Summary of 2023: Navigating Challenges and the RAAC Crisis

The construction headlines of 2023 were marked by increased costs and the Reinforced Autoclaved Aerated Concrete (RAAC) crisis. This combined with factors such as Brexit, Covid-19, the war in Ukraine, and high inflation rates, created a complex construction market with rising material costs, reduced labour availability, and higher expenses, prompting contractors to adjust prices and mitigate the risk of insolvency.

Impact of Global Factors on Construction

Brexit, the ongoing Covid-19 pandemic, geopolitical events like the war in Ukraine, and high inflation rates collectively contributed to the difficult landscape in the construction industry. Contractors faced hurdles in estimating future costs and project timelines, resulting in construction claim inflation.

RAAC Crisis Unveiled

More than 150 schools constructed with this material faced structural risks, along with several hospitals. Although safety concerns were raised about RAAC in 1996, in May 2023 that the Department of Education (DfE) identified potential RAAC presence in 572 schools in England. Alarmingly, over 8,000 schools remained unchecked at that point[1]. This has triggered ongoing questions and discussions about claim coverage—whether damage related to RAAC is considered a sudden and unforeseen event or excluded based on wear and tear. The investigation will need to extend determining the extent of property damage and assessing whether resulting damages are covered.

Expectations for 2024: Balancing Challenges and Opportunities

Navigating Insolvency and Chain Disruptions

Despite the challenges outlined in 2023, the UK construction industry is poised for a significant revival, anticipating a 12% growth compared to the previous year[2]. However, a Begbies Traynor Red Flag Alert report signals a rapid increase of 33% in the number of construction firms on the brink of collapse, necessitating a focus on educating clients on navigating insolvency and disruptions in the supply chain. The above-mentioned factors make it evident how challenges in the construction industry have unfolded. This emphasises the importance to understand how to navigate these eventualities, particularly for those who have faced insolvency or are part of a chain where another firm, be it a principal or sub-contractor, has become insolvent.

Revival Factors

Consumer spending and the Department of Education's plan to rebuild schools contributes to the positive outlook. The education sector, heavily affected by the RAAC crisis, is expected to experience significant growth with plans to rebuild schools and refurbish over 800 academies, colleges, and voluntary aid schools. The UK economy also significantly contributes to this positive outlook, as both consumers and businesses are anticipated to increase spending on households.

New Trends Shaping the Industry

The integration of advanced technologies such as automation, construction management software (CMS) and 3D printing will continue to develop the construction industry.

• Automation, with its significant impact on efficacy, cost reduction and safety. Although it’s met with some scepticism regarding its use and implications, when employed correctly, automation serves to enhance employee efficiency, ultimately leading to long-term reductions in project costs.
• CMS, is a software that enables construction teams to streamline project planning, scheduling, communications, and documentation from a centralised platform.
• 3D Printing remains somewhat experimental for many large contractors but predictions indicate its gradual integration into every jobsite. 3D printers are anticipated to carry out actual formwork for significant installations, signalling a transformative evolution in construction methodologies.

ESG Factors

Environmental, Social, and Governance (ESG) factors are significantly shaping the development and operation of businesses. The increasing demands placed on companies due to the societal impact of ESG areas are particularly relevant to the construction industry. As other industries scrutinise ESG performance as a measure of success and growth, the construction sector too is poised to play a significant role. Notably, the insurance industry is likely to follow suit, evaluating ESG considerations. For example, coal powered construction is rarely written in Lloyds anymore. The construction industry will grapple with the challenge of aligning with ESG principles while maintaining operational efficiency, prompting a closer examination of building materials and construction methods. The evolving landscape of ESG in construction, raises intriguing questions about the industry's future choices and practices.

Looking Ahead: Anticipating a Positive 2024

Despite the complexities of the past, the construction industry looks poised for a positive 2024. New construction methods and industry trends present exciting possibilities, but questions remain about liability, insurance implications, and the evolving global landscape.

There are a few questions we must ask within the insurance industry as we navigate the evolving landscape:

1. How automation will affect how liability is rated?
2. Will the Public Liability rate increase due to a downturn in wages paid, where AI & Robotics are used as a cheaper and / or more reliable alternative?
3. If contractors opt for robotics over common plant, what implications will this have on their insurance and the maintenance associated with them?

[1] Thousands of pupils may have to start term online as over 100 schools affected by crumble-risk concrete | Schools | The Guardian

[2] https://itsconstruction.co.uk/resources/blog/the-construction-industry-in-2024-what-can-we-expect/#:~:text=A%20rebound%20in%20construction%20output,change%20for%20the%20coming%20year