The latest Tender Price Index published by the Society of Chartered Surveyors Ireland shows that construction tender prices are continuing to rise and increased by 3.95% in the first half of 2018.
According to the SCSI’s index – which is the only independent assessment of construction tender prices in Ireland – the forecasted increase for 2018 will be 7.4%, almost half a percentage point ahead of what the Society predicted at the start of the year.
This will bring construction prices back to the level they were at in the first half of 2006 and just five index points below what they were when prices peaked in the first half of 2007.
Fig 1. The graph above illustrates how construction tender prices have risen steadily since their post-recession low in 2010/11. As this trend continues it is likely that they will reach a peak equal to the 2007 boom sometime next year.
Des O’Broin, President of the SCSI, described the increases as concerning in the shorter term and a challenge for those involved in procurement, especially public procurement which is a fixed price tender process.
“Given the continued rise in tender prices over a relatively short period of time, it will be a concern for contracting authorities receiving tender proposals for national projects that contractors may well run into financial difficulty half way through – as evidenced in recent school delivery projects.”
“If the current trend continues prices will be back at the peak boomtime level of 2007 early next year. The current rate of increase is simply not sustainable in the long term. The major reason cited by SCSI members for the continuing increase in tender prices is ever increasing workload coupled with the skills shortage being experienced by both main contractors and specialist sub-contractors.”
“Labour prices are also rising on foot of the Sectoral Employment Order while the price of steel, timber and other materials, as well as oil, are also increasing. Other factors contributing to the increase include the application of new Nearly Zero Energy Building regulations although these will lead to reduced running costs for buildings over their lifecycle. Further uncertainty around Brexit and tariffs arising from a global trade war are likely to be other contributors” he said.
“Given the market uncertainty and the continuing increase in tender prices it is very important for clients embarking on building projects to make appropriate provision for future tender inflation” Mr O’Broin advised.
The indices represent a national average; however, the rate of increase is not uniform across the country. For the first half of 2018, Dublin and the rest of Leinster increased by more than the national average, rising by 4.2% and 5.1% respectively. Prices in Munster and in Connacht / Ulster rose also but by less than the national average, increasing by 3.38% and 3.12% respectively.
The SCSI Tender Price Index will continue to monitor construction tender levels and trends and the Society will publish its next six-monthly update early in 2019.