Whilst tendering for construction projects still seems to be competitive we appear to have reached an end to the downward trend on building costs experienced over the last six years.
The BCIS ( Building Cost information Service ) in its latest quarterly briefing believe that at last tender prices have bottomed out and are predicting a steady rise?
But just how quickly will we see the cost of building projects go up?
In spite of inflation, building costs plummeted by 20%
With tender prices still at 10% lower than their peak in 2007, there is still some way to go until building costs reach the peak that they were over 5 years ago. Given that over the same period the consumer price index has been rising at 3.2% per annum, the downward pressure that we have seen on tender prices shows just how significant the industry has been in decline. The force of the downward pull on construction workload has just been too great, even though we have seen input costs rise.
Bargain buildings for the brave
Of course, this means that those who have had the opportunity, confidence and funding to commission a building project in the last few years have potentially got very good value for money. We have all seen a tender hanging out the bottom of a tender process in the last few years, when the bargain has been too good for the client to refuse.
If government initiatives do start to encourage growth and the confidence we are starting to see in some areas, with house builders developing in earnest again and a buoyant central London market , then surely the only way is up. We are starting to see material shortages and contractors and sub-contractors becoming more selective on the projects they want to price.
Indeed, speaking to Contractors, most are now of the opinion that tender prices are going to slowly but steadily increase over the next year and beyond. There is nervousness amongst some that,for projects with long contract periods, they might be caught by a rise that will see sub-contractors later in the programme not being prepared to undertake the work for earlier tendered rates. It seems that sub-contractors having cut their margins to an absolute minimum will begin to start rising their prices. Moreover, we are expecting that main contractors preliminaries and overheads and profit margins that have generally fallen as a percentage of project costs will now start to increase.
An 8 year dip
All predictions are that any rise in building costs will be slow and the continued reduction public sector funded projects will temper any potential private sector strengthening. The BCIS are forecasting tender prices will increase by 3.7% in the next 12 months, 3.7% the 12 months after and only after another 4.4% rise in 2016 will we see tender prices reach the level they were at the end of 2007. At nearly three quarters of our way through an eight year dip there just still might be time to snap up a bargain.