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Q3 2020

Tender Price Indicator

Given the uncertainty at the time, our previous TPI forecast used a scenario-based approach, outlining how different market conditions might weigh in on tendering conditions. Whilst there are still many unknowns with regards to the type of recovery that will materialise, it has become clear that substantial deflationary pressures will affect input costs and tender pricing into 2021.

Our weighted UK average TPI forecast shows a 1% fall in 2020, declining by a further 50 basis points to -1.5% in 2021. Although economic activity is expected to begin to recover in Q3 2020 as some pent-up demand is released, this could be tempered by lower business and consumer confidence, rising unemployment and slower investment. Added to this is the uncertainty over Brexit and what the UK’s trading relationship with the EU will look like after the transition period ends on 31st December 2020. With an extension ruled out and little time for a deal to be struck, uncertain trading conditions may hamper economic activity and investment. At this point a tick-shaped recession and recovery period looks most likely, in line with an average GDP growth forecast of -9.2% for 2020 and 6.5% in 20211, taking time to recover to the previous path.

The focus for contractors over the next 18 months is likely to be on winning work and maintaining pipeline. Although cost pressures from rising preliminaries and programme delays will be significant, with a lack of new opportunities coming forward we anticipate seeing price discounting to win work. Thereafter, we expect a slow but sustained recovery in tender price inflation, rising to a mid point in our range of 0.5% in 2022 and then 1% in 2023 as demand returns, new orders rise and output normalises.

All forecasts take account of all sectors and project sizes as a statistical average, indicating an overall trend in pricing levels. It should be remembered that individual projects may experience tender pricing above or below the published average rate, reflecting the project specific components and conditions.