Infrastructure prices rises to exceed inflation, peaking in 2022

In the past five years, infrastructure tender prices have seen limited increases. AECOM’s cost intelligence lead Ed Day says this simply cannot continue. Prices are being pushed upwards as increased spending on infrastructure requiring more labour, plant and materials comes during a period of constrained resources. Unsustainably low contractor margins are also expected to rebound, further increasing prices.

AECOM forecasts an average 6.2 percent increase in tender prices over the five-year forecast period, with a peak in 2022 as the constraints surrounding resources will be at their greatest. That’s a marked increase from the average 4.5 percent as recorded by BCIS[1] over the past five years. Our forecast is based on a managed exit from the EU with minor disruption on the movements of people and materials.

Increased infrastructure output

One of the factors that can cause prices to increase is infrastructure spend. The government’s 2018 National Infrastructure and Construction Pipeline identifies more than £400 billion of planned investment in new infrastructure projects, around half from the private sector.  Of this, £190 billion is scheduled to be spent by 2020/21.

Forecasts[2] for spending on new infrastructure this year point to an average increase of 8.9 percent. This is set to fall to an average of 6.2 percent in 2010 and 5.2 percent in 2021. Across the three years, average infrastructure spend is set to grow by seven percent per annum.

Historically in the construction sector, output tends to correlate to market conditions as measured by the BCIS market conditions factor indices. On this basis, the sustained increase in output we are expecting over the next three to five years should lead to higher contractor tender prices.

Resource constraints

The UK’s construction labour shortage is well known. A recent cross-industry research report entitled ‘Shortage occupations in construction’ surveyed 276 companies representing 160,000 workers. It highlighted severe shortages in key construction trades including construction and building trade supervisors, general labourers, quantity surveyors, construction project managers, civil engineers, bricklayers, carpenters, plant and machine operatives, production managers and directors in construction, and chartered surveyors.

Based on a seven percent increase in Infrastructure output per year over the next five years, AECOM predicts the industry will need an additional 40,000 engineering professionals, 20,000 architects, planners and surveyors, and 70,000 tradespeople in construction and building.

Labour is not the only shortage. Increased infrastructure output will also place increased pressure on key materials and construction equipment. Our modelling forecasts the UK will need an additional 80,000 tonnes of structural steel and 1.2 million tonnes of cement to service the planned infrastructure requirements.

Suppliers and training providers are likely to struggle to meet these requirements. In the short term at least, it is probable that resource constraints will impact availability, pushing input costs higher as supply and demand economics takes hold and contractors pass on increased costs to clients.

Infrastructure contractor margins

The recent collapse of construction giant Carillion and the appointment of administrators to manage the insolvency of UK contractor Interserve highlight the impact of historically low profit margins, sustained over several years. This has reduced the financial buffer contractors could rely on when projects go awry, as some inevitably do.

The long-awaited normalisation of margins to two to three percent has not materialised. In fact, margins have actually decreased according to AECOM research. We analysed the top ten Infrastructure companies’ average margins over the last five years, showing profit levels were reduced almost to zero in 2018 and 2019.

This situation is likely to change particularly when it comes to the sorts of complex infrastructure projects that are planned. Given the level of financial risk involved, contractors will need higher margins to participate.


To mitigate these increased costs, careful consideration will be needed on issues such as who is best-placed to carry the contractual risk of inflation on multi-year projects, and whether the forward-purchase of materials could limit costs. Another consideration is the fact that price rises in the infrastructure sector are likely to exceed the headline inflation figure (CPI), which some budget envelopes are indexed to.



[1] Building Cost Information Service (BCIS) – Civil Engineering Tender Price Index.

[2] 2019 forecasts range from 7.6 percent according to the Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors/ Oxford Economics forecast, 10 percent from global information services company Experian, and 9.3 percent from the Construction Products Association (CPA).