Mace Cost Consultancy has maintained its forecast for tender cost inflation for 2015 at 4.5 per cent in its tender cost update for Q3.
The consultant expects tender prices to then grow by 4 per cent nationally in 2016 and 2017, while the London market’s forecast remains at 5.5 per cent for 2015, followed by 4 per cent in 2016 and 2017.
London’s higher tender price forecast for 2015 reflects a strong increase in demand in the capital, according to Mace.
However, its subequent projections for the capital fall in line with national forecasts at 4 per cent due to an expected levelling off in demand, with restricted project viability set to keep tender prices “at a sustainable level”.
Mace’s forecasts for the capital are among the lowest across leading consultants.
For 2015, Sweett has forecast tender price inflation of 7.1 per cent in London, while Gardiner & Theobald and Gleeds have predicted tender prices to grow by 7 per cent in the same period.
On UK-wide forecasts, however, there is a degree of consensus: along with Mace, both Gardiner & Theobald and Faithful & Gould forecast growth of 4.5 per cent for 2015.
Gleeds’ UK forecast of 4.8 per cent for this year is the highest of all leading consultants.
Mace has kept its forecast unchanged since February 2015 due to there having been “little change” in the market, it said, as demand for construction remains robust.
The consultant added that larger cost increases are being seen in single-stage tenders, as well as “where contractors are being asked to take on risks that are difficult to quantify”.
The consultant also said there had been some “anecdotal evidence” that price increases were making some commercial projects “unviable”.
The firm said this will be “a dampener on tender price inflation” over the coming year.
Commenting on the forecasts, Mace Cost Consultancy managing director Chris Goldthorpe said: “Resources in the industry continue to be stretched, particularly in the London area.
“Increased margins are more than offsetting low input cost inflation and tender prices are still rising, but we have found that sub-contract packages in two-stage or negotiated projects are generally being bought within forecasts when the risks are properly understood.
“Skills shortages are still an issue and the industry must take the opportunity to invest in order to improve efficiency.”