2024 was another difficult year for the construction industry as the long shadow of Grenfell continued to loom over the building sector and the latest high profile insolvency causing concern and financial distress from employers to the supply chain alike.
In last year's publication, we commented on an industry that was looking toward a 2024 with equal measures of pessimism and optimism: optimism fuelled by stabilising interest rates and a commitment to change but tinged with a cloud of uncertainty of legislative change, global unrest and rising insolvencies. Fast forward 12 months and, in many ways, it's more of the same albeit with a louder clamour to learn from past mistakes and a desire for change (if you believe several recent interviews and articles).
Global pressures and their impact on construction
Against a background of conflict (with Ukraine continuing and Gaza intensifying), the fact that some 40 nations (including the UK and the US) were due elections in the year meant that 2024 was always going to be uncertain and the construction industry was certainly not shielded from the same. Moving into 2025, the apparent chaos and political uncertainty still reigning in parts of Europe (including near neighbours France and Germany) is somewhat offset by renewed hopes of ceasefires in Europe and the Middle East, flatlining inflation and interest rates that are slowly falling coupled with what should be periods of political stability for our own Government and the US…albeit with many concerned about just how those 'stable' Governments will act.
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Subscribe nowThe collapse of ISG: A turning point for the sector
Stability and optimism are certainly needed, particularly given the ripples (more like waves) that the insolvency of another major tier 1 contractor sent through the industry at the back end of last year. The financial position of ISG was a topic for many a conversation in 2023 and 2024. The industry knew from published accounts that, like many others, the position was not healthy, and rumours had abounded for many months – those very rumours and whispers probably exaggerating the financial pressure that the Group was feeling. Despite this, given the talks of a sale and the fact that the Group was turning over more than £2bn a year with a highly profitable fit-out division, it was still a major shock when ISG's administration was announced, marking construction's biggest casualty since Carillion. An insolvency which has led to many posing two questions:
- what have we learnt in the six years since Carillion's demise; and
- who is next?
As per the quote, often attributed to Albert Einstein, "Insanity is doing the same thing over and over again and expecting different results". We cannot continue to impose such onerous terms and risk on contractors hoping to make 1% profit on multi-million-pound jobs. Sadly, most construction companies are only one uninsured disaster away from some level of financial difficulty.
Labour’s first Budget: A new era for construction investment?
The optimism…in terms of the UK, and although not met with universal approval, Labour's first Budget for 14 years contained some big spending promises and commitments to the Construction industry including plans to:
- invest £100bn in capital projects over the next five years;
- boost NHS capital funding;
- fast-track decisions on at major infrastructure projects;
- build 1.5 million homes; and
- deliver new green energy programmes.
We have also been promised a shift and renewed focus on contract terms. Already this year, we have seen some Government departments looking at more collaborative and partnering contract models with parties polishing off copies of PPC 2000, more publicity (and awards) for truly partnerial approaches to projects (including the PPP at Sellafield) and industry body, Build UK, publishing their guidance on unacceptable contract terms (https://builduk.org/wp-content/uploads/2023/02/Contract-Terms-Guidance.pdf). However, some continue to still adopt terminology such as "collaboration" without truly embracing the meaning of the word or the underlying ethos of the procurement approach. In particular, in the infrastructure sector we have seen alleged collaborative contracts which have been amended to reflect an approach that guarantees the employer a guaranteed maximum price (GMP) with maximum risk transfer.
Growth forecasts and the road ahead for 2025
More positively, contractors are shying away from single stage tenders and with the increased use of early contractor involvement (ECI) shows some employers are genuinely trying to collaborate with the supply chain to ensure successful project delivery.
This and the promised political stability coupled with hope for continued sector specific developments and progression with AI have seen some predicting significant growth over the next two years (with Glenigan forecasting 8% this year and a further 10% next). We will only achieve those figures if the commitment to change is real – and that goes for lawyers as well. The industry should not be content with a race to the bottom on price just to fill order books and/or an attempt to push all risk as far down the contractual chain as possible.
With that in mind, the following report takes a detailed look back at the key cases, trends, and developments that shaped 2024 while offering insights into what 2025 might bring.
We hope this publication provides valuable perspectives, and as always, our team of transactional and contentious experts are here to support you through the challenges ahead.
