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Comment: Navigating The Construction Sector Headwinds

By James Flanagan, Partner, A&L Goodbody

There is little doubt the Northern Ireland construction sector has been weathering something of a storm these past few years. 

From the unpredictable cost of materials to supply chain issues, the continued impact of the pandemic and the persisting consequences of the war in Ukraine, the economic headwinds have been persistently relentless over the last few years. We have witnessed the difficulties this has posed both contractor and employer alike. 

While the current trend is to focus on the shine and promise that an umbrella initiative such as “ESG” invites, caution must be noted if the sector fails to recognise and adapt accordingly to the tensions being currently felt within the industry. 

Inflation, being sector agnostic, has impacted both the private and public sector in Northern Ireland and made budgeting of projects increasingly challenging. 

For those serving the public sector, the challenge has perhaps been more severe given few public sector contracts include a robust and adaptable variation mechanism to account for fluctuation of pricing or modifications to scope. Because of input price inflation over the last few years, such inflexibility has meant contractors have either had to absorb increased costs, attempted to renegotiate contracts or regrettably allow contracts to be retendered. With the forthcoming changes being ushered in by the new Procurement Bill in 2024, the time is ripe for a discussion around how public sector procurement for projects can be better structured to account for practicable changes that occur through the term of a contract.  

Unquestionably the biggest challenge for the construction sector has been the lack of a functioning Executive at Stormont in the last few years, one which has slowed the development of infrastructure projects and left the sector without the agile political leadership it needs.

The need for a functioning executive is particularly relevant when it comes to attracting investment into Northern Ireland. While current interest rates would undoubtedly prove problematic for traditional investment in any jurisdiction, the truism that funders avoid uncertainty and instability cannot and should not be ignored. 

A resumption of government at Stormont would be warmly applauded by all stakeholders within our construction market, we should not overlook the response of the investments market in London, New York and further afield. 

From climate change clauses, alternative investment funding models to reimagining public private partnerships, these are but a number of the types of queries that we are currently being asked to consider at A&L Goodbody on a daily basis. While these issues speak to the innovation and drive of the construction industry, they also reveal a number of challenges that lie ahead.  Without a prompt resumption of government, we should all be concerned that the region and its workforce risks being permanently cast adrift. 

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