Tender Prices Forecast to Rise by Over Fifth in 5 Years

TENDER PRICES are expected to continue rising over the remainder of 2021.This is due to a range of pressures on contractors, finds the BCIS Materials Cost Index report.

In its latest five-year forecast, the report says that in recent months the combined effects of COVID-19 and Brexit have put pressure on supply prices at a time when demand is starting to recover.

Other pressures include contractors no longer being able to absorb the additional cost of following social distancing. Additionally, a number of contractors are going into liquidation, there’s strong upward pressure from input costs, rising demand, and material shortages.

By Q4 2021, it is assumed that social distancing is no longer required, but there is a risk of it continuing if new variants become a problem.

As a result, tender prices are expected to rise by 3.4% in Q1 2022 compared with a year earlier.

Over the second year of the forecast period, tender prices are expected to rise a little faster than input costs as output continues to rise quite strongly in 2022. With demand increasing over the remainder of the forecast, and with less contractors in the market (liquidations during COVID-19), tender prices are forecast to rise ahead of input costs, by around 4% per annum.

Assuming access to European labour returns in the latter part of the forecast period increasing the supply of labour, this may dampen tender price increases, with lower site rates.

Tender Prices

Tender prices will rise by 21% over the forecast period (1Q2021 to 1Q2026).

The BCIS Materials Cost Index shows that, provisionally, materials prices rose by 2.7% in Q1 2021 compared with the previous quarter, and by 5.6% compared with a year earlier.

The prices of steel products and aggregate have already had a sharp increase in January/February 2021. However, the price of aggregates fell back in March 2021.

The forecast for Q2 2021 shows an increase of 2.6% compared with Q1 2021, and a 7.2% annual increase.

Imports

The price of some imported materials is expected to rise quite sharply as a result of increased administration costs and delays at UK ports. The delays at ports are easing and are expected continue over the first half of 2021. Similarly, shipping costs have risen very sharply and are likely to be reflected in temporary surcharges.

Material Costs

Materials prices will rise by 19% over the forecast period (1Q2021 to 1Q2026). The main risks to materials prices will be difficulty in obtaining materials during the Covid-19 crisis, oil prices, tariffs on imports (from countries with no current agreement) and Sterling exchange rates.

Building Costs

Building costs will rise by 17% over the forecast period (Q1 2021 to Q1 2026).

New construction output will rise by 31% over the forecast period (2025 compared with 2020). This increase is exaggerated by the pandemic-induced 15% fall in 2020. The latest lockdown did not have much of an effect on construction, and the vaccine programme is expected to be more or less completed by Q3 2021.

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