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Tue November 28 2023

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Tender prices to rise faster once Brexit dust clears

12 Jun 19 Tender prices are set to rise 4% a year from 2022 as post-Brexit skills shortages start to really bite, according to forecasts.

Construction consultant Arcadis says that any hope of a rebound in the UK construction market after the UK finally leaves the European Union is looking increasingly unlikely.

Arcadis’ latest Spring Market View report predicts short term inflation at between 2% and 3% a year until 2021, before rising to 4% in 2022 and beyond.

Although growth in construction output was flat in 2018, activity remains close to record levels, Arcadis notes. However, political uncertainty has resulted in delays in converting pipeline work into turnover. This is adding competitive pressure to the market.

In fact, given all the continued uncertainty about Brexit and what it means, Arcadis is recommending that construction clients build price adjustment mechanisms into the tender documentation, so that negotiations associated with delays to project start can be simplified.

According to Arcadis’ analysis, Brexit appears to have been the trigger for further employment growth across the UK economy, with businesses preferring to hire more people rather than invest in plant and equipment.  As a result of skills shortages, earnings growth for construction employees has averaged 4.2% over the past year, up from 2.1% in 2017. Arcadis offers no figure for earnings inflation for the self-employed, who make up 41% of the construction workforce.  With uncertainty about the future flow of migrant labour and the aging profile of the UK construction workforce, labour pressures are anticipated to intensify.

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Arcadis’ forecast of 4% tender price inflation by 2022 on the next prime minister securing an withdrawal agreement with the EU to secure a long-term political and economic relationship with the mainland.

Arcadis head of strategic research Simon Rawlinson said: “UK construction has a long-established skills and training problem. With skilled EU labour making up 8-10% of the workforce, specialist contractors and employers have been shielded from the necessity of developing and maintaining the skills of their workforce.  However, with the prospect of post-Brexit restrictions on migration, we’re now facing a real crisis in terms of future labour capacity.

“The supply chain will need to look at other options for increasing productivity. Off-site manufacturing currently delivers around 8% of industry output, but with the introduction of a government mandate, this could increase significantly. Adopting new technologies to improve processes will help to eliminate waste and duplication, while a renewed focus on training and re-training – particularly with the introduction of T-levels in 2020 – will further help to support a much-needed flow of talent.”

Arcadis forecast on tender price inflation (TPI)
Arcadis forecast on tender price inflation (TPI)

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