Brexit – can off-site eradicate construction uncertainty?

In this article, Richard Tonkinson, Executive Director of Offsite Solutions, a UK-leading bathroom pod manufacturer, looks at the impact of Brexit on the construction industry and how taking an off-site approach can mitigate some of the economic uncertainty.

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Richard Tonkinson is Executive Director of Offsite Solutions, the UK’s longest-established bathroom pod manufacturer. After graduating from the University of Edinburgh, Richard spent 10 years working in the City of London. He has extensive experience in a wide range of capital markets and has worked on numerous corporate transactions. He holds a post-graduate diploma in accounting and is also Executive Director of Offsite Solutions’ sister company, Deanestor – one of the UK’s leading furniture manufacturers for the healthcare, education, student accommodation and laboratory sectors.

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ccording to the RICS, UK construction could lose 8% of its workforce post-Brexit – around 200,000 EU workers. The availability of labour is one of the biggest challenges created by Brexit and could lead to significantly higher project costs.

If there are restrictions in the movement of labour, there will be pressure on wage inflation, which could be as high as 15% because of the reduced labour pool. The fall in the value of sterling also means that the UK will be a less attractive work destination and no longer the first choice for construction workers.

It is estimated that at least a quarter of all materials used in UK construction are imported – underlining the susceptibility of the industry to currency fluctuations.

Reports from manufacturers and construction companies predict material price increases of up to 20% because of the rising cost of material imports and the pressure of the weaker pound. There is also the possibility of additional duties if the UK loses the benefit of the single market and limits are imposed on quantities.

We believe the use of off-site construction can help to limit the effects of Brexit because of the greater cost certainty it offers. The procurement of bathroom pods, for example, should be prioritised as these will be delivered early in a project – even before the building envelope is installed. A better price can be agreed with early procurement, and the risk of inflation is then completely avoided.

As a bathroom pod manufacturer, we can achieve this because we have considerable buying power for bathroom products and materials – from taps, tiles and sanitaryware to timber, steel and oil-based materials for GRP. Long-term agreements with suppliers give us the benefit of fixed annual prices. We place the orders for products and materials as soon as our contract with the client is signed. Off-site manufacturers also have a more stable, multi-skilled workforce and so are in a stronger position to protect against wage inflation.

With site-based bathroom construction, several packages are tendered separately and typically at a later stage in the build programme. This leaves the contractor or developer more exposed to cost increases for the finishing trades.

By entering into a contract for factory-built bathrooms at an earlier stage, contractors and developers can secure a price for one of the largest packages in a building project and potentially 12 to 24 months ahead. This provides cost certainty and removes the risk of wage inflation or material price increases.

Whilst UK companies are having to grapple with higher costs, skills shortages and further pressure on the value of sterling, there are also some positives.

Importing completed bathroom pods from Europe has become significantly more expensive. When this is combined with the longer lead times required for imports and the reduced responsiveness of manufacturers based outside the UK, at the design stages, for delivery scheduling and in aftersales, developers and contractors have been encouraged to focus on UK suppliers. As a result, we have seen much less competition from European bathroom pod manufacturers since the Brexit referendum which has had a very positive impact on our business and has to be good for British manufacturing overall.

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