Infrastructure

Coming out of the pandemic, the government set out an ambitious £600bn infrastructure budget to help stimulate growth and achieve the UK's net-zero climate change targets. It remains unclear how this investment policy may change in the months and years ahead, creating uncertainty within the sector.

With overspends on large infrastructure projects remaining stubbornly difficult to eradicate, there remains pressure on the sector to reform procurement processes. We see this as coming under even more focus and scrutiny in the future, requiring contractors to be ever-more cautious on pricing and terms to ensure projects are delivered profitably and punctually.

However, project finance presents a more immediate challenge. A prolonged period of low borrowing costs has, for the past decade or more, supported the private financing of major infrastructure projects. With the era of ultra-low interest rates coming to an end, the availability of funds to underpin the delivery of complex long-term projects is in greater doubt.

Brexit and political uncertainty continue to drive a re-examining of current operations and procedures. Skilled worker shortages, rising material costs and trade tariffs may impact the sector more widely and over the longer term. We see several larger infrastructure contractors already considering non-core asset disposals, with the trend likely to accelerate in the medium-term.

Extended tender processes are becoming increasingly common, pushing up cost, especially where tenderers are unsuccessful. In addition, increased regulatory focus may lead to further cost rises for suppliers.