Resilience, Growth and Prosperity

Rob Driscoll, ECA’s Director of Legal & Business, explains how ECA provides both market analysis and practical support for Member businesses in light of recent global events.

Rob Driscoll is the leading voice for engineering services within the Construction Leadership Council’s Product Availability Group. CLC PAG is monitoring any potential impact on the availability and cost of construction products as a result of the conflict in the Red Sea, which has seen the cost of shipping between China and Europe more than triple since mid‐December and delays of up to two weeks being reported.

The Suez Canal, a vital passage for 18% of global trade, is currently at risk. It is crucial for the transit of about 20% of the world's oil and 25% of global LNG (liquified natural gas) trade. In Europe-Asia trade, 40% usually passes through the Red Sea, with the alternative route around the Horn of Africa costing around $1 million (€920,000) extra in fuel costs for a round trip.

World Trade Organisation Director-General Ngozi Okonjo-Iweala has cautioned that geopolitical conflicts, including those in the Red Sea and Suez Canal, could substantially disrupt the 2024 global trade recovery.

DP World's Chief Finance Officer, Yuvraj Narayan, at last week's World Economic Forum in Davos, stated: "The cost of goods into Europe from Asia will be significantly higher [and] European consumers will feel the pain."

The cost of shipping goods from Southeast Asia to Europe has soared to more than $6,000 (€5,500), a near tripling from the previous month and posing a risk of supply chain disruption and price hikes, just as global inflation has shown signs of abating.

The issue is mainly going to impact products originating from China, i.e. electrotechnical.

Just when we thought 2022 was the year of hyperinflation, Rob warns that 2024 could prove even more tricky. But the ECA team have produced contractual advice on negotiating new and existing contracts to take issues arising from inflation and market volatility into account – read on and click here for more details.

ECA’s team continually scans the economic and business horizon to provide Members with market foresight and to inform industry policy makers. Recent data highlights three particular challenges to be aware of in the coming months: 

• Watch out for constricting cash flow as interest rates reset to a 60-year, pre-2010 financial crash norm. After the 2008 financial crash, bank lending across the economy dipped by 5%, but in construction, that figure was 38%. At the same time, payment periods doubled or tripled. This was an indication that companies were using creditors as an alternative (and cheaper) source of finance to support their own businesses. Be aware that this could happen again.
• Insolvencies are on the rise, with a 20% year-on-year hike so far. Our advice is to be particularly diligent and look for payment security and tight credit control periods, systems and processes. Don’t let delayed payment by historically good clients take you down with them, if it comes to that. While regular customers are a source of ongoing work, avoid financing their operations to your own detriment. It’s vital to balance the risk and reward.
• Assess the materials supply risk to your business should the China/Taiwan situation deteriorate even further. This risk isn’t like Covid or Russia/Ukraine, which were unforeseeable situations. Financial institutions and housebuilders are already quietly performing risk assessments.

In addition to market insight, continual contact with Members allows the ECA team to see what is happening across the entire engineering services sector. We understand common practice, and what others are doing in terms of innovation and productivity gains, and we share that learning. In essence, as a business owner, operator or manager, ECA can provide you with a wider pool not just of industry knowledge, but also support. 

And support is increasingly important. For the first time in my career, we are dealing with a growing number of severe mental well-being challenges arising from risk and commercial jeopardy. Running a business can be lonely, with what may seem  like the weight of the world on your shoulders. ECA is ready to help with non-judgemental and highly confidential business support, as well as being able to signpost to the excellent support available from the Electrical Industries Charity. 

ECA’s strength is in our Members and our reach. These factors allow us to take the lessons learned from dealing with the thousands of enquiries a year and provide the answers to common, and even exceptional, questions. The trading environment may shift like tectonic plates, but many of the predicaments remain the same. And if we don’t immediately know the answers, we can identify those who are best placed to help. 

Regarding legal and commercial support, our most common Member questions continue to be on payment (including retentions). Whether there is an alleged failure of design, install, materials or maintenance, clients often stop payments to leverage their position.

ECA provides template contracts to help protect your business, recover your cash and reduce the risk of losing money on projects. In addition, we provide guidance notes on standard practice for our industry so that you can benchmark your approach. Our objective is to enable and empower your business to improve. While we are not an outsourced law firm, we are your trusted, intuitive business advisor.

When it comes to the stickier legal and contractual situations, we will tell you what you need to hear, even if it doesn’t align with what you want to hear.  Our role in these situations is dispute avoidance, loss mitigation and extricating you with minimal exposure to loss. You will be the first and best advocate on technical and cost issues, but we will coach, guide and support you as you represent yourself.

Members can also access a range of ready-made documents, including collateral warranties, bonds, guarantees, ownership of materials, variations, design liability, materials agreements, R&D tax credits, vesting certificates, off-site materials agreements, insurance issues and more. If it’s needed for your business, we’ve probably covered it, and we continually review and add advisory content.

We also tackle more pioneering issues like smart contracts, blockchain and the contractual issues surrounding BIM.  Our work on designing the digital blueprint for payment encouraged payment tech start-ups to the UK. Now, the Cabinet Office, Construction Leadership Council and many players see ECA as the leading influencer in this space, which allows us to put your interests directly into policy decisions.

In these challenging times, ECA Membership offers practical legal and business support within a business community of like-minded people. Membership means being part of something bigger and knowing you don’t have to do it alone. Together, we can maintain our resilience and pursue best practice, to build growth and achieve prosperity even in the most challenging times. 

* Members can access ECA’s library of FREE resources to support business resilience:

eca.co.uk/business-industry-support/commercial-and-contracts/a-z-of-guides-and-templates