BCIS tender price index – estimate of tender price inflation

Tender price index, estimate of tender price inflation, 2Q2024

Tender prices increased by an estimated average of 0.5% between 1Q2024 and 2Q2024, 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.

In the panel discussion, there was agreement that while it’s possible to get contractors to tender, this might involve concessions needing to be made. Panellists pointed to contractors becoming significantly more risk-averse, particularly compared to the pre-pandemic period, an approach which they said has become the ‘new norm’.

There was a suggestion that contractors are now more inclined to bid for simpler projects, as they aim to mitigate cash flow exposure.

Resources and supply chains

As materials cost inflation remains in negative territory, panellists have reported fewer issues with pricing levels and availability. Insulation, wood and curtain walling were among the materials highlighted by respondents seeing increases. Copper was highlighted by several panellists as seeing significant price hikes, with the suggestion that it is linked to increased demand for data centres.

Differences between sectors

More than two-thirds of panel members reported differential movement between building work and mechanical and electrical work (M&E). Those who said there was a difference stated M&E was experiencing higher inflation than building work. Reasons for this included supply chain pressures, a shortage of skilled labour and the price of key M&E materials. Similar to risk-aversion among contractors, what has been an ongoing spike in M&E inflation was described by panellists as the ‘new normal’ for the industry.

Risk of insolvencies in the supply chain

The panel agreed that insolvencies remain a high risk, suggesting there are regional hotspots where insolvencies are impacting local supply chains. Panellists suggested these are particularly outside of major cities, resulting in higher local tender prices, and also in areas where there are large programmes of work taking place.

What’s in the pipeline?

36% of respondents reported a slight increase in anticipated projects going to tender in the next 12 months, compared with the previous 12 months. A further 36% said their pipeline was unchanged from 1Q2024 to 2Q2024, while 27% said it had reduced slightly.

Panellists agreed that reduced interest rates, when they come, will help the viability of projects, but a decrease in the Bank of England base rate is now not possible until August. Even when the cost of borrowing begins to come down, panellists don’t expect the impact on affordability to be instant or dramatic. Business cases, therefore, remain difficult to prove, particularly in commercial projects, where panellists suggested profit levels ‘aren’t stacking up’.

The next update to the BCIS All-in Tender Price Index will be published on 13 September 2024.

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Panel members

The current BCIS TPI Panel members are:

Adam Reeve, calfordseaden

David Happell, Exigere

Don Patterson, Equals Consulting

Gavin Murgatroyd, Gardiner & Theobald

Ian Aldous, Mace Group

Ian Goodridge, Arcadis

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.