BCIS tender price index – estimate of tender price inflation

Tender price index, estimate of tender price inflation, 4Q2024

Tender prices increased by an estimated average of 0.8% between 3Q2024 and 4Q2024, resulting in annual growth of 2.3% in the BCIS All-in Tender Price Index (TPI)¹. This is down from a peak of 10.3% observed in 2Q2022.

The estimate is the consensus of the BCIS TPI Panel², based on analysed Delphi survey results, and does not necessarily represent the views of individual participants.

Through their survey responses and in discussion, panellists pointed to various pertinent factors in the industry and wider financial climate impacting on tender pricing.

Differential movement in prices

Strong differential movement between building work and mechanical and electrical (M&E) work continues to be reported by the panel, with costs more volatile for M&E. This was suggested to be driven by factors including skilled labour shortages and high demand for equipment like generators and sprinklers. Data centres and other high-tech projects also face premiums due to limited resources and high demand.

Panellists suggested M&E contractors are more selective, particularly for large installations. Prices are also pushed up by the implementation of decarbonisation strategies.

Conversely, activity levels were said to be very low in the residential sector.

Half of the respondents said there is differential movement between projects of different sizes, with those who have experienced this citing the risk associated with larger projects and caution within the supply chain impacting on prices.

While only 36% of respondents noted differential movement depending on the procurement route, those experiencing this pointed to contractors being increasingly selective about tendering, favoring two-stage or target-cost models over single-stage tenders. However, there were comments that single-stage tendering is becoming more competitive, helping to control tender price increases, while two-stage tendering allows contractors to negotiate risk apportionment, impacting pricing. Fixed-price contracts still include risk premiums to account for market volatility, inflation, and regulatory changes, particularly for projects with longer timelines.

Appetite to tender

Just over half (57%) of panellists reported the desired number of tenderers were found after searching in the last quarter, while 21% said it had been more difficult, and a further 21% said contractors were more eager – a broadly similar range of responses to 3Q2024.

Panellists’ commentary suggested that procurement routes play a crucial role in tendering appetite and that contractors are increasingly risk-averse. The demise of ISG and others has reduced contractor capacity, making it harder to secure tender interest.

Project pipeline

Half of the panel reported a slightly increased pipeline for the next 12 months, while 36% said it was unchanged, and 14% said it had reduced slightly.

Risk sharing

Panellists reported ongoing concern in the sector around insolvencies, with the suggestion that the process of deciding and appointing contractors is being delayed as more thorough checks are undertaken.

There was also a suggestion that the collapse of ISG is affecting the stability of the trade supply chain exposed to non-payment of debt and increases to bond financing.

The proportion of projects on which the risk of inflation is being shared was reported between 0% and 40%. Where risk is shared, mechanisms for this include fluctuation clauses, prime cost and provisional sums, and project trackers.

Logistical challenges

Logistical challenges cited by panellists include supply chain disruptions from contractor insolvencies, causing project delays and tender issues. They also pointed to long lead times for MEP equipment, especially for data centres, which requires careful planning. Subcontractor availability remains limited, and extended contract durations increase preliminaries if contractors stretch projects to mitigate delays.

External forces

Panellists pointed to the effects of the Autumn Budget and US election, both of which present ongoing uncertainty. There were mixed views as to when the increase to employers National Insurance contributions would be reflected in prices, but the extent of the self-employed supply chain may soften the impact.

The panel also reported an expectation of more clarity around the infrastructure pipeline and planning once planning reforms and the results of the government’s spending review are announced next year, although spending appears to be continuing at a steady level. Inflation slowing at a lower rate than expected has resulted in less confidence in further and faster interest rate cuts.

The next update to the BCIS All-in Tender Price Index is due to be published on 7 March 2025.

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Panel members

The current BCIS TPI Panel members are:

• Adam Reeve, calfordseaden
• David Thornton, Exigere
• Don Patterson, Equals Consulting
• Gavin Murgatroyd, Gardiner & Theobald
• Ian Aldous, Mace Group
• James Garner, Gleeds
• Mark Lacey, Alinea
• Max Wilkes, AtkinsRéalis
• Nicola Sharkey, Gleeds
• Nigel Hawes, Exigere
• Pablo Cristi Worm, Turner & Townsend
• Peter Maguire, WT Partnership
• Rachel Coleman, Alinea
• Richard Hill, Currie and Brown
• Roger Hogg, Rider Levett Bucknall
• Simon Cash, Artelia
• Simon Rawlinson, Arcadis
• Steve Waltho, Turner & Townsend
• Stuart Wigley, Baily Garner

Notes

¹ The BCIS TPI Panel estimate has been applied to the previous quarter index and rounded to the nearest whole number for publication.

² BCIS has recruited a panel of practising cost consultants from firms involved in multiple tenders to, in each quarter, provide an early estimate of tender price movement in the latest quarter based on a panel (Delphi) survey approach. For further details see: BCIS Tender Price Index Panel.

Basis of the All-in BCIS Tender Price Index

TPI figures prior to 4th quarter 2018 are based on project indices, generally single stage, traditional procurement, average value < £5million, (minimum £100,000, no maximum).

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.