Movement in contractors’ construction costs in Scotland

Construction input costs in Scotland increased by an average of 4.65% in the year to 2Q2025, and by 1.25% on the quarter, according to a contractors’ panel established by the Building Cost Information Service (BCIS).

The BCIS Scottish Contractors Panel was formed to help monitor quarterly movement in costs, i.e. the prices agreed between the main contractor and suppliers and subcontractors. Comprised of representatives of major contractors in Scotland, it also provides insights on the factors affecting costs on construction projects.

Appetite to tender

Movement in subcontractors’ appetite to tender appeared to cool slightly between 1Q2025 and 2Q2025, with an overall shift towards them being less eager.

Reporting on their own appetite to tender, panellists suggested they have a cautious and selective approach, with a preference for frameworks and negotiated routes. There is a shared reluctance to engage in single-stage or open tenders, citing concerns of client funding certainty, budget reliability, and risk exposure.

Pipeline of projects

Respondents cited a mixed picture for the next 12 months, ranging from those reporting a significantly reduced pipeline to panellists saying it has increased significantly, but, overall, slightly more pessimistic than last quarter. Panellists reported there have been multiple instances of projects being cancelled because they’ve not been able to secure funding, or pushed back, and that some are still awaiting government funding. The public project pipeline was said to have become less visible.

Input cost movement

After a period of softening up to 1Q2025, higher employers’ National Insurance Contributions have impacted labour costs. Respondents also pointed to increased materials costs, including for timber, cladding, insulation, metal-based and cement-based products. While some of this seems to be related to tariff impacts, it’s also due to regular price increases being implemented. The panel commented that while increased activity in the housing market will likely lead to some shortages, this hasn’t happened yet, though this may change by the end of the year.

Logistics challenges

Panellists reported that delays between pre-construction and site commencement are forcing contractors to refresh pricing multiple times. This adds pressure to the supply chain, extends pre-construction periods, and may render projects unaffordable or unviable. The location of sites can heavily influence pricing of projects and can often cause delays. Getting materials to the sites can be overcome by creating off-site holding areas, but these come at an extra cost to the project.

Skills shortages

Panellists commented on instances of capacity being constrained, and that it has become increasingly difficult to employ people with the right skillset. Since Brexit, there has been a decrease in migrant labour in Scotland, particularly affecting the labour pool in Aberdeen.

While reduced output in the housing market has freed up some trades, when demand rises, panellists said they expect to see significant constraints on the availability of craft labour. While electrical work was said to attract lots of apprenticeship applicants, the quality and number of applicants in other trades is more limited.

One potential consequence of the UK government’s changing immigration policy is that Scottish labour could move down to fill gaps in England with the draw of increased pay, as has happened in other industries over the years. Panellists also commented on an increasing trend of workers moving abroad for work, where there is the incentive of tax-free employment.

Panellists expressed concern over government proposals to raise the thresholds required for skilled workers from having the equivalent of A-Level qualifications to an undergraduate degree, which would exclude many of the workers needed. Further, panellists reported many older members of the workforce are choosing to leave the sector rather than go through the process of gaining qualifications to get a CSCS card.

Differential cost movement

Most panellists (80%) reported differential movement between regions, saying there continues to be higher cost movement in the north of Scotland and in the Highlands and Islands compared with the central belt. This was attributed primarily to availability of labour and because specialist subcontractors are still having to be resourced from the central belt.

The panellists who reported differential movement between mechanical and electrical (M&E) work and building work cited the increased costs associated with sustainability and decarbonisation elements of projects as contributing factors.

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Panel members:

• Stuart Parker, Morgan Sindall
• Garry Shand, Hutcheon Services
• Brian McQuade, Robertson Group
• Alan Wilson, SELECT
• Iain Tosh, Morrison Construction
• Martin Poole, Ogilvie Construction
• Paul Dodd, Scottish Futures Trust