Nick Gray is COO at Currie & Brown
Infrastructure investment is a key lever for boosting the UK economy, so the chancellor’s recent commitment to HS2 being delivered in full is welcome news.
However, between soaring inflation, supply-chain uncertainty, and the threat of an economic recession, infrastructure as a whole, and the construction industry in particular, face an extremely challenging period. In fact, Currie & Brown’s new 2023 Infrastructure Cost Predictions Report finds that these factors may jeopardise key infrastructure projects that are crucial to Britain’s chance of economic recovery.
“The time to rethink the way infrastructure investment is approached is now”
The report finds that the total cost of Britain’s National Infrastructure Pipeline (NIP) is set to reach £483bn by 2026, of which £84bn is the direct result of inflation. This inflationary increase amounts to the equivalent of an additional £32,000 per minute. And for every 1 per cent increase in required expenditure resulting from inefficient project- and cost-management, the cost of delivering key infrastructure projects could rise by a further £1,500 per minute. These are considerable sums that could mean the difference between a project coming to fruition or being shelved.
Clearly, action must be taken as a matter of urgency to avoid projects becoming too expensive to be viable and, by extension, cutting off the path to broader economic growth. As a minimum, project managers should consider a package of risk-mitigation measures that include the following:
When it comes to planning the delivery of a project, the earlier the better. Rigorous cost-management at an early stage to develop robust cost forecasts for the entire project will enable well-informed decision-making, which will have a huge impact on reducing wastage and improve return on investment.
Early, multi-sector procurement planning will ensure stronger, more cost-effective supply chains across the project. Combining purchasing demand across sectors such as road and rail will allow greater economies of scale, thus reducing individual project costs.
In addition, beginning the procurement process early will allow project managers to take advantage of longer lead times and consider a two-stage procurement process for larger or more complex projects.
Following amendments to the treasury’s Green Book to reflect the government’s net-zero policy objectives, it is now more crucial than ever for projects to demonstrate sustainability and carbon efficiency. And the closer projects come to carbon neutrality, the more attractive they will be to investors, making them more likely to succeed.
Harnessing new technologies will undoubtedly enhance the sustainability credentials of a project from the very start.
Adopt innovative measures
The COVID-19 pandemic necessitated an innovative approach to risk-sharing. Arguably, the current volatile circumstances we are experiencing call for similar measures, in order to protect contractors and the supply chain. Specifically, the industry should consider the benefits of accelerated payment terms to improve cashflow, flexible pricing periods, and a more pragmatic approach to risk allocation.
However, for greater flexibility to work, additional due diligence in the form of financial health checks on prospective supply-chain partners must also be incorporated into the process at the outset.
As inflation continues to be a significant threat to the broader pipeline of major infrastructure projects, the time to rethink the way infrastructure investment is approached is now. A business-as-usual approach is simply not feasible if projects are to succeed and provide the economic boost Britain desperately needs.