M&E sector facing ongoing rising costs as construction output falls

A new survey of over 150 subcontractors released by Southern Construction Framework (SCF) has revealed that build costs for the Mechanical and Electrical Services (M&E) sector is continuing to increase, with the sector experiencing a 7% rise in costs compared to the previous year.

This comes as the ONS indicated that Great Britain’s construction output fell by 2.2% in the three months to April 2024, driven by declines in new work and repair and maintenance. This has been further observed by the ONS throughout Q2 (April-June), with construction output falling by 0.1%, driven by a decrease in new work (-0.5%).

According to SCF’s report, while the rise in building cost has slowed quarter by quarter, with Q2 marking the smallest quarterly fluctuation seen in the past four years (1.47%), compared with 2.3% the previous quarter, average build cost across all trades was still greater (3.79%) when compared with the same time last year. Trades with the largest increase throughout the year include M&E (7%), Brickwork (6.32%) and Roofing and Cladding (6.2%).

While national inflation reduced from 4.2% in January to 2.8% in June, the fact that some trades are reporting a rise in build cost that exceeds this, suggests that some trade packages are still being impacted by material prices and labour pressures.

Adrienne Turner, Framework Manager at SCF, said: “With M&E being a critical package for projects, and responsible for a high proportion of the construction costs, any unexpected escalations can often place significant pressure on project affordability.

“Costs for the M&E sector are increasing for a myriad of reasons, including labour shortages and changes in specification, following stringent environmental and quality requirements.

“So, it’s vitally important that cost escalations are well understood and predicted.

“Contractors must engage earlier with specialist M&E suppliers to ensure benchmarked rates and that cost allowances are accurate and reflect the designed solution.”

The report also found that despite a decrease in construction output, tender workload has increased by 3.8% in the second quarter of 2024, when compared to the previous quarter.

Concrete Frame firms saw the biggest rise in demand to price work, up 11.7%, while windows subcontractors saw a 6.9% rise. Steelwork specialists saw a 6.8% rise and M&E saw a 2.67% rise.

Janara Singh, Assistant Framework Manager at SCF, added: “Anecdotal evidence from main contractors and their trade suppliers suggests that subcontractors are being asked to revisit previous tenders in the search of cost savings and specification adjustments, as past hyperinflation has led to outdated budgets.

“As a result, this may be driving tender workload across the industry, but not necessarily reflecting an improvement in output.”

The report also revealed that employment increased by an average of 0.7%, including a spike in M&E (2.9%) and Steelwork (1.44%). When compared to this time last year, employment increased by an average of 1.79%.

M&E providers have however reported a significant shortage of skilled labour with demand often outstripping supply. This is likely driving employment in an attempt to improve much needed delivery capacity. High insolvencies are also resulting in the re-recruitment of workforce across businesses as firms collapse.

SCF’s report recommends that clients should look to consider early engagement with suppliers to maximise opportunities for forward planning.

Looking ahead, SCF main contractors and their supply chain forecast an increase in building costs of 3.78% by Q2 2024, with the trades anticipated to be most impacted by this increase including Steelwork (6.06%), Brickwork (5.46%) and Carpentry and Joinery (4.73%).

Trade subcontractors forecast a 3.24% increase in employees over the next year, with the largest increases including: Groundworks (5.28%), Tower Crane (4.17%) and Brickwork (4.03%).

To read the full report, visit: https://southernconstructionframework.gov.uk/wp-content/uploads/2024/08/Q2-2024-1.pdf

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