Mace has warned that some contractors are likely to aggressively cut bid prices as material and labour costs drop.
In its latest quarterly report on the UK construction market, Mace’s consultancy arm said it expected tender-price growth of 2.5 per cent nationally and 2 per cent in London this year – rising to 3 and 3.5 per cent respectively in 2025.
But the report cautions that falling or plateauing workloads combined with falling costs will encourage some contractors to offer unrealistically low prices for jobs – hurting supply chains and potentially causing insolvencies down the line.
Mace global head of cost and commercial management Andy Beard said: “Over the past quarter, material prices have continued to drop and there are now signs that labour costs are starting to fall.
“However, while this is good news, developers need to be careful of those who are aggressively cutting bid prices. Weakening pipelines are likely to encourage some firms to squeeze prices by more than is achievable in order to secure work.”
He added: “Supply chains are still fragile, and work won at ultra-low prices won’t help repair them. Suppliers are also facing problems from high credit costs, meaning that paying on time is vital in order to keep some afloat.”
While the construction industry grew by 2 per cent last year, output dropped by 1.3 per cent in the last quarter and new orders were down by 20.9 per cent across 2023. The Mace report said this suggested that construction output was likely to drop further.
Material prices have, meanwhile, fallen for eight successive months, according to Mace, although many products are still priced considerably higher than they were before the start of 2020 when supply chains were disrupted by the Russian invasion of Ukraine.
Mace said that wages in the construction industry fell 0.5 per cent between the third and fourth quarters of 2023, while year-end wage growth of 3.8 per cent was below the economy’s average.
But it cautioned that “if firms continue to find hiring problematic, then wage pressures could return”.
In a separate update, the Construction Leadership Council’s Material Supply Chain Group said there was “good levels of product availability across the board”, while concerns over disruption caused by conflict in the Red Sea “seem to have dissipated or are manageable”.
However, the group said the availability of skilled labour “remains the most immediate and pressing concern” for most of its members and suggested that labour shortages – and costs – could be sharply exacerbated if industry output increases.
“Several [of our group’s members have] expressed the view that current market conditions have been masking the true scale of the issue, which will be exposed when the market picks up,” it said.
