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EC Harris data shows contractors facing intense cost inflation pressure

Contractors have reported brick price increases of up to 15 per cent, as firms struggle to meet prices for fixed-price work in the face of soaring supply chain cost inflation.

Exclusive EC Harris data shared with Construction News this week has shown labour rates increased by an average of 2.1 per cent in Q3 2014, while bricks and blocks prices continue to cause difficulty for contractors.

EC Harris partner Simon Rawlinson said contractors were now seeing the highest sustained pressure in the supply chain since 2010/11.

Spencer Rail chief executive David McLoughlin said the firm had seen cost inflation of between 3 and 5 per cent for materials, of which facing (external) and engineering bricks had risen by between 13 and 15 per cent.

On labour costs, he said: “We have found labour costs neutral at the current time for the core civils general track labour disciplines we employ, but South-east craft trades have increased by around 2 to 3 per cent since January.

Of the main areas Spencer Rail has been tendering in the last six months, he said the firm had seen South-east and London prices rise by around 3 per cent overall, with Scotland, Yorkshire and the North-east currently “neutral”.

Greater Manchester-based McGoff & Byrne’s executive director Dave McGoff told Construction News cost inflation was not just restricted to London.

“It’s a national issue,” he said. “I think everyone tends to focus on the bricklaying trades being the main source, but it goes much wider than that for us.

“We’re seeing shortages in plant, forklift trucks, building materials, blocks, all the materials; all the procurement periods have moved out significantly and it’s a much different environment than it was maybe 6 to 12 months ago.”

Keltbray warned of waiting times for cranes hitting six months in London earlier this year and several firms have reported having to pay extra to secure plant or materials to deliver projects on time.

Mr McGoff said availability of subcontractors was a real problem, with many having either consolidated or gone bust, with “a lot of the supply side turning their nose up at general tendering”.

“There’s enough work out there at the moment for subcontractors and suppliers for them to be able to negotiate their workloads going forward.

“We’re noticing informed clients making that leap and lining up their contractors and supply chain in order to secure delivery.”

Problem jobs have been blamed by several main contractors for profit shortfalls in 2014 to date as legacy bids have affected tier ones.

Brick availability ‘more manageable’

Housebuilder Bellway said this week that the industry-wide shortage in bricks and blocks had become “more manageable” and had eased as the year progressed.

The average cost of blocks ranges from a low of £5.50 per sq m in Northern Ireland and £6.20 per sq m in the North-west, to a high of £9.30 per sq m in London and the South-east, according to EC Harris data.

To mitigate material cost pressure, Bellway had procured central, national arrangements with suppliers, it said, but that reduced availability of certain subcontract trades, including bricklayers and ground workers, was still a constraint – particularly in the South-east.

Balfour Beatty has been the most high-profile firm to suffer, having cited problems with its tender proposition on old contracts, which its UK chief executive Nick Pollard admitted last month had often been “ill-balanced or ill-judged in some way” and a factor in its latest £75m profit warning.

In May, Willmott Dixon said profit before tax was down almost 20 per cent in 2013 due to “a small number of projects now completed that did not deliver the margins we had expected”, according to CEO Rick Willmott.

Royal Bam Group reported in July that “unexpected problems” on a UK project it bid on in 2012 had contributed to around £60m in overall project losses.

Morgan Sindall CEO John Morgan told Construction News in August that cost inflation, combined with low margins on work tendered in 2012/13, meant the firm was “making less money than we would like to”.

Henry Boot group finance director John Sutcliffe said the regional disparity continued to be skewed towards London and the South-east.

“It is getting a bit tougher but we are not struggling in Yorkshire and our spheres of the M62 corridor as much as some are in London,” he said.

“It feels like pricing has still not recovered to where it was in the cycle six or seven years ago now – I still feel as though pricing is a bit below that level.”

On labour, he said availability was a problem and that there was a “relatively tight supply market out there and if we’re not careful we are going to see the same problems in the North that we are seeing in the South now”.

Mr McGoff said the market was heating to the point that contractors were “having to cajole” subcontractors into bidding for work and that “one-off jobs for suppliers or subcontractors” in general tendering weren’t interesting them.


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