Until relatively recently, managing the risk of price increases and material and labour supply shortages was not something that the UK construction industry had to consider.

Prices in the UK have been fairly stable for years and contract provisions dealing with inflationary risk tended to be ignored or even deleted. Fixed price, lump sum contracts were the norm, and contractors were happy to take on those risks because they were low or manageable. But recent global events – in particular the war in Ukraine – have brought these issues sharply into focus.

International sanctions, coupled with the ensuing energy and cost of living crises, mean that prices are rising month on month. The most recent Building Materials & Components Index reported a 26.4% increase for ‘all work’ for June 2022 year on year. Costs of concrete reinforcing bars, fabricated structural steel and pre-cast concrete products increased by 58.2%, 46.3% and 28.3% respectively. Unfortunately, 2023 is likely to also see significant inflationary pressure on the labour market, as the cost of living crisis begins to put pressure on households.

There are no easy solutions to these problems, but rather than reverting to a focus on contractual claims, the best approach for construction firms may be a more pragmatic one. Co-operation and open dialogue between employers and contractors are being encouraged, particularly at the outset of any new project. After all, whichever side of the table you sit on, nobody...

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