Construction costs rising

Construction costs for London projects are rising’, according to Aecom’s just-released 2014 London Contractors Survey.

The firm polled main contractors with a combined UK turnover of almost £7bn, plus 16 major subcontractors. The survey concluded that contractors are beginning to decline to tender on up to one in three higher risk projects and push up quotes on others.

Contractors including Laing O’Rourke, Mace, Kier, Brookfield Multiplex, Skanska and Willmott Dixon took part in the survey. Most of which are lined up to start major London office schemes in 2015, as featured in Metropolis and Cityoffice’s recent London Skyline survey.

Metropolis and Cityoffices calculate that there are already 80 london office projects scheduled to start next year, with more schemes at an earlier stage, which could also still start in the next 12 months. The likelihood is that contractors will enjoy more choice over projects to tender for.

The Aecom survey also found contractors moving towards earlier procurement. Some contractors are still proposing lump sum, single stage tender, but the client will pay higher costs.

Refurbishments schemes or complex projects which bring substantial risk for contractors are also attracting fewer bids from contractors according to Aecom.

Penalties for late completion of projects, which were relatively common in 2013, have now largely disappeared.

Aecom is forecasting that 2014 will record 5-6% tender price inflation in London, and is predicting inflation of 5.1% in 2015 and 5.3% in 2016. In previous years prices were falling.

Labour shortages are now the primary driver for price rises, especially in brickwork-related trades. Aecom is predicting that electrical engineers will be the next specialists to see strong pick-up in demand.

The Aecom survey also found that London contractors have on average already secured 71% of their turnover for 2015, which is higher than the 67% secured for 2014 at the same time last year.

Metropolis is forecasting a further rise in speculative projects in 2015, with an increased level of refurbishment and fit-out work driven by a strengthening pipeline of schemes and a large number of occupiers looking to tie-up deals.