Contractors turning down one in two bid opportunities amid fears over London housing boom

London skyline / Cheesegrater

London’s biggest contractors are turning down one in two bidding opportunities due to soaring costs and growing skills shortages, according to a new survey by Aecom.

The consultant’s 2015 London Contractors Survey – which polled firms including Galliford Try, Laing O’Rourke, Sir Robert McAlpine and Willmott Dixon – shows that contractors are focusing more on higher margin work provided by low-risk, high-certainty projects as construction cost inflation hits 10% this year.

This has seen contractors focus more on the commercial office market due to fears that the capital’s housing boom is beginning to falter.

Aecom estimates that construction cost inflation has risen by 10% during 2015, and predicts increases of 7% in 2016 and 5.5% in 2017.

A shortage of skilled workers is creating wage inflation across the joinery trades, particularly in the fitting-out of prime London residential and office space, where wages have risen by much as 15% this year.

The survey also found that contractors are beginning to diversify into other sectors as they become concerned about their exposure to the residential market.

It has meant contractors have become more selective, with firms turning down one in two bid opportunities on average compared to one in three a year ago, while the report finds that some of the main contractors are even now turning down 75% of new business opportunities.

Aecom cost management director, Brian Smith, said: “The industry is taking a far more strategic approach, targeting schemes that will deliver planned margins.

“Other considerations increasingly include the reputation of the developer or whether there is any successful prior relationship, as well as the visibility of reliable funding.”

“Risk appetite amongst contractors is low, with a desire for certainty meaning that projects may be taken on a smaller margin if the return is guaranteed.

“In this environment, clients can be confident that the contractors they engage with will be fully committed to successfully delivering a project.

“Developers do, however, need to consider how they can position their projects to best possible effect to attract and secure interest from the best qualified contractors.”

The contractors that took part in the latest survey are BAM; Bouygues; Bowmer & Kirkland; Brookfield; Galliford Try; ISG; Laing O’Rourke; Mace; Sir Robert McAlpine; Skanska; Wates and Willmott Dixon.