Firm flags worries over firms bidding to win turnover and impact of steel quotas on project costs
Mace Consult has decided to keep its tender price forecasts unchanged despite worries about rising inflation and a slowdown in activity.
In its lates update for Q2, the firm said it expected tender price rises in London to remain at 3.5%, while the rate nationally for real estate would also be 3.5% and infrastructure at 4.5%.
But the firm, which is now majority owned by Goldman Sachs and due to leave its 155 Moorgate home in th City this autumn for new offices near Cannon Street, warned: “the construction industry has to battle the twin challenges of rising inflation and depressed activity which comes with worrying implications.
“Weaker output and greater competition for work may encourage some firms to aggressively price tenders. Yet, in an inflationary environment there is greater risk of costs spiralling above winning bids and putting schemes under pressure. Clients need to be aware of these risks and be cautious of artificially low tenders.”
It added the ongoing company collapses, such as that of Ardmore Construction Group last month, meant the supply chain was seeing retention payments lost for good.
A new bill banning retentions is being planned by the government with the ban taking effect around 2029. But Mace Consult said: “Hopefully clients and consultants [will have] enough time to figure out how best to manage defects effectively and think through the impact of changes to contracts, risk allocations and how to deal with practical completion.
“Without [a lead-in period], there is a risk that banning retentions will lead to a more adversarial and litigious approach to disputes about work, practical completion and defects, resulting in higher tender prices.”
And it said the government’s decision to change quotas on steel imports – to ensure surplus steel production does not undercut UK steel – is likely to see construction costs rise with estimates the new policy will £4,000 to the cost of a residential unit.
The report added: “A lower quota means less steel can be imported tariff-free, while the tariff rate above the reduced quota has doubled, from 25% to 50%. Once the threshold is met, importers will have no choice but to pass on higher costs.”
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