Building costs to rise over inflation

by Graham Ridout



Tender prices and building costs are set to rise well above the underlying rate of inflation over the next three years, quantity surveyor Cyril Sweett has predicted.

Nationally, tender prices are estimated to rise at a constant rate of 4%/year during 2000, 2001 and 2002, while a constant increase of 5% in building costs per annum is being forecast over the same three-year period.

However, Sweett associate director Michael Moorhead, who compiled the forecast, warned that "prestigious complex projects, in particular those in city centres, could attract an additional 1-2% on tender prices a year".

Moorhead's predictions are based on a combination of factors: increases in interest rates; rising labour costs fuelled by fuller employment and skills shortages; specialist contractors and subcontractors being able to pass on rising costs; and fuller order books leading to firms targeting contracts where they can obtain better margins.

Moorhead also warned: "The construction industry remains highly labour intensive and, relying on its skilled workforce as it does, is at the mercy not only of any boom in the UK but, more radically, parallel conditions in the rest of Europe.

"A workforce with virtually infinite mobility thanks to the Federation of Europe can follow the money and disappear in an instant. It is this scenario that creates the biggest problem for both contractors and their subcontractors at the bidding stage and beyond."

Moorhead is predicting no downturn in output in the immediate future. "The drive for millennium scheme completions and the volume of work thus created would, it was argued, subsequently lead to a downturn. However, it now looks as if overall turnover will not tail off but grow, and not just in the UK, but Europe generally.

"Needless to say, there are many conflicting views on the degrees of growth expected and sector location with some entrenched dissidents remaining unconvinced by such optimism."