The increase in construction activity, and the shortage of key materials, has led to an increase in costs from 2020 – 2021.
The ONS reports a change year on year on general material prices from April 2020 to April 2021 of 8.4% across all work sectors. BCIS report the general material price change at 2.8% to Q1 with their forecast being out at 5.2% year on year by Q4 2021, with the increase peaking in Q3 at 6.4%.
There will continue to be fluctuations in individual materials listed above and this will be reflected in pricing of new work as well as existing projects where contractors are seeking to recover material price increases from projects previously tendered and procured, as the actual cost from their supply chain is pushed up the line.
Based on the above, we would recommend a materials price inflation uplift be applied to cost plans or future works costs at between 2% – 4% depending on the anticipated start on site date.
Through 2020 and the worst of the Covid pandemic tender prices fell year on year to -2.1% at Q1 2021. The outlook however for the rest of 2021 and beyond sees a recovery in activity and in turn a rise in tender prices is forecast.
Currently BCIS TPI forecast shows an increase year on year to 2.4% by Q4 2021 rising from -1.8% in Q2 to 0.6% in Q3. Other industry indices are less bullish with their forecasts which range from 0% to Q4 2021 (Arcadis); 0.8% to Q4 2021 (Aecom) and 0.5% to Q4 2021 (G&T).
Noting the increases in materials, construction sector activity and contractors requesting cost increases on paused or current live projects, we would forecast a tender inflation of around 2% for the year, which should again be factored in to cost plans or estimates with a Q4 start date or beyond.
For more information, or to discuss how PBC’s Cost Consultancy team can assist your project, contact Chris Jones, Director of Cost Consultancy, on M +44 (0)7552 242 311 T +44 (0)20 3478 0631 E: firstname.lastname@example.org