Recent research indicates that the mechanical and electrical (M&E) sector has faced significant challenges this summer due to rising costs, leading to a notable decline in contractor workloads. According to a survey conducted by Southern Construction Framework (SCF), tender growth has fallen to a three-and-a-half-year low.
The survey data, which encompasses responses from 150 subcontractors, showed that while tender workload experienced a marginal increase of 0.9 per cent in the three months leading to September 2024, this was the lowest quarterly rise since the first quarter of 2021. The increase is largely attributed to surging copper prices and escalating labour costs impacting the M&E sector, which constitutes approximately 20 per cent of all project costs.
In specific terms, costs in the M&E sector surged by 3.6 per cent, marking the largest increase across the construction industry during this period. Additionally, costs in related sectors such as drylining and brickwork also saw significant rises of 3.5 per cent and 2.5 per cent, respectively.
Adrienne Turner, the SCF framework manager, commented on the situation, noting that the cost inflation seen in the M&E sector could potentially be contained if "clear procurement strategies are defined early." She further emphasised that "supply chains are looking to bid for schemes with a high certainty of progressing to site" as well as the necessity for "strong confidence in the reputation and payment terms of the main contractor and client."
The findings also highlight noticeable disparities in the appetite for tendering across the construction sector, reflective of a more cautious bidding approach among contractors. The SCF report pointed out that demonstrating value for money remains crucial for public sector projects. It urged clients to invest time in developing procurement strategies that can optimally engage market interest.
The report raised concerns regarding the costs incurred from retendering projects, which can impose additional financial burdens on suppliers and create uncertainties regarding project timelines and payments. Such unpredictability poses challenges for the supply chain in terms of income forecasting and long-term resource planning, underscoring the importance of executing projects correctly at the inception.
Looking forward, the SCF's outlook appears more optimistic, with supply chains anticipating a 5.5 per cent increase in tender workloads over the forthcoming year. However, the report warns that lingering effects of inflation and sector insolvencies, highlighted by the collapse of construction firm ISG in September, are expected to continue affecting the supply chain landscape. SCF concluded by asserting that "transparent procurement and fair payment practices help mitigate these impacts," suggesting a pathway towards more stable operations within the sector.
Source: Noah Wire Services