Chartered Surveyors say national annual rate of construction price inflation is now running at over 13%

Submit a News Story
Chartered Surveyors say national annual rate of construction price inflation is now running at over 13%

War in Ukraine likely to lead to even further increases in 2022

SCSI calls on Government to mitigate impact of construction inflation on public projects by facilitating more balanced risk pricing

Friday 22nd April 2022: The latest Tender Price Index published by the Society of Chartered Surveyors Ireland shows the rate of construction price inflation increased by 6% in the second half of 2021.

According to the SCSI’s index which is the only independent assessment of commercial construction tender prices in Ireland this brought the national annual rate of inflation– January 2021 to December 2021-to 13.4% - up from 8.3% in the previous report.

The figures indicate significant variation across the regions in the second half of the year with the highest rate of 8% being recorded in the Rest of Leinster while Connacht /Ulster recorded the lowest rate at 4%. The rate in Dublin and Munster was 6%.

Fig 1. Construction Tender Prices 2010 – 2021 The sentiment survey, which is based on responses from 200 Chartered Quantity Surveyors from all round the country, was conducted in February and March 2022.The SCSI said the latest figures are based on median values rather than averages, as this gives a more accurate reflection of the responses it receives.

Kevin Brady, Chair of the Quantity Surveying Group in the SCSI said construction inflation was continuing to rise at a time when activity across all commercial construction is at exceptionally high levels across the country.

The main reasons for current price inflation are high price volatility across a range of building materials - particularly insulation, cement, plasterboard metals and fuel - labour shortages and the extremely high demand for projects across all tiers as the industry continues to readjust in the wake of the covid crisis.

In respect of the first half of 2022, it’s clear Russia’s invasion of Ukraine is having an impact on the price of materials previously sourced from the region especially steel and base metals while it has also led to a dramatic increase in fuel and energy costs. This is a huge concern for all within the building trade, but we will have to wait until our next survey is out in mid-summer to capture the inflationary effect the war has had on construction costs.”

“Other factors that we expect to contribute to the inflation rate in the first half of 2022 will be labour cost increases following the implementation of the Sectoral Employment Order which came into effect on 1 February. This sets the statutory minimum rates of pay and other conditions (sick pay and pension entitlements) for persons employed in the construction sector. This has applied increases of pay across construction trades and it is expected that the Tender Price Index will also see some impact of this in our next report.” 

Kevin James, Vice President of the SCSI said that while it was extremely challenging to accurately predict future tender rates given current market and geo-political uncertainties, chartered quantity surveyors expected the rate of material price increases to continue to rise into 2022. 

“The SCSI Tender Price Report published in October 2021 expected material price inflation to ease into 2022 and anecdotally, this easing of some material prices was becoming more evident in the second half of the year. However, Russia’s invasion of Ukraine, is expected to undo some of the expected easing of prices for the short to medium term, with the scale of increase very much dependent on the duration and outcome of the war.” 

Our members who are employed by contractors, public sector and consultancy firms report that there is a nervousness in the sector at present especially when tendering for new contracts.They say developers and contractors are taking a more conservative approach to risk when negotiating construction contracts.”

“Management of risk has now become a primary focus for companies to ensure that construction competitions awarded are adequately structured to protect against inflation pressures within the market. Some contracting firms are no longer accepting previous contract risks due to material inflation and are either delaying jobs or selecting jobs where the client is taking on the risk. This is particularly apparent in the private sector.”  

“From a public sector perspective, additional measures need to be introduced by government to ensure that existing projects are afforded an equitable level of price variation. This will enable contractors to respond to the frequent increase of material prices facing the market at present and ensure more balanced risk pricing. Recent changes to new contracts were welcomed by the sector when covid led to higher inflation rates, and the SCSI is calling on similar supports to be introduced now to counter the impact of inflation due to high energy costs.”

“While we have little or no control over global issues, we would urge Government as it prepares for Budget 2023 to focus on solutions to reduce costs by refocussing efforts to address planning permission issues and improve public procurement procedures.For its part the industry will have to step up its cost benefit analysis of materials, utilise modern methods of construction, identify innovative cost saving solutions and streamline pre-construction periods to minimise the impact of inflation” Mr James concluded.

Article Published: 22/04/2022