of which will be outside London). A further £205 million has been allocated to build or transform up to 8,000 state-of-the-art community football pitches across the UK. In Northern Ireland, £49 million from the Levelling Up Fund will be invested into 11 projects including the redevelopment of former Ministry of Defence site into a community farm in the North-West; a nation-wide Electric Vehicle charging network and improved sports facilities on the North Coast.
The above is not an exhaustive list of the potential fruitful opportunities for procurement in 2022 and beyond (click here for more information). Contractors should be looking to these hotspots in order to plan ahead for tendering and job opportunities. In the event that the industry is faced with a recession, this will mean increased competition for procurement opportunities such as those above, and so more competitive, keener prices – something to bear in mind when preparing tenders.
Procurement Point-Scoring: ESG Criteria
Competitive pricing is not the only criteria for winning procurement bids in the current climate. Contractors must take account of social value in the award of central government contracts as the PPN 06/20 was published to launch a new model to deliver social value through the government’s commercial activities.
The Environmental, Social and Governance (“ESG”) criteria in the PPN 06/20 is particularly important given the booming green agenda in the UK and EU, as well as the mental and physical well-being of employees being an especially pertinent issue during the COVID-19 crisis in the past couple of years. Contractors must pay more attention than ever to ESG criteria and think about how to include these meaningfully in projects.
The PPN 06/20 model is mandatory but commercial teams have flexibility in deciding which outcomes are applied. Social value must carry a minimum score of 10% of the total score in order to ensure that it carries a heavy enough weighting in the bid evaluation; a higher percentage weighting can be applied where justified.
The PPN 06/20 provides a model of focal areas of social value for commercial teams to consider when planning their delivery of central government projects, these include:
At Quigg Golden, we are already seeing many leading entities embracing this requirement and can offer help and assistance to kickstart your own understanding of the requirement.
If one thing is abundantly clear, it is that the issues the industry faced in 2021 will be carried over into 2022 without any clear path for change as the political landscape coupled with the on-going pandemic mean that the commercial environment remains in limbo. Contractors must plan ahead for 2022 with the knowledge they have gained in 2020 and 2021, all with a view to exercising ESG considerations in public procurement spaces.
Should you need any further advice on the issues touched on in this article, do not hesitate to contact Quigg Golden – the market leaders in construction and procurement law.
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