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News & opinion

3 OCT 2019

Tender price inflation

The early estimate for the BCIS All-in Tender Price Index (TPI) for 3rd quarter 2019 is based on a rise of 0.35% compared with the previous quarter. *

The estimate is the consensus of the BCIS TPI Panel ** based on the analysed Delphi survey results; it does not necessarily represent the views of individual participants.

The resultant 3rd quarter figure shows an increase of 3.7% in the year from 3rd quarter 2018. *** This increase is influenced by a fall in the index in 3rd quarter 2018, which was based on a small sample of projects received for that quarter.

The panel members were asked to provide information on the current level of main contractors' overheads and profit seen in contracts. The mean of the responses was 5%.

Half of the panel members reported differences in price movements between regions, two-thirds reported differences by size of project, 40% by procurement route and less than 20% by sector.

75% of panel members reported M+E prices rising faster than building trades.

The panel also observed the following in the latest quarter:

• The Midlands, Birmingham and Manchester were identified as seeing inflationary pressure.

• There was anecdotal evidence that national contractors were stepping back from smaller contracts where local contractors were bidding fiercely.

• Single-stage tenders (where they can be used) tend to secure greater competition, with a resultant increased use of single stage tendering.

• M+E prices were moving faster than building work. There was a discussion as to whether changes in systems and regulations were introducing scope and specification creep that was contributing to the increases.

• The private commercial sector is very competitive.

• Pressure on imported material prices continued as a consequence of fluctuations in the value of sterling.

• The market uncertainty in respect to Brexit is keeping everyone very nervous.

• There was concern expressed regarding future labour availability on the back of both Brexit and the falling value of sterling as European labour leaves the UK.

• However, trade contractors generally have no plans for Brexit and do not seem unduly concerned about the effect on the labour market.

• While there are still some contractors trying to insert Brexit clauses into contracts, this has declined significantly since earlier in the year. Any tariffs are likely to be recoverable under most standard contracts.

* The BCIS TPI Panel estimate has been applied to the previous quarter index and rounded to the nearest whole number for publication.
** BCIS has recruited a panel of practising cost consultants from firms involved in multiple tenders in each quarter to provide an early estimate of tender price movement in the latest quarter based on a panel (Delphi) survey approach. For further details, see New BCIS methodology for Tender Price Index estimates.
*** TPI figures prior to 4th quarter 2018 are based on project indices, generally single-stage, traditional procurement, with an average value of less than £5m (minimum £100,000, no maximum). This excludes M+E and other specialist trades, e.g. facades. BCIS has assumed this reflects market projects let on single stage design and build and specification and drawings. Indices are normalised for location, size and procurement. Percentage changes are mid-quarter to mid-quarter. Before 4th quarter 2018, where the sample was below 20, the index was also influenced by the BCIS forecast.

The current BCIS TPI Panel members are:

• Ian Aldous, Arcadis
• Simon Birchall, Equals consulting
• Simon Cash, Artelia
• Rachel Coleman, Alinea
• Richard Hill, Currie and Brown
• Roger Hogg, RLB
• Karl Horton, Mott MacDonald Group
• Kristopher Hudson, Turner & Townsend
• Philip Hynard
• Agnieszka Krzyzaniak, Arcadis
• Mark Lacey, Alinea
• Brian Livingston, Gardiner & Theobald
• Simon Longstaffe, F+G
• Peter Maguire, WT Partnership
• Simon Rawlinson, Arcadis
• Adam Reeve, Calfordseaden
• Phil Southgate, Gleeds
• Steve Waltho, Turner & Townsend.