Economic uncertainty and the continuing spectre of insolvency have seen contractors becoming increasingly risk averse, according to new analysis.
However, there are also indications that the collapse of ISG last September provided a “much-needed shake-up in the market”.
The latest data from the Building Cost Information Service (BCIS) showed that tender prices increased by an average of 0.5 per cent in the first quarter of this year compared with the last three months of 2024.
Overall, annual growth in the BCIS All-in Tender Price Index stood at 2.3 per cent, down from the peak of 10.3 per cent observed in the second quarter of 2022.
The analysis, released yesterday (19 March), is based on estimates from a panel of 19 cost consultants from firms involved in multiple tenders, including Mace Consult, Gleeds, AtkinsRéalis and Arcadis.
David Crosthwaite, chief economist at the BCIS, said the relatively slow tender price movement in the first quarter of 2025 reflected how “ongoing economic uncertainty is impacting activity”.
He added: “Many firms and investors are waiting to see what happens with the next phase of the government’s spending review, due in June.”
Panellists in the BCIS report also said the impact of insolvencies was being felt in the market.
They said that challenging financial conditions, combined with supply chain disruptions and labour shortages, had led contractors to become more risk-averse, particularly on bigger projects.
But more time would be needed to understand the full implications of the demise of ISG, the panel said, noting that there was still ambiguity about how much loss had actually been sustained to the supply chain.
Many workers affected by ISG’s collapse had been quickly re-employed with other firms that had already become more involved in the market, the BCIS analysis said.
“Potentially, it has provided a much-needed shake-up in the market,” panellists noted.
But the expert panel said caution within the supply chain was leading to a reluctance to “overstretch” by taking on risk that firms may previously have accepted.
That meant contractors were now more inclined to bid for simpler projects so they could mitigate cashflow exposure.
Crosthwaite said the impact of the increase to employers’ National Insurance contributions from 6 April would depend on the proportion of directly employed workers.
“Our panellists suggested they are looking at average cost increases in the range of 0.7 per cent to 1.0 per cent, though this will vary by sector,” he said.
“We’re forecasting a 2.5 per cent increase to the BCIS Labour Cost Index in April, compared with March.”
Allan Wilen, economics director at Glenigan, said the analysis reflected the fact that overall materials prices had stabilised and higher labour costs were continuing to work through the system.
However, it also point to a pressure on margins, which is less encouraging for contractors, he said.
“In the most recent months we’ve seen a falloff in the number and value of projects coming through the development pipeline and starting onsite so there is a bit of caution in there – that’s a weakness both in terms of the private sector and the government side,” Wilen told Construction News.
However, further detail in the forthcoming spending review this summer could help to bring some confidence back into the market, he added.