Movement in contractors’ construction costs in Scotland

Construction input costs in Scotland increased by an average of 4.5% in the year to 2Q2024, according to a contractors’ panel newly 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 at the commit to construct stage. Comprised of representatives of major contractors in Scotland, it also provides insights on the factors affecting costs on construction projects. 

While inflationary pressure on materials prices has stabilised, panellists said global issues still present a risk to the supply chain. This is particularly the case with electrical products, which, in contrast with other building materials, are predominantly imported and therefore more susceptible to problems when international supply chains are disrupted. 

Of ongoing concern to panellists is the impact of skills shortages in the industry. While some sectors, again, for example, electrical, are still receiving a good volume and quality of apprenticeship applications, they said others, particularly plumbing, heating, aircon and ventilation roles, sometimes require additional advertising to attract candidates. 

Panellists added that declining population and immigration rates present a further challenge, exacerbated by small and medium-sized businesses leaving the supply chain due to retirement of the owner.  

The recent increase in the national minimum wage affected the rates paid to apprentices, which panellists suggested could prompt further rate increases for trained operatives and there is an expectation that labour rates will increase above inflation in the next couple of years. 

Panellists also outlined uncertainty among customers around when or if they will move forward with projects, making it more difficult for contractors to forward plan. Part of this uncertainty comes from external factors like changes in government, but affordability remains a fundamental issue with prolonged high interest rates. 

While there is consideration and some mitigation of inflation on costs, panellists suggested most subcontract work is tendered on a fixed-price basis, with the exception of some longer-term projects, rather than using mechanisms to share risk. 

Panel members:

Stuart Parker, Morgan Sindall  

Garry Shand, Hutcheon Services 

Brian McQuade, Robertson Group 

Alan Wilson, SELECT 

Paul Dodd, Scottish Futures Trust 

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