BCIS tender price index – estimate of tender price inflation

Tender price index, estimate of tender price inflation, 3Q2023

Tender prices increased by an estimated average of 0.7% between 2Q2023 and 3Q2023, resulting in annual growth of 4.0% in the BCIS All-in Tender Price Index (TPI)¹. This is down from 9.4% in the previous 12-month period.

The estimate is the consensus of the BCIS TPI Panel² based on analysed Delphi survey results and does not necessarily represent the views of individual participants.

The range of responses reported on tender price movement between 2Q2023 and 3Q2023 was between 0.0% and 1.25%. The average stood at 0.73% and all panellists agreed on 0.7% as a consensus figure.

The panel reported overheads and profit at an average of 5.25%, slightly down on 5.3% in 2Q2023.

Through their survey responses and in discussion, panellists pointed to various pertinent factors in the industry and wider financial climate impacting on tender pricing.

Contractors’ appetite for risk in the current financial climate

When asked how easy it was to get contractors to tender, 55% of respondents said, in their experience, the desired number of suitable tenderers was found after searching.

The remaining 45% reported that contractors are more eager to tender, with comments highlighting contractors’ desire to secure new work due to delays elsewhere, in some cases due to new building safety laws, while still acting with caution.

Respondents highlighted contractors’ appetite for risk, with reference to the recent high number of construction firm insolvencies, supply chain disruptions and challenging financial conditions. There was a suggestion that, in some cases, contractors are bidding for more simple projects to mitigate cash flow exposure. Insolvencies reducing the pool of firms able to compete for contracts was also cited as a contributory cause of tender prices remaining high.

Impact of planning policy and regulatory environment

Planning issues were reported by panellists as impacting on contractors’ timescales and the viability of projects. Factors include an emphasis on re-use over re-build, as well as carbon-reduction obligations, meaning refurb options must be fully explored first. This was said to be contributing to increasing complexity in navigating the planning process, as well as there being differences and inconsistencies between local authorities.

The impact of the second staircase requirement is also still being felt, with panellists reporting clients experiencing delays due to having to undertake a redesign process. In some instances, the subsequent loss of units is making projects unviable and site disposal is being considered instead.

Material prices still impacting on projects

While respondents generally agreed on a cooling in materials cost inflation, which – with stabilised energy costs and decreased demand – is now producing some discounting in the marketing, some materials were identified as still increasing in price, including concrete and concrete replacement products, insulation and boarding.

Labour supply issues

Labour shortages were cited among the key logistics challenges experienced by respondents, replacing materials costs as the main project inflation driver. Survey respondents pointed to shortages in skilled labour impacting on projects, as well as continued pressure on employers as workers seek to be paid in line with economic inflation.

There was agreement that the cost-of-living crisis will continue to contribute to rising labour rates and will be seen in the wage awards rolling into next year – particularly where those on two-year awards have lost out against inflation.

Differences between work type and sectors

The vast majority of panellists reported differential movement between building work and mechanical and electrical work (M&E). Those who said there was a difference stated M&E is busy and seeing higher price levels for a variety of reasons, including the cost and availability of resources, as well as the impact of performance-based accreditations and a greater emphasis on accounting for operational cost and embodied carbon.

One panellist did observe that there are extremes within M&E due to the nature of the project cycles that large Tier 1 M&E subcontractors tend to be involved in. This can lead to more aggressive bidding as they look to cover a shortfall in projects. Although commercial work has been busy in this sector, they suggested fewer big contracts are coming through.

The next update to the BCIS All-in Tender Price Index will be published on 8 December 2023.

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The current BCIS TPI Panel members are:

Adam Reeve, Calfordseaden

David Happell, Exigere

Don Patterson, Equals Consulting

Gavin Murgatroyd, Gardiner & Theobald

Ian Aldous, Mace Group

James Garner, Gleeds

Mark Lacey, Alinea

Max Wilkes, F+G

Nicola Sharkey, Gleeds

Nigel Hawes, Exigere

Pablo Cristi Worm, Turner & Townsend

Peter Maguire, WT Partnership

Rachel Coleman, Alinea

Richard Hill, Currie and Brown

Roger Hogg, Rider Levett Bucknall

Simon Cash, Artelia

Simon Rawlinson, Arcadis

Steve Waltho, Turner & Townsend

Stuart Wigley, Baily Garner

Notes

¹ The BCIS TPI Panel estimate has been applied to the previous quarter index and rounded to the nearest whole number for publication.

² BCIS has recruited a panel of practising cost consultants from firms involved in multiple tenders to, in each quarter, provide an early estimate of tender price movement in the latest quarter based on a panel (Delphi) survey approach. For further details see: BCIS Tender Price Index Panel.

Basis of All-in BCIS Tender Price Index

TPI figures prior to 4th quarter 2018 are based on project indices, generally single stage, traditional procurement, average value < £5million, (minimum £100,000, no maximum). Excludes M+E and other specialist trades, e.g. facades. BCIS has assumed this reflects market projects let on single-stage Design and Build and Specification and Drawings. Indices are normalised for location, size and procurement. Percentage changes are mid-quarter to mid-quarter.