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Civil Engineering Costs Are Key Driver of Tender Prices Over Next Five Years

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BCIS UK Infrastructure Briefing January 2016

Civil engineering costs are forecast to rise by around a quarter in the next five years, and tender prices by around a third. Civil engineering costs rose by 1.4% in the third quarter of 2015 compared with the previous quarter, but remained unchanged compared with the same period last year, according to the latest report from RICS’ Building Cost Information Service (BCIS)*.

Civil engineering costs are now expected to fall over the year to 3rd quarter 2016, principally as a result of falling oil prices. Thereafter, costs are expected to rise quite sharply as oil prices bounce back albeit from a low base, and as a result, by around 25% over the next five years.

New work infrastructure output is expected to remain virtually flat this year. By 2017, output is predicted to fall, with the cycle of some major projects having passed peak as opposed to a downturn in the market. Moderate growth returns in 2018, and will slow slightly in 2019, before rising quite sharply in 2020 due to increased investment in major road schemes and a buildup of HS2 construction, assuming this goes ahead.

Peter Rumble, Head of Forecasting, RICS’ BCIS division, commented:”With civil engineering costs set to fall over the next year, a moderate increase in annual tender prices is expected in the year to the third quarter 2016. Over the next three years input cost increases are likely to be the key driver of tender prices,  but, over 2020, the final year of the forecast period, stronger output growth, in addition to upward pressure from input costs, is expected to lead to a greater gap between costs and tender prices.

“Despite new infrastructure work output predicted to stall for the duration of 2016, the five year forecast period remains significantly stronger than pre-2010 levels, which bodes well for the economy.”

 

* The full report, ‘BCIS Infrastructure Briefing January 2016’, is available online as part of a subscription to the BCIS Infrastructure Information Service Online, a service run by BCIS, and the forecast is continually updated.  

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