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Contract prices to rocket this year, Deloitte warns

Construction contract prices could jump in 2014 as volumes of work and costs grow, according to a new report by Deloitte.

Deloitte Real Estate’s “UK real estate predictions 2014” report warned that the cost increases could lead to business failures for some contractors who had priced work before costs rose and would therefore be unable to recoup the subsequent rises in labour, subcontractor and materials prices.

The report’s author Neill Morrison, partner in construction cost consultancy at Deloitte Real Estate, told Construction News: “Large contracts secured on a lump sum basis that are just starting now are the ones I would be concerned about.”

However Mr Morrison said he doubted that major contractors would get into “serious difficulty”.

There could also be a growth in takeovers of faltering contractors, Mr Morrison warned in the report.

Early stage trades like demolition and concrete contractors are already very busy, it warned, and Mr Morrison said that the rise in work had yet to feed through to some of those involved later in the building process, like mechanical and electrical contractors. There were also variations between sectors, with infrastructure already busy, he said.

Mr Morrison said the firm predicted construction tender prices would rise 3.5 per cent this year but there was a real possibility that the rise could be larger.

He said: “We are starting to see contractors pulling out of tenders, picking and choosing the work they bid for and not bidding for work they consider higher risk. My sense is we could see a much bigger spike than 3.5 per cent in the next 12 months if confidence continues to rise and work continues to be there.”

He had heard reports of formworkers seeing their pay rise from £130 a day to £170 when moving to a new site. He said: “Contractors can’t simply mop up those increases.”

He also thought 2014 could see tentative return for speculative office development, which all but disappeared during the recession. He thought some developers might start to looking at speculative office schemes of around 50,000 to 200,000 square feet.

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