Latest analysis from the Building Cost Information Service (BCIS) finds that tender prices increased by an estimated average of 0.8% between the third and fourth quarters of 2024.
The increase resulted in 2.3% annual growth in the BCIS All-in Tender Price Index, down from a peak of 10.3% observed in spring (Q2) 2022.
Quantity surveyor Rider Levett Bucknall (RLB) has a slightly different number, forecasting tender price uplift for 2024 at 3.03%, slightly up from its previous forecast three months ago of 2.97%.
The BCIS general building cost index forecast shows cost figures going up by 2.89% this year and by 3.22% next year.
This suggests increasing pressure on margins as contractors move to refill order books, RLB said.
BCIS chief economist Dr David Crosthwaite said: “Our panellists suggested that procurement routes play a crucial role in tendering appetite and that contractors are increasingly risk-averse. The demise of ISG and others has reduced contractor capacity, making it harder to secure tender interest.”
He added: “Logistical challenges cited by panellists in the last quarter include supply chain disruptions from contractor insolvencies causing project delays and tender issues. They also pointed to long lead times for mechanical, electrical and plumbing (MEP) equipment, especially for data centres, which requires careful planning.”
Panellists also reported continuing concern about insolvencies, with the suggestion that the process of deciding and appointing contractors is being delayed by more thorough checks on solvency.
There was also a suggestion that the collapse of ISG is affecting the stability of the trade supply chain exposed to non-payment of debt and increases to bond financing.
The latest edition of RLB’s Construction Market Intelligence report says that while costs remain on an upward curve overall, there are clear indications of falls in producer price levels, in particular, for steel and timber products. For fabricated structural steel, the fall is recorded as being almost 7.5%. Looking ahead, fuel cost changes may again feed into this equation, as will undoubtedly the impact of increasing infrastructure spend incorporating large volumes of reinforced concrete and fabricated steel sections.
Turner & Townsend has also this week tuned up its tender price inflation forecasts, changing its prediction from 3.0 to 3.5% over the next two years for real estate, and from 4.5 to 5.0% for infrastructure – reversing the trend of softening inflation that has been seen since the end of the covid-19 pandemic.
Turner & Townsend’s report highlights that construction employment has fallen by 6.6% since spring 2022 and is now 11.0% lower than before covid. As a consequence, wage inflation is rising, with average rates 6.5% higher over the year to September 2024, and more for skilled workers.
One reason that overall inflationary predictions are not higher, is that new work orders in house-building have been falling – down 22% between the second and third quarters of this year, Turner & Townsend notes.
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