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Supply chain squeeze to push up tender prices

Tender prices will rise in 2018 as the supply chain can no longer absorb rising input costs, according to Mace’s cost consultancy arm.

The company has revised its forecasts for tender price rises in 2018 to 1.5 per cent nationally and 1 per cent in London.

Labour costs are expected to continue rising as shortages of skills persist, while prices of key materials will increase further – especially steel.

Mace said subcontractors had absorbed some of these increases in recent years rather than push up their own prices, but that the market is now struggling to support this.

These increases come as recent output data from the ONS for 2017 and PMI data for January this year showed construction activity slowing.

Mace Cost Consultancy managing director Steven Mason said: “Whilst concerns persist on the underlying strength of the UK economy and the impact of Brexit negotiations on the UK property and construction market, the effect of these uncertainties on the supply chain’s appetite to secure work are offset by the impact of continued increases in input prices.

“A hardening of a marketplace that has ongoing capacity issues and that is less willing than ever to accept unlimited risk will start to see a small upward shift in tender prices in 2018 as the supply chain is no longer able to continue to absorb the spiralling impact of increasing resource costs.”

The Construction Product Association’s latest trade survey covering the final quarter of 2017 also showed high costs putting pressure on firms.

A net balance of 91 per cent of main contractors and 50 per cent of specialist contractors reported costs increasing between October and December.

This coincided with a net balance of 17 per cent of contractors reporting a decline in their margins.

FMB chief executive Brian Berry said: “Firms have reported record highs in terms of problems hiring skilled trades such as bricklayers, carpenters and plasterers.

“With Brexit just around the corner, this problem could well be exacerbated if our access to skilled EU workers is diminished.

“What’s more, the acute skills gap has caused salaries to spike and material prices remain high. Together these factors are squeezing margins for smaller builders.”

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