Mace’s cost consultancy business has increased its forecast for tender cost inflation from 3.5 per cent to 4.5 per cent for both 2014 and 2015 as London continues to boom.
In its UK tender cost update for Q3, Mace pointed to capacity shortages in the London market and the impact they were having on “response to tender invitations and the ability for contractors to meet growing demand”.
Mace said it expected industry capacity to grow in 2016 and temper cost inflation, and has kept its forecast at 4 per cent for the year.
It said that outside London, there was still enough capacity to meet demand and competition was subduing price increases.
Mace’s forecast for average inflation in tender prices was unchanged at 2 per cent for 2014, rising to 2.5 per cent in 2015 and 3 per cent in 2016.
Managing director for Mace cost consultancy Chris Goldthorpe said: “While it is still possible to obtain competitive tender returns in the regions, the London market has seen contractors unable to meet the rising demand, resulting in a selective response to tender invitations and an unwillingness to take on risk.
“It is now a regular occurrence for contractors to turn down tender opportunities, particularly if they involve single-stage tendering, incomplete design information or significant construction risks.
“We are also seeing overheads and profit allowances increasing to levels that have not been seen for the last five years as competition is reduced.”
Mace lands National Grid framework
Mace has been appointed to National Grid’s new framework for project services.
It will carry out project management, programme management, cost consultancy, project controls, design management, commissioning management and handover.
The deal is for a three-year framework with two potential one-year extensions.
The firm said the performance of private commercial work is also increasing, with the London office market proving to be increasingly active.
But outside London the supply of private commercial space is still “sufficient to meet general demand”.
Business investment grew by 5 per cent to £33.4bn in the last quarter and is the highest since 2008 following five quarters of consecutive growth.