London’s largest building contractors are turning down one in three bidding opportunities in the capital as increased workloads and skills shortages see the balance of power shifting from clients to the construction supply chain, a report by consultant Aecom has found.
Aecom’s 2014 London Contractors Survey, published today, showed that contractors are becoming increasingly selective by turning down one in three bid opportunities, particularly projects and clients they perceive to carry higher risk.
The findings come as many clients are beginning to bring new projects to the market, with Aecom forecasting that by the end of 2014 tender prices will have risen by 5-6% with further price inflation of 5.1% in 2015 and 5.3% in 2016.
This stands in contrast with previous years when prices were falling.
Aecom said labour shortages were now the primary driver for price rises, with specialists in concrete and brickwork continuing to be in particular demand.
The report added that there was now also growing demand for joinery and dry lining specialists, with electrical engineers set to be the next specialists to see strong pick-up in demand.
Aecom said the other key driver for price rises is increasing contractor margins, with clients who engaged in “an adversarial relationship with contractors … finding the boot on the other foot”.
“Contractors [are] able to turn down work in favour of clients who have worked on a more collaborative basis,” Aecom said.
The survey also found that refurbishments or work on complex projects that entail substantial risk are also becoming “increasingly difficult to invite contractors to bid for”.
Contractors with a combined UK turnover of almost £7bn took part in the survey, including Laing O’Rourke, Mace, Kier, Brookfield Multiplex, Skanska and Willmott Dixon, as a well as a large selection of specialist subcontractors.
Aecom director Brian Smith said: “Clients are seeing sustained and increased tender prices - what we forecast a year ago has become a reality.
“Contractors are now becoming far more selective, assessing project attractiveness and risks.
“Stable relationships between clients and contractors are becoming ever more important.
“Procurement route, work type and the location of work are also increasingly being given as reasons to tender or not to tender, with many contractors now only willing to accept work on a negotiated basis.
“However, it is important to remember that overall price levels are still lower than they were in 2008, and even at the rates of inflation we forecast they will not get back to their previous peak until 2017.”