Tender Prices Forecast to Rise by 21%

TENDER PRICES are under pressure from the sharply rising materials prices and longer supply times, according to the Building Cost Information Services from RICS.

Tender prices will rise by 21% over the forecast period of 2021 to 2026, BCIS says.

Next year, tender prices are expected to rise by 3.9% in Q2 compared with the same quarter in 2021, driven, in particular, by sharp materials cost increases and longer supply times.

Tender Prices

With demand increasing over the remainder of the forecast, and with less contractors in the market due to liquidations during the pandemic, tender prices are forecast to increase faster than input costs, rising by around 3% to 4% each year. If the access to European labour returns in the latter part of the forecast period it will ease the pressure on site rates and tender prices.

Although government guidance removed social distancing requirements on site in mid-July, contractors seem unlikely to change their Standard Operating Procedures immediately.

Materials Costs

The BCIS Materials Cost Index shows that materials prices rose by 4.6% in Q2 2021 compared with the previous quarter, and by 10.0% compared with a year earlier.

The forecast for the third quarter in 2021 shows an increase of 2.8% compared with the previous quarter 2021, and a 13.1% annual increase.

Anecdotally, there has been a lot of concern about materials shortages this year, which has been reflected in longer lead times, higher prices and price volatility.

Materials shortages have resulted from a combination of a number of factors:

• Covid-19 has affected supply from mills and factories
• supply chain bottlenecks due to global demand shocks
• shortage of haulage drivers
• container shortages and port delays
• construction demand fluctuations – sharp falls in the first half of 2020 followed by a steep recovery since
• increased administration at UK ports affecting imports and exports due to UK EU Trade and Cooperation Agreement (Brexit)
• sharp rises in shipping costs and temporary surcharges.

Longer Lead Times

Longer lead times for the supply of materials are likely to be reflected in the BCIS Market Conditions Index, with additional preliminaries costs, and will put upward pressure on tender prices.

The Construction Leadership Council (CLC) has called for the inclusion of new contract clauses to allow for sharing the risk of sharp increases in materials. BCIS says we may see a return to fluctuating price contracts for longer contract periods, but this is not allowed for in its forecasts.

Materials prices will rise by 15% over the forecast period (2021 to 2026). The main risks to materials prices will be difficulty in obtaining materials during the Covid-19 crisis, oil prices, tariffs on imports. Building costs will also rise by 15% over the next five years.

New construction output will rise by 31% over the forecast period (2025 compared with 2020). This increase is exaggerated by the pandemic-induced 16% fall in 2020.

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