Tender prices for
civil engineering work are expected to increase faster than costs over the next
five years as infrastructure construction output continues to grow.
The BCIS forecast
shows infrastructure construction output rising by 27% over the forecast period
(1Q18 to 1Q23), while costs, as measured by the BCIS General Civil Engineering
Cost Index (GCECI), will rise 20% and tender prices, as measured by the BCIS Civil
Engineering TPI (CETPI), will rise 31%.
The forecast is to
be seen against a background of slowing GDP, with little signs of growth above
2% per annum over the forecast period.
BCIS is assuming
that there will be restrictions on the movement of labour after the end of the
Brexit ‘transitional period’ and that this will impinge on the construction
industry from around 1st quarter 2021, as the supply of new European labour
dries up. This will put upward pressure on promulgated wage awards as they try
to keep pace with higher site rates obtained due to the reduced labour pool.
Site rates over and above promulgated rates will be reflected in the market
conditions factor, putting upward pressure on tender prices.
Overall, civil
engineering costs are forecast to rise by between 3% and 5% per annum over the
forecast period. Increases over the final two years are partially driven by
sharper increases in wage awards due to labour shortages.
Tender prices are
forecast to rise faster than costs due to strong demand and increased pressure
on site rates.
Meanwhile, Laing
O’Rourke has won the largest amount of civil engineering contracts over the
past 12 months according to Glenigan’s construction market analysis.
With an order book
swelled by a £1 billion transformation of Manchester Airport, Laing O’Rourke
edges Tarmac into second spot.
Tarmac has surged up
the table after bagging a £1 billion contract for strategic roads resurfacing
work.
Glenigan’s
construction data shows that 71% of the orders won by value in the last 12
months at Laing O’Rourke are for civil engineering projects. This ratio is
nearly 100% at Tarmac and also Costain, which is ranked sixth.
This time last year,
the top civil engineering contractor by orders won was Balfour Beatty, which
was buoyed by a package from the High Speed Two (HS2) rail link.
In the latest top
10, Balfour Beatty is ranked third with just over £1 billion-worth of civil
contracts. These awards make up 59% of the group’s total order book.
Balfour Beatty’s
latest order book includes a package from another major source of civil
engineering work. The company has a £460 million package in joint venture with
NG Bailey on the Hinckley Point nuclear reactor project.
Despite the slump in
high value contracts, the prospects for the civil engineering sector are more
positive at an underlying level.
Last year,
Glenigan’s construction data shows that the underlying value of civil
engineering projects starting on site slumped by 29%, but more work is now
moving to site.
Allan Wilén,
Glenigan’s economics director said: “The recent upturn in civil engineering
activity is continuing, with the value of underlying starts during the three
months to August 15% up against both the preceding three months (seasonally
adjusted) and the same period last year. The year on year rise was driven by a
73% rise in utilities work.”
This research only
includes projects valued at up to £100 million, but Glenigan expects a fall of
just 3% this year before a rise of around 12% driven by stronger infrastructure
work.
