Busy contractors forcing up UK construction prices

EC Harris anticipates that building tender prices will rise nationally by 3.8% over the next year with a further 3.7% increase in the year to 3rd quarter 2008.

Continued high levels of construction activity means that contractors across the country are picking and choosing the more difficult schemes they wish to tender for.

This means that tender price inflation remains high and is forecast to continue to run well above both retail inflation and contractors' input costs, according to the latest forecast produced by international property consultancy, EC Harris.

EC Harris anticipates that building tender prices will rise nationally by 3.8% over the next year with a further 3.7% increase in the year to 3rd quarter 2008.

In London, building tender prices are forecast to rise by 5.3% over the next year, with a rise of approx 5.5% in the year to 3rd quarter 2008.

Looming over London prices are the Olympics, the main tranche of workload for which will start to kick in from mid-2007 onwards, peaking in 2009/10.

The added impetus of the games is expected to lift tender price inflation in London by some 1 to 1.5% per annum, and this adjustment has been factored into the index forecast.

Tender prices for infrastructure works are expected to rise by around 5.0% over each of the next two years as the sector looks forward to increased levels of activity.

Commenting on the figures Tom Kane of EC Harris, said: "The current high levels of workload in many parts of the country mean that contractors are 'taking a view' on clients and are 'deselecting' some of the more demanding private clients.

They are also prioritising high profile clients who can provide a guaranteed volume of workload into the future and we are finding that contractual relationships between clients and contractors have to be right before both parties commit." He added, "Demand for contractors' services is continuing to increase, and order books look very healthy, driven by government initiatives, particularly in health and education.

If the industry is worried, it is concerned that perceived frailties in the economy could lead to cuts in public spending on health, while further interest rate hikes may hit the private housing sector and reduce consumer confidence.

"With the economy buoyant, most major contractors around the country have healthy orders books, generally underpinned by a number of large capital projects.

This is leading to worries that contractors are taking on too much work and having difficulty in resourcing project teams and sub-contractors and, as a result, failing to deliver." EC Harris' economics survey provides a number of key points for the successful delivery of schemes including early contractor involvement and the need to identify contractors' 'A' teams and secure their services for the project The inflation forecast, which is published in the latest edition of the EC Harris Economics Survey is available through the EC Harris web site.

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