COMMENT Much has been publicised on rising energy costs and supply chain issues in the sector. To a limited extent these can be managed through careful price forecasting. But labour supply issues are much harder to mitigate and represent a ticking time bomb for the construction sector with the ageing profile of workers and challenges attracting new talent to the sector.
In August 2022, the employment index decreased to 53.7, suggesting the industry could be in for further challenges in terms of labour shortages.
Labour shortages are common in all sectors but exacerbated in the construction sector as it plays catch-up to other sectors when incorporating new technology and automation. The benefits to the construction sector versus other sectors is dampened, however, with many key processes being reliant on physical labour.
Cost-of-living pressures
Shortages have been seen in the sector as a result of a loss in migrant construction workers, falling by 15% from 326,000 in 2019 to 280,000 in 2021. The UK is experiencing its lowest level of unemployment since 1974, with the unemployment rate sitting below 4%, and the employment pool shrinking by approximately 1.2m since 2020. Due to cost-of-living pressures, salary has become the number one consideration for employees, with many being drawn to agencies, further increasing the cost of labour supply.
There is no immediate solution and it is likely delays will be seen in the procurement and delivery of construction projects due to these labour supply issues. It is essential that steps are taken to future-proof this sector, one of the UK’s largest, employing some 3.1m people.
The Scottish situation
Edinburgh has seen a construction boom in recent years and the Scottish government has been actively promoting enterprise areas to help create supportive business environments for growing industries, which the construction sector will play a key role in delivering. Maintaining this pace and being able to deliver on such major planned projects is essential.
Prime minister Rishi Sunak has set out plans for radical reforms to the UK’s education system, including vocational training. This could be key to solving the labour supply issue, with many construction employees pointing out that local further education institutions no longer offer courses relevant to the construction sector, and even more limited courses to support the development and knowledge of new green technology. This is of particular note as the government’s net zero ambitions are placing significant additional burden on the construction sector. Additional labour will be required to deliver against set targets, with specialist skillsets likely to be required to focus on retrofitting properties to improve EPC ratings and wider decarbonisation programmes.
Government funding has increased apprenticeship and skills investment but many employers are struggling to attract pre-Covid levels and they remain nervous about not achieving the return on their investment as their qualified apprentices move to other employers who do not invest in the entry level or agencies. One potential incentive would be a drive from procurement teams to see evidence of investment in the future talent pool with tenders being scored accordingly with employers who invest in their employees being recognised and favoured.
Employers may choose the Amazon approach and offer golden hellos to attract staff but this can be a short fix with little to prevent them from moving on. HR specialists are being utilised to consider employment packages and recruitment strategy, including increasing diversity, and revisiting staff policies to reflect the workforce of today and the flexibility it often demands. The government’s recent U-turn on the reversal of IR35 will see continued compliance burdens in the sector and reduce access to the contractor pool for those who prefer to work on more flexible arrangements.
A growing number of contractors are entering administration and there is an opportunity for businesses to capitalise on this by acquiring underperforming business within the sector to help plug labour gaps. But the retention risk remains.
Ageing workforce
Contractors have raised concerns regarding skills gaps with an ageing workforce that holds all the essential skills. As this workforce retires and is replaced by a young or transient one, there is a risk the quality the UK construction sector is known for could dip and see a rise in insurance claims or more contractors leaving the market as appetite for risk falls. There is debate as to whether fluctuation clauses need to be revisited in construction contracts to allow for variations in pricing. But the question remains as to how contractors would be protected from the inability to deliver contracts on time due to labour supply issues which could see them incur significant penalties.
Long-term action is required to protect the sector. This will require focus and collaboration to change policy and deliver the skills the construction sector needs for the future.
Claire Monaghan is partner and head of real estate and construction, Scotland & NI, at RSM
