By Tim England, Head of the UK commercial cost consultancy team
As a company advising on cost management on a daily basis across a wide variety of sectors and on major UK projects, we have dedicated live cost and benchmarking information that is utilised to check and monitor designs and progress.
It is clear that we are living through interesting and unprecedented times, with a number of unusual and external factors impacting on successful budgeting and project delivery.
At Projex, we have seen the residential, industrial, hotel and data centre sectors all performing well during the past year and anticipate that this trend will continue throughout 2019.
The retail world continues to ‘re-calibrate’ to respond to consumer needs and this provides not only challenges to our clients but also opportunities at the same time.
On the commercial side, we have witnessed significant increases in rates in some key construction elements including aggregates, drylining, cladding and insulation. The latter appears to be largely driven by responses to the tragic events that occurred at Grenfell and the industry’s subsequent review of insulation/fire proofing techniques.
Contractor feedback indicates that one of their biggest current challenges involves labour issues (particularly groundworkers) on sites moving to the ‘highest bidder’ for day rates to secure their services. Equally, Brexit uncertainty continues to cast a shadow on larger sites where the use of EU labour continues to be an important resource.
As we continue to advise and help our clients establish construction budgets on projects, tender inflation is an important consideration and should be assessed carefully on any project.
Complex projects that often span long periods and contain elements that are procured from all over the world in particular should be evaluated with caution. This is bought into sharper focus given the current weakness of sterling and the uncertainty/volatility that exists in the current market.
The BCIS All-in TPI forecasts a rise in tender prices of 2.8% (2019) and 3.9% (2020) as at 1 April 2019. Others are forecasting lower levels of increase around 1% for 2019 with similar levels for 2020. Our own view is that general levels of tender inflation across the UK will average between 1% and 2% for 2019. However, we expect to see localised ‘hotspots’ in some regional areas where construction activity is high and demand continues to show no immediate signs of abating.
As with any forecast, several assumptions are made and variables exist that could influence the forecasts significantly. The assumptions, variables and measures should be carefully monitored over the coming weeks and months as the political and economic landscape hopefully becomes clearer.
Furthermore, we anticipate that whilst significant challenges will affect tender prices such as labour, skills and materials availability, further market consolidation, exchange rate fluctuations etc, opportunities still exist to procure construction projects competitively where:
- requirements are clearly defined
- the market has been adequately ‘warmed’ to the opportunity
- risks are allocated appropriately
- projects are attractive to the market
Ultimately, we expect that procurement strategies will continue to evolve and the selection of contractors will largely continue to focus around financial robustness and ability to deliver.