Inflation is an ever-present challenge that affects us all. From the local grocery store to the fuel station, we see price increases everywhere we go.
Unfortunately, the construction industry is not immune to inflation. Rising costs for building materials, consultation fees, machinery rental rates, and other inputs can lead to delayed project completion, increased construction costs and reduced profit margins. According to the Office for National Statistics (ONS), the construction sector’s output costs rose by a staggering £23bn due to inflation, compared to pre-pandemic levels.
So, what can construction companies do to manage inflation? Whilst it is difficult for construction companies to avoid the effects of inflation on the industry, there are steps that can be taken to manage inflation on a project. By taking action to manage inflation, construction companies can mitigate the risks and ensure project success, even in a challenging economic environment.
Check Your Budget
Are you actively monitoring your budget and expenses at every stage of your project? According to sources, up to 40% of construction companies do not track their spending. Knowing precisely how your money is being spent and whether you are staying within budget will help you plan more confidently for the future. Keep in mind that price rises can impact not just material costs but also labour and other operational inputs, so it is crucial not to overlook any of these areas. By closely monitoring your budget and expenses, you can quickly identify any potential issues and take corrective action before they become major problems. This way, you can ensure a successful project outcome whilst staying within budget constraints.
Evaluate Material Procurement
As we all know, material prices have been volatile in recent years. For instance, in 2022, building material prices were up to 25% higher than in 2021. Therefore, if you are currently building or planning to do so, it is crucial to plan as far in advance as possible to avoid being caught off guard by price hikes. For example, consider stocking up on specific materials now to mitigate the inflation in material costs and supply chain disruptions. Doing so can save you a lot of money, time, and stress down the line. By being proactive, you can ensure a smoother construction process and avoid delays or budget overruns caused by material price fluctuations.
Cut Certain Expenses
Once you have established a long-term strategy and gained a detailed understanding of your spending, you’re in a strong position to assess your expenses and make necessary cuts. Consider streamlining your on-site processes; with the increasing costs of labour and a shortage of skilled workers, reducing workload is a top method for cutting expenses. Evaluate the tasks that your team is performing and their methods of execution. Are there any areas that could benefit from automation? Optimise operations where possible for efficient project execution and to better manage inflation. By taking these steps, you can reduce costs and ensure that your project stays on track.
We are all experiencing the strain of increasing prices for everyday necessities. Inflation has presented significant difficulties for the construction industry, making it essential to take proactive measures to manage it. However, the last thing you want to deal with on top of the stress of managing your budget, grappling with escalating material costs, and trimming your expenses is a legal problem with your project. Therefore, it is crucial to stay vigilant and ensure that you’re following all necessary legal protocols to avoid any unforeseen legal issues.
Remember, if you are faced with a construction dispute, Mercantile Barristers will be happy to assist. Do use the enquiry form below to contact us to discuss your matter further.