Mace says tender price rises have peaked this year

Mace has said tender price rises have peaked this year with the firm keeping its forecast unchanged for the remaining weeks of 2022.

In its latest quarterly update, the firm said it would not revise up its forecast for the rest of the year instead sticking to its previous figure of a rise of 8%.

And Mace said forecasts next year had actually come down from an expected 4.5% to 3.5%.

Last week, Arcadis confirmed its 2022 tender price forecast at 10% for buildings and 12% for infrastructure – the upper end of the previous forecast’s range.

Arcadis’s forecast for 2023 remained at 2%-3% for the building sector, though infrastructure has been increased by one point to 5%.

But in its latest tender price report covering Q3, Mace said the industry still faced a host of issues in the coming months.

Andy Beard, global cost and commercial practice lead for Mace Consult, said: “Given higher input costs, there is limited scope in the medium term for tender prices to do anything but continue to rise, and pressures will come from all sides to keep projects progressing. This is likely to be easier said than done.

“Suppliers who have invested in innovation to improve productivity will be able to offer the most credible solutions to keep projects viable.”

The Mace report added: “While some commodity prices have fallen over the summer, higher energy costs and gradually accelerating labour cost increases mean short of a recession or an end to the Ukraine war leading to a large reversion in these factors, prices will continue to increase.

“Instead, we do anticipate inflation to cool-off in 2024 and 2025, but if the economy slows faster and further than expected, then we may need to bring forward and revise down these figures. More worryingly, if inflation becomes embedded, as the Bank of England fears, then later years could also see high levels of inflation.”

And the report highlighted the number of offsite firms that have run into difficulties in recent months.

“Given that some view offsite construction as a panacea for the skills shortages, we are clearly still a long way from it being successful.

“The main risk for construction projects is that a sub-contractor on the scheme goes bust, but the threat of the client facing difficulties shouldn’t be ignored. Higher energy bills will hit many businesses hard, and not only will this damage demand in the commercial sector, but it may also lead to some failing to pay contractors.”

It added that the issue of rising labour costs was not going away, pointing out that firms were continuing to make “large one-off payments to retain and bring in new employees” – a trend likely to continue with “output holding up incredibly well”.

Mace said: “For employees, real incomes are what matters, and a fall in their spending power will lead to them trying to get higher pay. Short of a considerable downturn in the industry, further pay rises are likely.”