Skills shortage = recovery slowdown

According to the 2016 Bruce Shaw Handbook, output of the Irish construction industry in 2015 was approximately €12.5billion which represented an increase of 14% over the previous year.

The firm expects recovery in the industry to accelerate this year and is predicting an output level of just over €15billion, representing an annual increase of 21%. While such a recovery is to be welcomed, says the consultancy firm, it’s worth remembering that at €15billion the industry output will still only be at approximately 40% of the 2007 peak output of over €38billion.

This level of output was unsustainably high but our current level – which represents 7.6% of GNP – is still well below the recognised European sustainable level of 10% to 12%. Using this metric the output of the Irish construction industry should be between €20BIillion and €24billion.

The firm has also commented on the numerous challenges and risks that pose a threat to the industry’s fragile recovery, one of which relates to resource levels in the sector. A skills shortage in key building trades from electrical and glazing to plastering is threatening to put the brakes on the industry’s revival.

“During the recession, construction suffered the highest number of company failures of any industry. Employment in construction also fell to a quarter of its peak level. These skills shortages are now manifesting themselves and will take time to correct. It takes four to five years to train construction professionals and a similar timescale to train skilled craftsmen.”

Experts at the firm warn that the industry is currently experiencing shortages in specialist trades, such as mechanical and electrical services, and increasingly also in traditional trades such as steel fixing and plastering.

“These shortages are impacting on tender levels and construction inflation levels are running well ahead of general inflation.”

As activity in the construction industry picks up, tender prices are continuing to rise and the gap between these and the input costs of labour and materials is steadily closing, according to the Handbook.

The firm’s research shows that, on average, tender prices rose by 6% during 2015 while construction input costs rose on average by just 1%. During 2016 the firm says it expects to see input costs increase by approximately 2%, reflecting pressure to increase wage rates and also increased costs of imported materials.

“We predict that tender prices will increase at a faster pace of 7% on average, due to the reduced number of main contractors and sub-contractors and the skills shortage in specialist trades especially glazing/curtain walling, mechanical and electrical services as well as more traditional trades such as steel fixing and plastering. Increases in tenders will be greater in the Dublin area than in provincial locations.”

Bruce Shaw says this increase in tender prices emphasises the importance of providing for future construction inflation in feasibility studies. It is also becoming more important to conduct detailed pre-qualification/due diligence when preparing tender lists for new projects.

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