Tender Price Index
August 2010
Predictions on tender prices and building costs such as material prices and labour costs have proven to be difficult to predict at the best of times, however, nearly all predictions since the summer of 2008 have in one way or another have been wrong.
The recession commenced in the 3rd Qtr of 2008 which pushed tender prices down in 2009 as market conditions deteriorated and construction orders fell, however, some materials rose in price such as cement, bricks and plasterboard, while steel and reinforcement fell 2008 /2009 by some 25%. Tender prices fell back in the early 90’s by 30% between 1989 & 1993. This time its different, last year the predictions were for the Tender price index and building cost index both to continue to fall, however, the tender price index has actually shown to have risen in the first two quarters of 2010 all be it only 0.5%. The building Cost index has not only risen but exceeded expectations. The difficulty with predictions has been compounded with the exchange rate where in 2008 the pound lost 23% of its value against the euro and 27% against the dollar as UK interest rates dropped rapidly. This decline made imported goods more expensive. In construction 25% of materials and components have been imported in recent years. This has therefore slowed down the reduction in overall construction costs, overall the pounds loss against a wide range of currencies is believed to have added approximately 7% to building materials.
2010 has seen a stabilisation of prices ( not as predicted in 2009) the UK is officially no longer in recession, however, the tender price index in London is still 10% lower than the first half of 2008.
BCC's Thoughts
With materials starting to regain lost ground on prices, for example steel having lost some 35% since 2008 has now increased in price regaining ground 20% generally, this has a large effect on many areas of the industry, ducting, large components etc. and the pound has not regained any substantial ground against the euro.
Our summary is that building material costs have continued to rise through the recession, however, the reduced cost of steel and a few others materials have generally held the overall construction material cost rise down. The financial climate and reduction in construction orders has forced tenders down from what could be considered the inflated costs of early 2008, tenders are still lower than 2008 but this is not any more than 10% due to the building material cost increases and we feel it is these building material cost increases that will pull the tender price index back upwards as contractor must allow for the material increases in their tenders.
New building control regulations such as Part L and the increased desire for sustainability together with conservation of fuel and power will mean that Quantity Surveyors will have to reach to new levels of understanding and research to enable Architects to have any budget left to deliver good design work. There will now be two tiers of QS practices that can advise on design costs as before or new practices that can seek out ways to enable bespoke ideas through to completion.
Greater savings can be achieved in selecting a contractor when work is thin, however, it is important to ensure the price is right, adequate for the project and there is a decent contingency to cover legitimate claims which will be forthcoming in the current climate.