Supply chain

What issues face the Building Safety Fund (BSF) and its recipients?

The Building Safety Fund is set up to support the replacement of unsafe cladding

The government has announced an additional £3.5 billion extension to its Building Safety Fund. This provides additional support to rectify cladding on at-risk buildings over 18m tall. Many have pointed out that a key issue with the fund is that it won’t address the full range of fire safety issues in buildings. But is the funding enough to address unsafe cladding?

Based on TFT’s ongoing work supporting applications for these funds for building owners and developers, market forces pose a risk to an overall programme of re-cladding. Achieving swift and effective improvements to at-risk buildings may require additional funding and extended deadlines.

The Building Safety Fund is set up to support the replacement of unsafe cladding

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TFT’s project management specialists help mitigate our clients’ exposure to supply chain risks. However, fundamental supply issues will nonetheless lead to increased costs and timings for all involved with re-cladding buildings. In a worst case scenario this could lead some to compromise on the quality of the remedial work.

TFT currently provides project management and quantity surveying services covering 35 high rise buildings across the UK, supporting applications for the BSF grant fund. Our role is to manage a programme that fulfils the safety needs of each building, while also managing costs and timelines. The capital expenditure for TFT’s programme portfolio is over £100m.

Whilst the additional funding is welcome for the extensive scope of works required to make these buildings safe, the below issues give cause for concern:

Supply chain capacity: fire engineering services and cladding material

These works require specialist services, engineering advice and construction works. We have found increasing demand for key services over the last six months, including specialist fire engineering advice, façade engineering advice as well as construction services. This creates a bottle-neck in the market.

The result is that suppliers are challenged to deliver fully and to preferred deadlines. Pricing for these services is rising as one would expect in a market-place where demand outpaces supply, well beyond those which have been benchmarked over a year ago.

Material suppliers are also squeezed. There is limited stock of suitable insulation materials which have similar thermal properties, at the same physical thickness and which have a suitable fire rating. The limited availability of these materials is limited and there may be a lag while the market adjusts and increases the supply of these specialist materials. Otherwise, there are further issues around how buildings may be re-designed and detailed with thicker external walls.

The scale of the problem is becoming more fully understood as leaseholders and freeholders undertake investigations of their high risk buildings and understand the remediation solutions. There is a real risk of these costs spinning out of control and this additional funding again being insufficient.

How TFT manages demand

Our teams work together to manage market demand and avoid creating bottle-necks in resource or specialist service supply chains.

A collaborative online programme management approach allows us to share data between projects and balance the supply chain and demand, ensuring that no contractor or supplier is overburdened. We do this using online project management tools and data collection to ensure our analysis can be undertaken in real time and provide clients and the project teams access to all this information, as required.

While these measures help to manage TFT’s impact on suppliers, the wider market effects are still significant and will put pressure on all parties in the future.

Costs and priorities of fund allocation

As well as managing these escalating costs, building owners must be able to support a full and proper application for grant funding or risk rejection. Thousands of applications have already been turned down.

Whilst pre-tender support is available, there may be delays in commencing projects whilst this support is applied for and received. If building owners and leaseholders have forward funded these initial design and investigation costs, it’s not clear that they would get this money back in the event of a rejected application. There are significant costs just to gather the information to secure funding and meet the funding deadlines. This will challenge all but very large developers or funds to support the works.

In addition, it’s not clear how the fund prioritises funding and how the highest risk buildings are categorised. The current terms suggest a first-come-first-served system. More clarity on the priorities assigned to tall blocks, or those with limited fire protections, would be useful for applicants and for wider public information.

Using data and building records to avoid a repeat scenario

Once the funds are secured and supply chain issues navigated, the last thing building owners and residents will want is to repeat the process years down the line. Quality control on how the works will be monitored and certified as complete will be of the utmost importance.

In addition, we must ensure accurate record-keeping on the building and the works undertaken. This includes updating existing building operations and maintenance manuals. It may sound obvious, but in our investigations data on wall composition was inconsistent and leads to complications identifying risks and taking the right steps to fix these issues.

What should be done?

The process of removing and replacing cladding on at-risk buildings across the UK is a huge exercise for procurement and project management.

As project manager, TFT can mitigate clients’ exposure to market risks and the demands on specific supply chains. However, the government will need to consider additional costs and lengthened deadlines for all parties involved with re-cladding buildings, if there’s a risk that not doing so will lead to sub-standard work done this time, requiring additional improvements in the near future.

The rise of the contractor ‘Brexit clause’

Predictions from the UK property industry on the likely impact of Brexit continue to change and develop as negotiations progress. One of the more immediate concerns which face projects underway now and commencing soon is a possible trend towards contractors adding a ‘Brexit clause’ to the terms of their contract.

This clause relates to limiting the level of risk which contractors are willing to accept with respect to procurement and delivery of materials. Where contractors would normally take on the risks associated with importing materials, the ongoing Brexit discussions make for an unpredictable future process in which supply chains might be blocked or delayed beyond contractors’ control.

In cases where a Brexit clause is added to a contractor’s terms, the contractor is expecting the client to accept the risk involved in the form of project delays or cost fluctuations (as a result of tariffs or storage costs for example).

TFT is currently aware of a few instances of these amended Brexit clauses to date and advises clients that these are likely to become more common as uncertainty of the UK’s relationship with the EU continues, particularly if ultimately a “no deal” outcome is reached.

Our further advice to clients is to understand the supply chains for construction products and materials at an early stage to identify areas of risk. As an example, whilst a product may be produced by a UK manufacturer, it may have components from elsewhere all over the globe (or more importantly in this instance, from one of the 27 remaining EU countries). This level of scrutiny of the source of origin for products and materials will be beneficial from a risk perspective and may also be of benefit for sustainability reasons.

Additionally, it is worth clients and their advisors undertaking further due diligence during the contractor selection process to understand what contingency plans they have for managing some of the risks around importing of materials. For example, some contractors are already putting in place holding facilities either side of major ports such as Dover and Calais. With such facilities in place and with careful consideration of lead-in times, this will help to alleviate possible effects to programmes caused by importing delays.

Some contractors are also forward purchasing Euros to the value of supply chain commitments for goods and services from EU member states, to avoid the impact of currency fluctuations. In addition to the above, some contractors are looking to amend contract terms where if, following Brexit, there are more onerous changes to statute in the UK which were previously covered by EU legislation, the contractor is looking to push that risk back to the Employer.

If you have further questions relating to the nature of these Brexit clauses and next steps to resolve supply chain issues, please contact Dan Henn, Partner and Head of Development and Project Consultancy.