The BCIS Scottish Contractors Panel was formed to help monitor quarterly movement in costs, i.e. the prices agreed between the main contractor and suppliers and subcontractors, and comprises representatives of major contractors in Scotland.

BCIS chief economist, Dr David Crosthwaite, said: “The annual increase of 4% reported by the panel is slightly less than the average 5% increase they experienced in the 12 months to 3Q 2024.

“They also continue to experience differential cost movement between mechanical and electrical work and building work. Panellists suggested that M&E package rates are double what they were a few years ago and budgets haven’t moved to accommodate these changes.

“This is in large part due to the increased costs associated with meeting new regulations and sustainability targets. This includes, for example, the cost of extra supervision to ensure the required quality standards are met, which has required extended programmes and increases costs. Panellists suggested that it’s not an unrealistic prices issue, rather they are dealing with unrealistic budgets.”

Among the logistics challenges reported by panellists were tenders being issued with poor quality of information, tight tender periods, and a lack of response to further requests for information or clarification.

Panellists reported a fairly even appetite from subcontractors to tender for work, with nobody reporting that subcontractors were very eager or that they couldn’t get anybody to tender.

In terms of their own appetite to tender, the contractors said that they are selective on the basis of risk profile and the procurement route, as well as the maturity of design information.

Reporting on their anticipated pipeline of projects in the next 12 months, panellists said there’s not necessarily a lack of work to bid on, but visibility of upcoming tenders is an issue.

Dr Crosthwaite said: “Panellists still have significant concerns around recruitment in the industry with an aging workforce and declining birth rate in Scotland. They said it’s not just about recruiting operatives, but also ensuring organisations are able to grow to work at greater scale.

“For example, on an M&E package above £7/8 million, the number of capable organisations in the market shrinks to just two or three.

“As elsewhere, difficulty recruiting may be exacerbated by wage increases, with skilled worker rates being pushed up by increases to the National Minimum Wage and National Living Wage.

“While the supply chain may absorb some of the increased costs associated with employment in the short-term, especially where existing contracts don’t allow for adjustments in the case of tax changes, bidding for work in the coming months will of course have to reflect the increased National Insurance contributions announced in the recent Autumn Budget.”