The only constant in life is change: Construction in 2025

Heraclitus’ phrase ‘the only constant in life is change’ seems more fitting than ever for 2025. This year is expected to bring both national and global changes both known and unknown to the UK construction industry. Some changes are part of existing trends whilst other changes are chimeras waiting to take the stage. So, what’s in store?

The Procurement Act 2023

The Procurement Act 2023 is coming into force on 24 February 2024. It has been described as a revolution in procurement rules which replaces European Union procurement directives and regulations, consolidating the new rules into a single act.

Public bodies and entities involved the construction industry should be aware of the changes which will apply to all new contracts with public bodies from 24 February 2024.

Some of the main changes include:

1. the reduction of procurement procedures to 3 options: direct award, competitive tendering procedure or an award under an existing framework;
2. the creation of a new Procurement Review Unit (PRU) which will both support public bodies in complying with the Act and be the main point of contact for suppliers who are seeking redress;
3. the creation of a new central digital platform for use by public bodies, to create greater transparency with the publication of more information on public contracts; and
4. a statutory obligation on public bodies to have regard to any National Procurement Policy Statement.

Building Safety

The government published its Remediation Acceleration Plan (RAP) on 2 December 2024 to increase the pace of remediation of unsafe cladding.

The plan sets out goals to remediate all buildings over 18 metres by the end of 2029, and in relation to buildings over 11 metres, either remediate, have a completion date for remediation or impose severe penalties on landlords for not remediating by the end of 2029.

The plan also confirms that the Building Safety Levy will come into force in Autumn 2025. The levy will apply to all new residential buildings that require building control. Any application made after the date the levy comes into force will be subject to a levy.

To implement RAP, legislation is expected to be introduced to strengthen the powers of the Building Safety Regulator and create a comprehensive building register.

A long-term strategy for remediation of social housing is also expected to be published in the spring.

For further commentary our article The law of property.

COP30

The 2025 UN Climate Change Conference (COP30) will convene in November 2025 in Brazil. One of the main themes will be “renewal energy technologies and low-carbon solutions”.

We can expect further commitments from national governments to adopt more strategies to encourage the use of renewable technology in new and existing buildings.

Payment

A new Fair Payment Code will be introduced which will function as a voluntary accreditation scheme. Businesses can apply for a Gold, Silver or Bronze Award depending on their payment history. Since the scheme is voluntary, it will be interesting to observe any domino effect should any major companies apply for an award.

The Reporting Payment Practices and Performance (Amendment) Regulations 2024 come into force on 5 April 2025 which increase the payment reporting obligations of medium and large businesses. The regulations introduce two new bi-annual reporting requirements for a medium or large business to report on the value of the invoices it paid late and the percentage of the invoices it disputed during a reporting period.

A medium or large business for the purpose of the regulations is a “qualifying company” as more fully defined in section 5 of The Reporting on Payment Practices and Performance Regulations 2017, but broadly speaking this means either companies or LLPs which on their last 2 balance sheet dates exceeded two or three of the general thresholds for medium-sized businesses under section 465(3) Companies Act 2006 which are:

1. For financial years beginning before 6 April 2025:

• an annual turnover greater than £36 million;
• a balance sheet total greater than £18 million; or
• an average number of employees greater than 250.

2. For financial years beginning on or after 6 April 2025:

• an annual turnover greater than £54 million;
• a balance sheet total greater than £27 million; or
• an average number of employees greater than 250.

The government is also seeking to introduce further secondary legislation to require specific reporting on retentions held under construction contracts. Specific reporting on retentions held under construction contracts is not currently required. This legislation is currently being debated by parliament and seeks to increase transparency related to medium and large businesses’ retention practices by requiring them to report on:

1. whether a firm includes retention clauses;
2. if yes, whether the retention clauses are included in all its construction contracts or whether this applies only to construction contracts of a certain value;
3. the percentage ratio of the amount of retention withheld from the firm by its clients as against which the firm holds on its suppliers; and
4. the percentage ratio of the amount of retention the firm withheld from gross payments made to suppliers as against the gross amount paid to suppliers during the reporting period.

The government believes these metrics will help provide smaller firms with better information about a large business’ retention payment practices.

New payment reporting obligations are also being introduced for public contracts worth over £5 million procured under the Procurement Act 2023. These contracts will from 24 February 2025 be subject to Procurement Policy Note (PPN) 015 which requires suppliers to demonstrate that they have paid of 95% of their invoices within 60 days and have paid all of their invoices within an average of 55 days.

In addition, PPN 018 comes into force on 1 October 2025 which reduces the requirement for all invoices to be paid within an average of 55 days to 45 days. Failure to adhere to the requirements of PNN 015 & 018 will result in a firm’s removal from the bidding process for public contracts.

War in the Ukraine

The effects of war in the Ukraine on the increased costs of supplies will continue as the war enters its third year. The continued ban on Russian and Belarussian steel and Ukraine’s closures of its steelworks will continue to inflate the cost of steel on the global market.

Moreover, the continued ban on Russian oil will also increase the global cost of oil. Russia produced over 10% of the world’s oil in 2024 and would ordinarily export over 6% of its oil onto the global market. The knock-on effect of the cost of energy for construction projects will likely remain in 2025.

Trump

The incoming presidency of Donald Trump is also expected to bring both difficulties and opportunities to the UK construction industry.

A successful bilateral trade deal between the US & UK could lead to preferential tariffs which may open up the UK to the US’ vast natural resources, including oil and timber.

Surprisingly, the incoming US administration has previously endorsed a focus on green energy and sustainable building. This may lead to greater collaboration on green technology between in the two countries which could lead to greater innovation in “green” construction.

On the other hand, Trump’s America first protectionist tariffs could start a global trade war, increasing the prices of raw materials essential to the construction industry. It is unclear at this stage whether these policies will affect the UK market, particularly in the absence of a trade deal.

Inflation

Inflation is expected to fluctuate between 2% and 3% in 2025 and 2026. The Bank of England target of reducing inflation to 2% is unlikely to be reached until 2027. Construction costs will therefore continue to increase in line with inflation (in addition to other market increases) throughout the course of 2025 and into 2026.

The Construction Leadership Council’s final statement for 2024 indicated construction material price increases of between 3% and 8%. This may make it difficult for contractors and consultants to correctly price projects, who may refuse to work on a fixed fee basis. Conversely, employers naturally will be cautious to agree too wide fluctuation provisions.

All of this may result in a reduction in construction projects beginning in 2025 and an increase in insolvency for both existing and new projects.

Conclusion

There is no glass ball or Palantir to gaze into the next 12 months which undoubtedly will contain a tangled web of risks. Some of these risks may have real effects and some may not materialise.

Whatever 2025 brings our dedicated construction team are ready to help you navigate every obstacle.