Why Political, Economic, and Market Exposures are UK Contractors’ No.1 Concern

Discover how events such as Brexit and investor appetite have combined to create the top threat in the Contractor Risk Review 2020.

Political, economic, and market exposures are UK construction firms’ biggest worry, indicates Marsh JLT Specialty research. The three-pronged threat headed the list of most pressing business risks in our Contractor Risk Review 2020 (CRR),  and saw the largest year-over-year increase (11%) of the top 10 challenges analysed.

The risk arises out of changes in political and economic climates in the UK and globally, along with changes in competitors’ behaviour. It covers a range of scenarios and outcomes, but includes economic downturns, reduced government/private sector spending, and civil unrest.

Such changes could lessen investor appetite, reduce opportunities in the UK and abroad, and leave remaining opportunities less profitable.

Brexit’s potential impact on labour availability, supply chain costs, and exchange rates is a principal part of this risk. Related risks include cost, availability, and the timely delivery of materials sourced from outside the UK.

Regulatory changes following the Grenfell tragedy are included in this risk category, as are shifting attitudes to the sector following high-profile facilities management company liquidations. A volatile UK construction market could increase the impact of the events described above. Furthermore, fears remain that the UK’s current property cycle is ending, with COVID-19 repercussions amplifying concerns.

How UK Construction Firms Are Managing the Risk

UK contractors’ steps to manage these risks include focusing on resilient and stable markets and geographies, and maintaining a broad exposure against a backdrop of cyclical individual market effects. Contractors are seeking a balance of public and private sector work, and to increase or reduce their new contract pipelines in tandem with local authority, government, and utilities regulators’ spending plans.

Leading companies are maintaining a high profile in sectors identified for investment, with construction and regeneration divisions working together to offer improved client service and economies of scale. Contractors also conducting tactical and strategic benchmarking exercises against key competitors in order to remain competitive.

Top contractors are also managing their supply chains effectively – seeking a balance of procurement routes and maintaining flexible cost bases. Contracting with multiple subcontractors within each trade is encouraged, with strict approval procedures in place. Contractors also sometimes purchase subcontractor default insurance, when available.

Government spending was found to be an area of concern, but it would seem that the government remains committed to infrastructure expenditure. However, this may be counterbalanced somewhat by reduced spending in the real estate sector, as people continue to work from home, and office space remains in lower demand. Clearly, contractors’ decision to maintain balanced portfolios was well-founded.

Supply chain management remains ever-important in order not just to complete on time but also with quality. A drive towards closer relationships with suppliers and more trust between parties can only lead to better results and reduced risks.

Please do contact me if you have any views on our Contractor Risk Review 2020, or would like to find out more.

Download the Contractor Risk Review 2020  for an in-depth look at leading UK contractors’ top 10 business.

For a roundup of the top 10 construction risks analysed in the CRR, see our blog post, UK Contractors’ Top 10 Risks: Research Findings threats.