Consultants flag concerns over rising costs and contractors’ willingness to price jobs as Middle East conflict drags on

Mace Consult has revised its tender price forecast for this year up by 0.5% because of the war in the Middle East.

In its first quarterly report for the year, the firm, which is now a standalone business owned by Goldman Sachs, said tender prices were expected to increase in the wake of rising materials costs.

In its report, the firm said: “What is clear is that the conflict is creating further uncertainty which will contribute to fragile business confidence and may delay some schemes. Ultimately, as the report states, the impact of oil and gas price rises depends on how long the Strait of Hormuz is impacted.

“If the recent surge in prices continues it is almost certain that material prices will rise more than expected at the start of the year and lead to mounting pressure on businesses.

“Material prices picked-up last year, and with pressures likely to mount, organisations will need to have particularly disciplined commercial judgement going forwards.”

Mace Consult said that while forecasts for 2027 and beyond remain unchanged “the conflict makes the longer-term outlook harder to predict”.

The firm’s global director of cost and commercial management, Ceri Evans, said: “The UK is more dependent on global oil and gas markets than other economies, and the government has less headroom in its budget to protect organisations from the impacts of a prolonged conflict in the Middle East.

“Certainly, in the short-term, the prices of more energy-intensive products will be most affected such as glass, cement and steel, as well as plastic products which use oil, and higher transport costs will also be an issue.”

The firm said it expected tender price inflation for London this year to be 3.5% and 3.5% for commercial work nationally. It said the forecast for infrastructure was 4.5%.

Meanwhile, Gleeds has also said the conflict is affecting market sentiment with 50% of respondents in its latest market report saying they had turned down a tender opportunity in Q1 “signalling a reluctance to take on risk in an increasingly uncertain environment”. It added: “A further 57% reported that contractors had become more risk-averse, with many citing volatile input costs and concerns about a potential global downturn.”

Andy Ellis, UK managing director at Gleeds, said: “Contractors are stepping back from risk, clients are seeing reduced appetite to tender, and the market is becoming more cautious. We expect to see greater use of fluctuation clauses and more defensive commercial strategies as volatility persists.”