The demise of ISG could be making contractors more risk-averse, according to information analysts.
According to the Building Cost Information Service (BCIS), tender prices increased by an average of 0.8 per cent from the third to the fourth quarters of 2024. Overall annual growth stood at 2.3 per cent.
BCIS chief economist David Crosthwaite said: “Our panellists suggested that procurement routes play a crucial role in tendering appetite and that contractors are increasingly risk averse.
“The demise of ISG and others has reduced contractor capacity, making it harder to secure tender interest.”
ISG, which turned over £2.2bn but made a £133m loss in its final year, went under in September after a protracted attempt to sell the business failed.
The BCIS panel consists of 19 cost consultants from major companies across the industry.
Some 57 per cent of panellists said the desired number of tenderers were found after searching in the past quarter, while 21 per cent said it had been more difficult. By contrast, 21 per cent said contractors were more eager to take on jobs.
There was also a suggestion that the collapse of ISG is affecting the stability of the trade supply chain exposed to non-payment of debt and increases to bond financing.
The company owed £1.1bn, including £308m to trade creditors, when it went under, with none of the supply chain expected to recover any costs, according to administrators at EY. An initial statement blamed loss-making contracts signed between 2018-2020 for its problems.
Industry bodies like the Construction Leadership Council and Build UK have repeatedly warned about the practice of the contractual transfer of unacceptable levels of risk to builders.
In an interview with Construction News published earlier this week, Sisk chief operating officer Steven McGee said the main lesson he learned in his prior role at ISG was in managing risk.
“The construction industry often struggles with the balance of risk transfer. Contractors are expected to manage risks that aren’t always within their control,” he said.
BCIS panellists reported ongoing concern in the sector around insolvencies, with the suggestion that the process of deciding and appointing contractors is being delayed as more thorough checks are undertaken.
Crosthwaite added: “Logistical challenges cited by panellists in the last quarter include supply chain disruptions from contractor insolvencies causing project delays and tender issues. They also pointed to long lead times for mechanical, electrical and plumbing equipment, especially for data centres, which requires careful planning.
“The panel continues to report strong differential movement between building work and mechanical and electrical (M&E) work, with costs more volatile for M&E. This was suggested to be driven by factors including skilled labour shortages and high demand for equipment like generators and sprinklers.”
They said that the Autumn Budget and US election had also contributed to economic uncertainty.
Last month Glencar chief executive Eddie McGillycuddy criticised the Budget’s employer National Insurance rise as “ill-thought-out” and Seddon’s Nicola Hodkinson told Construction News it was a “slap in the face” for those who employ direct labour. Plant-hire trade bodies had also warned earlier that inheritance tax relief changes could kill their industry.
Other measures outlined in the Budget included confirming HS2 would run to Euston and focusing hospital building plans on RAAC-hit estates.
Research published on Monday (9 December) by Arcadis found that the Autumn Budget was a net positive for the construction sector, largely due to the £100bn boost to capital spending, as well as the reversal of the “implausible and highly damaging cuts in planned investment spending announced by the previous government”.
It found that construction costs will rise by between 0.75-1 per cent due to the increase in National Insurance employer contributions starting in April next year.
The hike in the rate at which contributions are paid – from 13.8 to 15 per cent – will come alongside a fall in the threshold at which employers start paying National Insurance on an employee’s salary, from £9,100 to £5,000.
Separate research by the Centre for Economics and Business Research found that a 20 per cent levy on imports to the US, as threatened by incoming president Donald Trump, could cut the UK’s economic output by 0.9 per cent by the end of his term in office.
