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Tender prices are set to surge in the next four years. High material costs and strong demand means tender price inflation will hit 4.5% in 2007, rising to 5.75% in 2010. The average increase year on year between 2007 and 2010 is expected to be 5.94%.

The predictions, from Sense Cost Consultancy, were based on a survey of the supply chain of its parent company Mace. Anthony Waterman, head of research at Sense, said: 鈥淭he supply chain expects average tender prices to rise faster than building costs, reflecting the fact the supply chain expects continued healthy growth in demand for new building work.鈥�

The escalation in materials costs in 2008 was expected to be 7.31%. Materials costs between 2007 and 2010 were predicted to increase year on year by an average of 5.79%.

The supply chain expects a continued healthy growth in demand for new building work

Anthony Waterman, Sense

Labour cost escalation is expected to run at 4.23% this year, rising to an average of 5.45% between 2007 and 2010. The survey said this would be driven by potential skilled labour shortages. Sense said plant costs would also be going up, although less dramatically. Plant costs escalation was estimated for this year to be 3.11% and costs between 2007 and 2010 were expected to increase year on year by an average of 3.51%.

Sense said the average building cost inflation over the forecast period was 4.92%, 1% lower than average tender price inflation. Waterman added that the results showed 鈥渁 healthy outlook for the construction industry, but... relatively large increases in material costs due to the recent rise in energy and raw materials costs.鈥� He said that at present, demand was relatively high as many companies are at or nearing full capacity and remained optimistic about future of the construction economy.

The survey asked the supply chain whether it was facing cost escalations in its labour, materials and plant, and whether it was passing on these increases to clients by way of rising tender price inflation over the next four years.