UK Contractors’ Top 10 Risks: Research Findings

What are the most pressing business risks identified by the UK’s leading construction companies? Read this summary of the key findings in our new white paper, the Contractor Risk Review 2020.

The UK construction industry has faced a multitude of challenges recently. Whether getting to grips with Brexit, tackling skills shortages, adopting new practices to improve employee mental health, or negotiating the labyrinth of digital and data risks, contractors have had to show their mettle in order to get the job done.

In addition, the industry has had to address important issues regarding building safety following the Grenfell tragedy. It’s also had to weather the Carillion collapse and the “Beast from the East” storms in early 2018, and balance worker safety with project deadlines during the COVID-19 pandemic.

How do leading UK contractors quantify and manage the myriad of risks arising from their onsite and offsite activities, and the external factors beyond their control? Their top 10 threats are identified and analysed in our new whitepaper, the Contractor Risk Review (CRR) 2020, which is available for download now.

This content gives an overview of the risks identified and analysed in the main CRR document.

How we uncovered the key threats to UK contractors’ operations

We focused on the UK’s largest contractors by revenue that are involved in civil engineering and/or construction projects, and who make their business reports publicly available. The company reporting periods analysed were 2017–18 and 2018–19. The COVID-19 outbreak is outside of our survey period, so its implications will be examined in future CRR editions.

How industry leaders ranked their top 10 business risks

Political, Economic, and Market Exposure is their number one risk. It arises out of changes in political and economic climates in the UK and globally, along with changes in competitors’ behaviour. Widespread Brexit uncertainty makes it no surprise it has featured so highly in recent years. Combined with the devastating impact of the pandemic, it is likely to remain high on the list next year.

Health and Safety takes joint second place. This relates to the physical dangers inherent in onsite construction work, and the likelihood of contracting industrial diseases. Other contributing factors to its high position could be the increasing cost of Health and Safety Executive investigations, and the threat of imprisonment for directors of negligent companies. COVID-19 will no doubt amplify the perception of this risk in the next edition of the CRR.

The other joint second place risk is Financial Practice, which relates to poor financial discipline that could restrict a company’s ability to achieve market growth or take investment decisions. Its high ranking could be related to the construction industry’s traditionally thin margins, coupled with memories of recent contractor insolvencies.

Project Delivery and Contract Disputes, in fourth place, consists of the failure to manage the delivery of projects to required specifications within the planned time and cost. The ranking of this risk could again be related to low margins within the industry. It could also be exacerbated by the ongoing shortage of skilled workers, the impact of which could increase with the reduction in skilled migrant workers following Brexit.

In fifth place, Attracting and Retaining Employees again reflects the skills shortage that has long affected the construction industry, and which could be impacted by Brexit.

Data Governance and Cybersecurity places relatively low (sixth place) in this year’s CRR compared to other industry risk surveys. However, recent ransomware attacks suffered by contractors could see this move up the list in the future.

Implementation of Business Strategy (seventh place) concerns a failure to undertake business strategies and transformation programmes. This risk could affect competitiveness, slow the momentum created by transformation programmes, and result in lost opportunities.

Bidding and Contract Selection (joint eighth place) arises out of a company’s failure to identify and undertake work within its core competencies. An inability to secure new work could affect a firm’s ability to diversify, leading to missed profit targets.

Counterparty and Supply Chain Engagement (joint eighth) emerges from the failure of a supplier or subcontractor in delivery of their scope of work. This is another risk that could have its roots in the chronic construction skills shortage. However, its relatively low ranking could indicate that it is responding positively to the mitigation measures being used.

Environment and Sustainability takes joint tenth place and arises out of construction activity’s adverse impact on surrounding areas. The definition of what constitutes a risk expanded during our survey period, as did the amount and type of mitigation employed.

Business Conduct, Ethics and Reputation, the other joint tenth place risk, involves default on compliance requirements, fraud, deception, false claims, and human rights abuses.  The consequences are grave for companies whose workers and related third parties (such as agents, partners, or subcontractors) fail to observe the highest standards of integrity.

What are the risks of the future?

Possibly, there are no huge surprises in the risk categories and rankings themselves, but contractors do perceive these risks differently in both importance and content and are engaged across the spectrum on a range of risk mitigation activities.

As the construction insurance market continues to transition, it has never been more important to deploy the most effective risk reduction methods. The CRR 2020 may offer some help with this.

We hope to produce a similar report next year, when it will be interesting to see if Brexit uncovers risks thus far not predicted and to discover whether cyber risks and data governance moves up in importance. While COVID-19 fell outside the period of our review, it is fully expected that pandemic will move from a risk with little acknowledgment, to a subject in itself, crossing every category of risk management.