Perspectives

Tender forecasts remain static despite weakening market conditions

Mace has published its latest tender cost forecast update for the UK’s construction sector. Although the headline forecasts remain stable since the last update in Q2 2017, overall market conditions continue to weaken and industry confidence is dropping. 

It was a difficult quarter for construction as the industry fell into a technical recession and a large drop in new orders indicates that there will be little respite over the coming year. 

Top level figures for construction, released as part of the third quarter GDP preliminary estimates, showed the industry had fallen into a recession for the first time since 2012. New orders fell significantly, by 12.6% since 2016 – the largest annual drop since 2011.  

Adding to the pressures are ongoing strong material price growth and a rebound in earnings. These factors could result in wider variations in tenders than usual with those companies with a healthy grip on their supply chain and labour force being better placed to manage risk.

Despite the significantly weaker market position now clear, Mace’s Cost Consultancy team has left its tender price forecasts unchanged, expecting to see muted growth outside London and no change in the capital before a slow recovery takes hold in 2018. 

Mace’s current tender cost price increase forecasts are below: 


 2017 2018  2019 2020 2021
National  2.5%  0.5% 1.5% 3.0% 4.0%
London 1.5%  0.0% 1.5% 3.0% 4.0%

 

Steven Mason, Mace’s Managing Director of Cost Consultancy, said: 

“The last quarter has seen little change in market sentiment, and the stuttering progress in Brexit negotiations has done nothing to ease increasing concerns that tougher times may lie ahead.

In spite of this, the construction sector remains remarkably resilient, with activity in the residential, public and infrastructure sectors counteracting declines in commercial market activity.

As the market appetite to secure pipeline work in 2018 and 2019 increases, we are starting to see the ongoing upward pressure on input prices be offset by falling margins. We fully expect this trend to continue with our forecast tender prices holding steady at levels reported in recent quarters.”