Tender prices are still having a bumpy ride but are set to stabilise

Tender prices are continuing to fluctuate but will even out in the coming two years, according to the latest findings from the Building Costs Information Service.

The price of construction work rose slightly faster than inflation between the second quarter of 2004 and the second quarter of 2005, according to the BCIS’ Tender Price Index. But the BCIS added that the annual increase in tender prices was distorted by a large hike in tender prices seen in the second quarter of 2004.

“Over the last year we have seen the index bumping up and down, so it’s difficult to make out any particular trend”, said Peter Rumble, managing technical editor, BCIS.

Looking ahead, the organisation predicted that new work output growth would rise well behind trend in 2005. New work output in the first half of the year fell by 2.2% compared with the same period in 2004.

However, the BCIS said in 2006 that growth in new work output was likely to move a little ahead of trend and then in 2007 it would jump significantly above trend.

The main growth sectors are thought likely to be public non-housing and private commercial, as PFI schemes go on site and the office sector picks up. Olympics-related construction will also start boosting output from 2007, the BCIS said.

Rumble said that looking forward, oil prices would continue to push up materials and input costs. Steel prices would have less of an impact, as they appeared to be settling, he added.

“It’s not clear why the index is jumping around so much. One explanation could be that contractors were wary of what would happen next with the steel price so they built in contingencies but then after the price seemed to stabilise they changed their policies.”

Another explanation, he said, was the growing use of less traditional procurement methods, such as partnering.