How to plan for global market volatility

The UK construction industry is facing an increasingly challenging landscape, shaped by global market conditions and uncertainty.

Inflation, volatile material and energy costs, as well as disruption to the supply chain, have negatively impacted professionals' ability to maintain cost certainty on construction projects.

New regulatory requirements in the last three years have extended governance and approval timelines, as well as introducing additional administrative burdens.

In addition, cash flow issues have led to increased insolvencies throughout the supply chain.

Generally, the industry accepts and expects changes during the life cycle of the project, which are accounted for at contract set-up such as mechanisms within standard form contracts to manage inflation.

However, in recent months, the speed, scale and duration of unexpected changes has made it harder to predict and manage projects.

For clients, this environment is not simply a pricing challenge; it fundamentally alters how projects should be planned, procured and delivered.

Those who fail to adapt risk cost escalation, programme delay and reduced resilience across their supply chains.

This makes production of energy-intensive building materials such as steel and concrete more expensive, which can feed into higher tender prices.

Figure 1 shows that spot prices for Brent Crude, the benchmark crude oil for Europe, have been fluctuating since its peak at the start of March 2026.

This movement reflects a sharp repricing in response to a supply shock, followed by a period of correction. 

Continued volatility suggests that the market is unsure how long supply constraints will continue.

This constant reassessment of risk after a spike in price differs from recent oil shocks, for example, the rise from June 2020 to early 2022, which was driven by recovering global demand after COVID-19 and the slow release of supply by the members of the Organisation of the Petroleum Export Countries (OPEC+).

Then in February 2022, the Russian-Ukraine conflict acted as another impact on supply in an already tight market.

When planning construction projects, clients should prepare for potential fluctuations in energy prices and try to avoid the associated cost escalation risk by making contract allowances at the outset.

The primary impact on shipping has been an increase in insurance premiums. 

The Insurance Journal reports that in some instances, particularly in affected areas, coverage is reaching around 5% of the value of a ship, equating to a cost of several million pounds per voyage for a standard tanker.

However, despite the current closure of the Strait of Hormuz, global shipping routes appear broadly stable.

As a result of the Red Sea Crisis a significant share of long-distance shipping vessels had already started to make the journey around the Cape of Good Hope in 2023.

Thus, current cost increases are being driven by risk pricing rather than large scale rerouting of vessels.

The potential risk of programme delay due to global shipping can be mitigated by reviewing the project's delivery schedule.  

Clients should frequently review material lead times and seek to order materials earlier than was previously necessary.

Rising energy prices have increased production costs, but this has not to date translated into widespread material shortages on UK construction projects.

Figure 2 shows that although construction costs have risen in recent months the overall trajectory remains relatively flat compared to the sharp inflation seen in 2021 and 2022.

Modelling from the Building Cost Information Services (BCIS) at the end of last year suggests that material cost inflation was subdued at the end of 2025, only recording a quarterly increase of 0.2%.

Weak activity and demand conditions, evidenced by construction new orders falling 4.1% in Q1 2026 suggests that contractors and suppliers have limited pricing power, restricting their ability to pass higher input costs through to clients.

However, this trend has already begun to shift, with planning applications increasing by 12.7% as seen in Turner & Townsend's Q2 2026 UK market insight report.

In May 2026, the International Monetary Fund revised its UK growth forecast up from 0.8% to 1%, signalling a potential improvement in economic activity.

As construction activity is closely linked to economic growth and investment, the improved outlook may support construction demand over the next six to 12 months. 

This could allow contractors and suppliers to regain pricing power and thus pass more of the increase in input costs into tender prices.

Generally, clients should consider this uncertainty and trending steady rise in construction material costs when they are creating their pricing strategies at the start of the project.

They should also review their procurement strategy and ensure that where possible, contingencies are in place allowing materials to be sourced from the most suitable supplier at any given time.

Price volatility in the key areas discussed above has made accurate forecasting more difficult, forcing contractors and developers to build larger contingencies into project budgets. 

This lack of cost certainty is likely to have a direct impact on cash flow throughout the supply chain.

Contractors are increasingly seeking to avoid being locked into fixed price contracts and instead are looking to share the commercial risk with clients or requesting more favourable cost-reimbursable contracts such as JCT's target cost contract or NEC4 Option C.

At the same time, governance frameworks and approval processes have become more stringent.

The Building Safety Act has introduced enhanced regulatory requirements across key stages of the project life cycle, influencing both programme certainty and delivery processes.

Although these increased measures improve quality and accountability, they also extend timelines and increase administrative overhead. Developers must factor in longer approval cycles and higher compliance costs as a consequence.

Financial stress across the sector has resulted in a growing number of insolvencies. Recent industry developments, including the insolvency of Ardmore Construction, have also brought into focus the potential exposure associated with legacy project liabilities.

Each insolvency introduces delays, increases procurement risk and often leads to additional costs as replacement contractors are sourced at short notice.

With the potential pool of contractors reducing, the approach to costing projects and managing risks is changing, highlighting that the wider volatile market conditions have an impact throughout the supply chain.

Although the rate of increase of insolvencies has slowed in recent years, it is still trending upwards, with Q4 2025 up 0.7% on the previous quarter.

A more proactive approach to risk management with continuous monitoring should be carried through both the planning and delivery stages.

There are four main areas that clients and the wider supply chain should review to ensure that they alleviate the impacts of volatile markets.

Commercial strategy: during project delivery, good cash flow management is essential. Tighter control of payment cycles, prompt valuation and certification processes as well as clear communication between stakeholders will help to minimise disputes.

Continual viability checks are required to ensure the project benefits are still being realised in a commercially achievable way.

Contract and procurement strategy: by selecting the best contract form and terms, commercial risks will be shared more appropriately between the parties.

Creating shared incentive mechanisms at the outset encourages all parties to work collaboratively, while price adjustment strategies should allow for flexibility in the face of inflation, increasing cost certainty.

Cost intelligence and forecasting: robust cost planning is crucial to project success, allowing parties to make informed, real-time decisions.

Involving key subcontractors and suppliers at the design phase will introduce current pricing intelligence, identify potential material availability issues and can help improve the design.

Supply chain resilience: financial resilience should be assessed upfront. This includes thorough due diligence on suppliers’ financial health that ensures they have the capacity to deliver and avoiding over-reliance on single-source providers.

Diversifying the supply chain geographically and commercially can reduce exposure to disruption caused by current and future challenges to the market.

There are of course many other mitigation mechanisms that can be put in place and careful consideration of the project-specific information will inform the best approach to take.