Two-stage bids rise

The Spring 2006 Economics Survey said rather than always gunning for the cheapest option, clients are looking to put together the best possible team before negotiating price.

Tom Kane, head of infrastructure sector at EC Harris, said because "there is a finite number of contractors who have the expertise" assembling "the ‘right team' is seen to be paramount".

"Inner city developments are becoming more complex and, with risk aversion the name of the game, two-stage procurement is now the expected route for the majority of larger schemes," he said.

The report said tender prices were going up despite falling workloads last year because contractors are being pickier about the jobs they take on. It predicted a 4% rise across the UK in the year ending the first financial quarter 2007, and 3.6% in the year after.

Rises are expected to be highest in London, with increase of 5.5% and 5.4% predicted for the next two years respectively.

Yorkshire and Humberside are set to see tender prices go up 4.8% and 5% over the same period, and Northern Ireland should anticipate of 5% in each of the next two years (see graph).

The report also said building activity was set to pick up. New orders in the three months to November 2005 were up 6% on the previous three months and up 20% on the same period in 2004.

This rise comes even though the third quarter of 2005 showed no improvement either on the previous quarter or the same quarter of the previous year.

Workloads are set to get a 1.5%-2% boost when Olympics work kicks off around mid-2007. The commercial office sector is also expected to recover over the next three years. Despite these causes for optimism, Kane stressed that over-reliance on public sector health and education projects could spell trouble. "Given the commitment by government to increased spending on health and education, the underperformance in 2005 could cause some concern when looking at public investment plans in the future," he said.

Kane added: "The city is still concerned about potential black holes in the Chancellor's figures."

A downturn in government finances could see investment deliberately slowed down to help bridge the gap between income and expenditure.