Build costs are continuing to soar for contractors, despite material prices dropping, new research has found.
Inflationary pressures derived from rising utilities and labour costs saw costs continue to rise by an average of 3% during the second quarter, according to a survey conducted by public sector procurement framework Southern Construction Framework (SCF).
The survey of suppliers and contractors found the trades with the greatest quarterly increase in building costs were mechanical and electrical at 5%, dry lining at 4%, curtain walling at 4% and groundworks at 4%.
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However, data from the Department for Business and Trade’s ‘all work construction material price index’ showed material prices fell 1.3% in June and were 2% lower than a year ago.
SCF said labour costs continued to “soar” as a rise in the cost-of-living has resulted in workers requesting an increase in wages. Contractors told the organisation this had created “a highly competitive culture” surrounding skilled labour. Trade supply chains also shared that an increase in staff turnover was “increasingly prevalent”.
Kingsley Clarke, SCF operations lead for the South West, said: “Our data shows that a drop in material prices is not being fed through the supply chain, with a lag existing between a drop in material costs and overall build cost reduction.
“With insolvencies at near record highs, subcontractors, which have potentially been more greatly impacted by inflation due to lacking economies of scale and working with tight margins, may now be looking to improve margins through keeping costs higher. With product prices still being up 12% since January 2022, the fact that there is now deflation on a 12-month basis may therefore have little impact on contractors.”
SCF Main Contractors and their trade supply chain forecast building costs to be 4% greater by Q2 2024. Carpentry and joinery have predicted the highest increase at 6%, while brickwork and mechanical and electrical firm, and concrete frame businesses have predicted increases of between 4 and 5%.
The Building Cost Information Service forecast build cost inflation of 3.2% between Q2 2023 and the second quarter of 2024.
Adam Sanford SCF Operations Lead added: “Costs are still high across the industry, and while contractors are expecting a 6% lower increase in building costs over the next year, compared to this time last year, when contractors predicted a 10% increase, many businesses are still feeling the pinch and expecting continued market volatility as inflation remains sticky.
“We operate on a two-stage open book procurement basis, and we strongly believe it’s important to take a collaborative and integrated approach to pricing as this encourages transparency. It means that there are constant discussions around delivery costs as market factors impact a project.”
