Supply chain pressures force tender cost inflation upwards

Mace-GroupPressure on the supply chain is continuing to affect tender levels, according to the latest tender price forecast from Mace.

Mace, which surveys it supply chain for market feedback every quarter, has revised its 2014 tender price inflation upwards from 4.5 per cent to 5 per cent by the end of 2014

The findings from the Q4 survey again confirmed an improvement in the market that was established last year with respondents reporting that workload over the last 12 months has increased by an average of over 20 per cent, as expected.

Over the same period, sales prices increased by an average of 3.4 per cent which was below expectations. The outlook for the next 12 months is also positive with workload expected to increase by an average of 14 per cent and sales prices by 4.3 per cent.

However, survey respondents have indicated anxiety about the availability of suitable labour and the likelihood of increasing costs in the medium term. There was also uncertainty about the possible effects of future interest rate rises and the 2015 General Election but over the short to medium term, Mace Cost Consultancy has held its forecasts for 2015 and 2016 at 4.5 per cent and 4.0 per cent respectively as spikes in demand are expected to moderate and industry capacity increases.

In terms of key sectors for the construction industry, findings show that for the private sector, growth is still localised and variable - with demand in London far outstripping the regions - while the outlook for infrastructure is likely to remain stagnant, particularly in the run-up to the General Election. Looking at the longer term, it is clear that overall growth in construction work is set to continue as the UK economy proceeds along its path of moderate growth.

Mace’s view is that housing growth will moderate, particularly as interest rates start to increase next year, although political moves are likely to ensure that the market remains positive. As explained above, we expect the private sector to improve, particularly in the South East but gradually expanding to the other regions.

Managing director for Mace Cost Consultancy, Chris Goldthorpe, said: “For the time being, the residential sector remains the market driver. We’re seeing a number of previously shelved major projects in London brought forward by clients, which means that contractors are taking a more measured view about the jobs they go for and are reluctant to engage in projects that are perceived as risky, either from a procurement or a construction point of view.”

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