The high cost of steel and oil combined with confidence in the contracting market made tender prices shoot up four times faster than the general rate of inflation in 2004, according to the Building Cost Information Services (BCIS). Tender price inflation over the year was 14.3% while general inflation was 3.6%.

And the trend should continue, says Peter Rumble of BCIS, who predicts that new work output growth will carry on as long as public spending in the non-housing sector does, and as more health and education PFI schemes reach the construction stage.

"Upward pressure will also be applied to tender prices from quite strong input cost rises over this period,” he said.

“It is anticipated that tender prices will rise more slowly over the second year of the forecast. But they will still rise faster than inflation as new work output growth slows to a little ahead of trend in 2006 and input cost rises slow down."

On the causes of this rapid inflation, Mr. Rumble commented: "With materials prices rising by 7.3 per cent in the year, due largely to the sharp increase in steel prices and the oil price rises, the annual increase in tender prices may also be reflecting contractors' expectations that they will be kept busy over the next year.

"In addition, with the further increase in steel prices in the first quarter of 2005, together with a significant increase in cement prices, potential input cost increases could be putting upward pressure on prices during firm price contract periods."

Source

Construction Manager