Core Five says Lendlease deal good for larger schemes but capacity worries over who will build them remain

London cost consultant Core Five has said the impending sale of Lendlease to a US private equity firm will ease some worries about who is going to build schemes worth £250m and more.

The firm said it “welcomed” the news Lendlease, which is one of two firms bidding a £600m office tower at 18 Blackfriars, was set to be bought by Atlas Holdings.

In its latest quarterly update, the firm said: “For the larger schemes there remains a shortage of willing and able tier 1 contractors.

“In this light, the news is to be welcomed that a buyer for Lendlease construction has been announced and they appear likely to remain in the UK main contracting market.”

But it said there was still a reduced pool of “willing and able main and subcontractors [and] these concerns may be exacerbated if the large number of schemes at Stage 3 do progress. This then cascades down – creating the race for tier 2 contractors.”

It added the full impact of ISG’s collapse last September had yet to be worked out.

“We have observed clients are directly compensating subcontractors for unpaid ISG invoices,” the firm said. “This is both fair-minded and sometimes necessary to keep them on site. However it can run into the tens of millions and so add substantial costs to a project.”

It added: “Going forwards we are expecting discussions around visibility of payment to the supply chain to be prominent and project bank accounts may have their day.

“The unfortunate demise of ISG has increased the funder desire for performance bonds at the very time the surety availability has dropped, creating something of a perfect storm. As a result some contractors are not able to provide 10% performance bonds for every project. In these situations we are looking at 5% performance bonds, increased retention, Parent Company Guarantees or some combination of these to provide the necessary security.”

In its Q1 update for 2025, the firm said the economic picture “has markedly dimmed” following the autumn Budget.

“A spectre of stagflation haunts the economy with growth lacklustre and inflation persistent. Extra spending announced in the October budget has pushed up the inflation forecasts and as a result slowed the pace of interest rates cuts. The cost of government borrowing has increased as markets grow nervous about the UK’s growth potential.”

Its tender price index forecast had been reduced from 3.5% to 3% for this year which it said was a reflection of the slower rate of recovery. It said it would rise to 3.5% next year.