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Publish Date : 06-Feb-2015

Mace has published its Tender Cost Update for the UK market, increasing its 2015 forecast for tender cost inflation nationally to 4.5% and in London to 5.5%, both up 1.0% from the previous quarter. The tender cost increase in this month’s report comes as a result of the growing demand in most regions and improving contractor margins. Mace found that due to the strength of demand across the country and the diminishing labour resources, contractors and sub-contractors are capable of filling their order books without the need for aggressive pricing, while still being able to increase profit margins.

With overheads and profit margins now increasing for main contractors and sub-contractors, Mace has predicted that this combined effect, along with a further tightening of the market, will push tender prices up at above the level of general inflation.
Mace forecasts that steady inflation will increase tender prices nationally by 4% in 2016 and 2017 with prices in London also rising by 4% in 2016 but slowing to 3.5% in 2017. However, Mace warns that while the industry comes to terms with this growing demand, the shortage of some skills that the industry is currently facing will remain.

Looking ahead, Mace warns that there are concerns about the effect the slower European economy will have on the UK, and the uncertainty surrounding the impact of the Greek General Election on the wider economic outlook. The worldwide drop in oil prices, which has seen a decrease in levels of inflation, will also continue to have an impact. Although this is expected to continue through 2015, Mace predicts that the effect will eventually fall away while general inflation should remain subdued for the next two to three years at least.

Mace Director for Cost Consultancy, Chris Goldthorpe, said: “Having lived through six years of recession, contractors are now taking the opportunity to improve margins and continue to be selective in the projects they are willing to undertake. Projects that are complex or have specific difficulties to overcome need flexible procurement methods and skilled negotiation in order to achieve value for the client.” Mace’s Cost Consultancy business produces a quarterly UK Tender Cost Update, offering a snapshot of construction market conditions and movements to help businesses spot and understand trends across the industry and plan accordingly.

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