Mace predicts tender cost inflation

'The Scalpel' is a project held up by the recession, and now set to go ahead. Photo: WRBC
'The Scalpel' is a project held up by the recession, and now set to go ahead. Photo: WRBC

Tender price inflation is set to be pushed upwards as a number of shelved major construction projects in London are being brought forward by clients, according to contractor Mace.

 

Mace Cost Consultancy’s latest UK tender cost update for Q4 sees it revise its 2014 tender price inflation upwards from 4.5% to 5% by the end of the year.

 

The consultancy points out that continuing growth in the capital city means contractors are taking a more measured view about the jobs they go for.

 

This growth is expected to be good for employment prospects, with upward pressure on wages inevitable and likely to lead to increasing costs across the supply chain in the medium term.

 

Mace Cost Consultancy managing director Chris Goldthorpe added that firms are more “reluctant to engage in projects that are perceived as risky, either from a procurement or a construction point of view”.

 

Findings from the consultancy’s Q4 survey confirmed an improvement in the market that was established last year, with respondents reporting that workload over the last 12 months has increased by an average of over 20%. Outlook for the next 12 months is also positive with workload expected to increase by an average of 14%.

 

Tender price forecasts for 2015 and 2016 stand at 4.5% and 4.0% respectively as spikes in demand are expected to moderate and industry capacity increases.

 

Outside London Mace said there is sufficient capacity to meet demand generally. It added that continuing economic growth is expected to gradually increase demand for construction and allow contractors and supply chains to pass on cost increases as inflationary pressures start to reappear over the forecast period.

 

Survey respondents indicated anxiety about the availability of suitable labour and the likelihood of increasing costs in the medium term. There was also uncertainty about the possible effects of future interest rate rises and the 2015 General Election.

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