Overcoming construction cost challenges to keep the West Midland’s ‘Golden Decade’ on track
In October, we held a roundtable discussion with several senior leaders from across the West Midlands to have a timely conversation about how we can keep up momentum on the region’s major infrastructure and construction projects in the face of seemingly multiplying cost challenges.
Earlier in the year we released our International Construction Costs 2022 report, which looked at how rapidly rising construction costs across the world are impacting how we make projects deliverable and effective. When the report came out in March, the three big themes were the post-Covid rebound, disruption to supply chain and the ways in which workers have changed their behaviours. Since then, these challenges have been compounded by the impacts of Russia’s invasion of Ukraine and the resulting energy crisis that has followed, making it more expensive than ever to build in West Midlands region.
It was great to chair the session, alongside Nora Taylor, Arcadis’ Client Development Director, and we were joined by guest speakers, including the Rt Hon Liam Byrne, Member of Parliament for Birmingham Hodge Hill and former Chief Secretary to the Treasury; Tim Johnson, Chief Executive of Wolverhampton City Council; and Martin Reeves, Chief Executive of Coventry City Council to give overviews of their respective cities. The roundtable was also attended by a diverse range of high-level regional stakeholders from across the West Midlands and covering both the private and public sector including developers, contractors and transport infrastructure operators including Lendlease, Court Collaboration, Cordia Blackswan, Lovell and Birmingham Airport.
The rise in construction costs in the West Midlands and beyond
Whilst by UK standards, the West Midlands is one of the more affordable regions to build in, the UK is one of the most expensive countries in the world, meaning Birmingham, as the West Midlands representative city in the index, ranks as the 25th most expensive city for construction globally. With high costs priced-in for the next twelve months and potentially beyond, collaboration across all levels of the supply chain and project teams is more important than ever. We were keen to explore how structures for collaboration are evolving in the region and how they could be further strengthened to keep up momentum.
We are at the beginning of a ‘Golden Decade’ where a series of set piece events kicked-off by the Commonwealth Games, combined with several high-profile infrastructure and regeneration projects have the potential to radically transform the prosperity and connectivity of the region, as well as tackling long-term inequality and deprivation that has for too long been our guilty secret hiding in full view.
However, there was agreement that these aspirations are being put under significant strain by rising costs and economic uncertainty. The growing challenge in securing funding, and the associated costs, resulted in a discussion in how perhaps the public sector could take an active role in bridging gaps, but this would in turn see a need for greater transparency from the private sector around costs and profit levels plus much greater collaboration and a new model of risk and reward sharing.
As part of its International Construction Costs 2022 report, Arcadis has pulled together a Five Point Plan to help navigate market volatility. One of the most important points of this plan is building resilience into projects and ensuring there are sufficient reserves within supply chains to adopt a ‘less is more’ approach to materials that can utilise circular economy principles, and also supporting longer-term sustainability objectives. These principles are actively being followed across the West Midlands from exploring approaches to scaling up modern methods of construction (MMC) in Wolverhampton to implementing AI and Machine Learning at Birmingham Airport to overcome supply chain challenges.
Making sure growth is inclusive and sustainable
Liam Byrne MP focused on the need for growth to be inclusive and described how the ‘Golden Decade’ needs to serve as a catalyst to knit together relationships and structures within the region to create a single voice for the future. Notably, the West Midlands has lacked an equivalent of the Northern Powerhouse Partnership and a vehicle such as this will be essential to aid collaboration and amplify voices.
Tim Johnson highlighted that local authorities are uniquely placed to ensure growth addresses social and economic inequality and unlock the latent potential of the region, by being able to take a longer-term view than Central Government. This potential is being realised in Wolverhampton, with the recent opening of the National Brownfield Institute at Wolverhampton University, which is helping to develop the technologies that will help address material and supply chain issues currently being faced by the construction industry. Martin Reeves further highlighted how the region’s Victorian infrastructure is hampering connectivity and holding back progress on dealing with inequality, and that investment needs to be driven towards connecting communities into wider economic uplift.
Clarity from Central Government
Another key ask from the session was greater clarity and certainty from the public sector, in particular from Central Government. Recent changes in personnel and a shift in focus from Westminster has undoubtedly been a hindrance and a potential pivot away from the Levelling Up agenda, at a time when it was finally starting to take shape and deliver impact, was seen as being particularly unhelpful.
If anything, this pattern of regular about-turns in regional strategy from Central Government was seen as only making the case stronger for local collaboration on long-term planning.
Assessing the potential of Investment Zones
Attention turned to the Government’s recently announced Investment Zones and their potential to help drive growth and prosperity. There was agreement that the policy was worth exploration for local authorities, but, as Tim Johnson said, “they won’t be a panacea for anything” without significant funding behind them. As for the potential relaxation of planning and other rules, this might be useful for some authorities, but most councils in the West Midlands have progressive planning policy with building encouraged on an ample supply of sites, the risk was that any ‘deregulation’ did not lead to a reduction in quality.
Overall, there was a feeling of confidence in the room that the region was up to the challenge of maintaining progress through the turbulent times that are ahead. Rather than leaning on outside assistance, it was felt that this is a time for the West Midlands to come up with its own solutions to its own problems, in the spirit of genuine collaboration, and as Liam Byrne MP put it, become the “masters of our own destiny”.