Public sector capital projects: building resilient supply chains

Public capital programmes are long. A hospital, school estate or depot programme can run for years, and its supply chain has to survive whatever happens in between. In 2026 that has meant sharp rises in steel prices, renewed strain on contractors and the approach of new carbon charges on imported materials. Sponsors who planned on a stable supply base are finding it less stable than the business case assumed.

The risks showing up in the data

Firstly, contractor and subcontractor fragility: Begbies Traynor's red flag report for the fourth quarter of 2025 counted 9,981 construction businesses in critical financial distress, with a further 108,213 in significant distress. Support services was close behind, at 9,618 in critical distress.

Secondly, material prices, and there will be multiple indices within this category: the Department for Business and Trade's building materials statistics show all work material price index up 6.4% in the year to August 2026. Underneath that, fabricated structural steel rose 21.2%, rigid pipes and fittings 15.5% and concrete reinforcing bars 12.5%, while cement and ready-mixed concrete fell slightly. A single inflation allowance across a cost plan will underprice a steel-frame package and overprice a groundworks one.

Thirdly, carbon pricing at the border starting in 2027: the UK carbon border adjustment mechanism starts on 1 January 2027 and covers imports of aluminium, cement, fertilisers, hydrogen, iron and steel. KPMG notes that construction and infrastructure will be affected indirectly, because steel and cement are essential to them, and that the first CBAM payment falls due by 31 May 2028. Projects with long procurement tails and imported steel or cement should expect that cost to appear in supplier pricing.

Fourthly, there is carbon disclosure: under PPN 006, which replaced PPN 06/21 for central government procurements advertised from 24 February 2025 under the Procurement Act 2023, departments, their agencies and non-departmental public bodies should make a carbon reduction plan a condition of participation for contracts worth more than £5 million a year. The plan must commit the supplier to net zero by 2050 for its UK operations. The NHS goes further. Pinsent Masons sets out that NHS England has required carbon reduction plans on all new procurements since April 2024, and that from April 2027 suppliers to new NHS procurements worth £5 million or more a year must publicly report emissions and targets covering all of Scope 1, 2 and 3.

There is a catch for capital projects. The Scope 3 subset in a PPN 006 plan covers transport, waste, business travel and commuting. It does not include purchased goods, which is where the embodied carbon in steel, concrete and aluminium sits. A compliant plan tells you about the contractor, not about your building.

And finally, competition for capacity: the government's 10 Year Infrastructure Strategy, published in June 2025, commits at least £725 billion over the decade, including more than £6 billion a year for hospital estates in England and school and college maintenance rising to almost £3 billion a year. NISTA, the new National Infrastructure and Service Transformation Authority, updated the infrastructure pipeline in March 2026 to 734 projects worth £718 billion, with modelled workforce demand of 629,000 to 706,000 workers a year over the next five years. That certainty is good news for planning. It also means your project will be bidding for the same fabricators, specialist subcontractors and labour as dozens of others.

Where projects usually go wrong

Most supply chain failures on capital projects are not surprises. The tier-two steel fabricator was always single-sourced. The main contractor's margin on a fixed-price package was always thin. Nobody owned the risk register line once the contract was signed.

A common pattern is that supply chain risk is assessed for the business case, priced once at award and then left alone until it materialises. However, resilience needs to be managed all the way through delivery.

What to do at each stage

At business case, build a material price range into the cost plan by package rather than a single figure, using the DBT indices to set different ranges for steel-heavy and concrete-heavy work. Identify which packages depend on CBAM goods and whether those come from UK or imported sources, because only imports carry the charge directly. Check the NISTA pipeline for other programmes in your region that will hit market at the same time.

At procurement, use what the Procurement Act 2023 regime now provides. For contracts above £5 million, the authority must set at least three key performance indicators. Choose those KPIs with supply chain resilience in mind, not only time and cost. Ask bidders to name their critical tier-two suppliers for the highest-risk packages, and score how credible their contingency is rather than whether one exists. Consider price adjustment mechanisms linked to published indices such as DBT's for energy-intensive materials. They share risk more honestly than fixed prices that a fragile contractor cannot actually hold. Alongside the carbon reduction plan, ask for an embodied carbon estimate for the main materials, so you have the baseline a CRP won't give you.

During delivery, the Act requires performance against those KPIs to be assessed at least once every twelve months and published, and poor performance can become a discretionary ground for excluding a supplier from future contracts. Treat that as the minimum. Monitor the financial health of key contractors and subcontractors monthly alongside progress against programme. Slower payment down the chain and late statutory filings are common early warning signs. Keep a short list of alternative suppliers for single-source packages and test it once, before you need it. Give someone on the client side clear ownership of supply chain risk through to handover, with a monthly review that reaches the senior responsible owner.

At handover, capture the actual embodied carbon and the supply chain lessons in a form the next project can use. Programmes that repeat across an estate, such as school rebuilds or hospital upgrades, can compound those lessons quickly.

The group's delivery team provides programme and interim operations leaders for public capital projects, and our free Resilience Stress Test gives a first view of where a supply chain is most exposed.