Contractors face increasing cost pressures as tender workload slows

Contractors are facing increasing cost pressures with tender workload increase in the South of England at its slowest since the Covid-19 pandemic, a key industry report has found.

High inflation and interest rates are impacting spending within the construction industry, while build costs are continuing to apply pressure to profit margins, according to analysis from Southern Construction Framework (SCF). The procurement framework, which delivers major public sector constructions across London, the South West and South East, said its survey had found tender workload increased during the third quarter by an average of 2.5% across all trades - compared with 3.5% in 2022 and 8.5% in 2021.

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SCF said the recent conservative increase this year suggested a slowing of workload, compared with an “influx of opportunities” post-pandemic.

While some trades reported an increase in tender workload, such as mechanical and electrical (15%), concrete frame (6%), and curtain walling (5%), some have started to report a decrease in volume. Tower crane reported a decrease of 4%, steelwork a fall of 3% and groundworks a fall of 2%. SCF said that with tower crane and groundworks typically ordered earlier in construction programmes, this could act as an indicator for other trades.

While build costs only increased by an average of 2% across trades in this quarter, it was still 7% greater compared with the same period last year, suggesting projects with outdated cost plans may still be under pressure. SCF said main contractors reported an increase of labour costs was one of the main causes for the increase.

The news comes as The Building Cost Information Service forecast build cost inflation of 3.1%, while tender prices could increase by just 2.1%.

Adrienne Turner, framework manager at SCF, said: "With tender prices growing at a slower rate than costs to build, this has the potential to result in falling profits, worsening the existing insolvency challenges. We are hearing from contractors that they are taking a more selective approach to tendering as many businesses look to low-risk opportunities with affordable design and favourable payment terms.

"As a result, it is increasingly important for project teams to consider this within their decision-making to best optimise interest within trade packages."