Civil engineering tender prices are are expected to grow 29% over the next five years, rising faster than costs throughout the period as infrastructure construction output continues to grow.
Materials prices have been rising; prices for key commodities, particularly steel and oil, have been very volatile, and nationally agreed wage awards are currently rising. These cost pressures are expected to continue.
BCIS is now assuming that there will be restrictions on the movement of labour following a two year ‘transitional period’ and that this will impinge on the construction industry from around 1st quarter 2021, as European labour moves out of the UK.
This will put upward pressure on promulgated wage awards as the unions try to keep pace with higher site rates obtained due to the reduced labour pool. Site rates over and above promulgated rates will be reflected in the market conditions factor, putting upward pressure on tender prices.
Overall costs are expected to rise by around 3% per annum over the first two years of the forecast, and by 4% to 5% over the final three years. The sharper increases over the final two years result principally from sharper increases in wage awards driven by labour shortages.
Tender prices are forecast to rise faster than costs due to strong demand and increased pressure on site rates.
Over the forecast period (3Q17 to 3Q22):
- infrastructure construction output will rise by 27%
- input cost of resources will rise 20%; and
- tender prices will rise 29%.
BCIS has produced two further scenario forecasts based on different assumptions on the Brexit agreement and their impacts on construction demand (see graph).
BCIS Civil Engineering Tender Price Index – Annual percentage change