Construction input costs rise by 4.5% in Scotland | Project Scotland

CONSTRUCTION input costs in Scotland increased by an average of 4.5% in the year to Q2 2024, according to a contractors panel newly established by the Building Cost Information Service (BCIS).

The BCIS Scottish Contractors Panel was formed to help monitor quarterly movement in costs, including the prices agreed between the main contractor and suppliers and subcontractors at the commit to construct stage.

Comprised of representatives of major contractors in Scotland, it also provides insights on the factors affecting costs on construction projects.

Karl Horton, chief data officer, BCIS said, “While inflationary pressure on materials prices has stabilised, panelists said global issues still present a risk to the supply chain. This is particularly the case with electrical products, which, in contrast with other building materials, are predominantly imported and therefore more susceptible to problems when international supply chains are disrupted.

“Of ongoing concern to panelists is the impact of skills shortages in the industry. While some sectors, again, for example, electrical, are still receiving a good volume and quality of apprenticeship applications, they said others, particularly plumbing, heating, aircon and ventilation roles, sometimes require additional advertising to attract candidates.”

Panelists added that declining population and immigration rates present a further challenge, exacerbated by SMEs leaving the supply chain due to the retirement of owners.

The recent increase in the national minimum wage affected the rates paid to apprentices, which panelists suggested could prompt further rate increases for trained operatives. There is also an expectation that labour rates will increase above inflation in the next couple of years.

Panelists outlined uncertainty among customers around when or if they will move forward with projects, making it more difficult for contractors to forward plan. Part of this uncertainty comes from external factors like changes in government, though affordability remains a fundamental issue with prolonged high interest rates.

While there is consideration and some mitigation of inflation on costs, panelists suggested most subcontract work is tendered on a fixed-price basis, with the exception of some longer-term projects, rather than using mechanisms to share risk.

The panel members included Stuart Parker of Morgan Sindall, Garry Shand of Hutcheon Services, Brian McQuade of Robertson Group, Alan Wilson of SELECT and Paul Dodd of Scottish Futures Trust.