High Inflation and the Impact on Risk

March 31, 2023

As we are all acutely aware, inflation has risen sharply in recent months, driven by a broad range of items such as durables, energy, fuels and even used plant machinery all having gone up in price due to a number of widely acknowledged factors. Economists and the government suggest things have peaked, but this doesn’t mean the strong upward pressure on inflation is over. As I write this, the headline rate is still sitting in double figures and its fall is not expected to follow the same rapid rate it went up.

What does this mean for the drilling sector? Well, the biggest fear is a reversal of the progress made by the sector in promoting quality over lowest-cost wins. The BDA Audit, and all it embodies, has played a major role in this shift, but as budgets are squeezed, there is always the risk that this progress slips.

The BDA has spoken before of the dangers adopted by some organisations towards the procurement of ground investigation, where the pursuit of lowest price for some will always win over quality. I like to think, if only anecdotally, that this approach has lost favour in the last few years, and whilst ‘looking for a good price’ is sensible, much more weight is placed on quality, safety, professionalism, and reduced risk as a package of the overall cost.

Ever the optimist, I like to think that construction is now much more enlightened than ever. I know it has done much proactively to shed its old grubby ‘boys club’ image to now being a genuine career choice, full of opportunity and welcoming of all people into the sector. The sector is also having to continue to reduce its carbon emissions, driven by will, good customer-relations and even legislation, and this means the sustainability of projects are judged now on the efforts of all contractors and that includes the drilling sector.

Certainly, on the many bigger projects, with HS2 being a good example, tenders are won on factors such as a contractor’s sustainable credentials as much as it is on their price, and with ever tighter emissions requirements, the weighting will shift even further away from price. Of course, sustainability adds cost, either through investment in new low emissions plant and / or through the resources the contractor consumes, and this cost often has to be passed on.

However, the need to reduce our emissions and become more sustainable – once perceived as an eye-rolling topic, may now actually be our friend and a driver of quality over lowest cost. I generalise, but it would be hard to see how some companies in future will be able to cost a GI project to levels I have heard of and have any verifiable nod to sustainability. Also, any company that cares enough to place sustainability as one of its top priorities, will probably also care about safety, professionalism, and standards too.

For the moment, risk will always be managed via the cost-benefit model, and current inflation levels may impact this, but I am confident of the progress we as a sector have made so far and, thanks perhaps in part to sustainability,  that in the medium and long-term quality will continue to prevail!