Contractor workload was hit by rising costs in the mechanical and electrical (M&E) sector this summer, according to new research.
This resulted in tender growth falling to a three-and-a-half year low, according to a survey by leading framework provider Southern Construction Framework (SCF).
Although tender workload was up 0.9 per cent in the three months to September 2024, it was the smallest quarterly rise since the first quarter of 2021.
Survey respondents said this was down to copper price rises and spiking labour costs hitting the M&E sector.
The survey of 150 subcontractors revealed that costs increased by 3.6 per cent in the M&E sector, the largest increase across construction. Costs in the M&E sector – which accounts for around a fifth of all project costs – also jumped by 5.5 per cent compared with the third quarter of 2023.
Costs also increased significantly in the drylining and brickwork sectors, by 3.5 and 2.5 per cent respectively.
SCF framework manager Adrienne Turner said cost inflation in the M&E sector could be limited if “clear procurement strategies are defined early”.
“Supply chains are looking to bid for schemes with a high certainty of progressing to site and a strong confidence in the reputation and payment terms of the main contractor and client,” she added.
“These conditions reiterate the importance of an effective procurement strategy in de-risking delivery.”
The report also revealed “significant variation in tendering appetite” across the construction sector, which SCF said reflected cautious bidding approaches.
“A demonstration of value for money is critical for public sector projects, it is important that clients take time to consider procurement approaches to help maximise market interest,” the report added.
In particular, retendering of projects can be costly for suppliers and increase uncertainty on the programme of works and payment, SCF said. “This uncertainty makes predicting income and planning long-term resourcing difficult for the supply chain, highlighting the benefit to all in getting projects right the first time.”
Looking ahead, the SCF survey was more positive, with supply chains forecasting an increase of 5.5 per cent in tender workloads over the next year.
But legacy inflation issues and sector insolvencies are still having an impact on the supply chain, SCF warned, pointing to ISG’s collapse in September. “[ISG’s collapse] will continue to impact the supply chain over the coming months,” SCF said.
“However, transparent procurement and fair payment practices help mitigate these impacts,” it added.
