SCSI: Rate of construction price inflation jumps to 13%

The rate of construction price inflation is now running at over 13%, according to new figures from the Society of Chartered Surveyors Ireland (SCSI).

They show the national rate increased by 6% in the second half of last year, with significant variations across the regions.

Kevin Brady, Chair of the Quantity Surveying Group in the SCSI said construction inflation was continuing to rise at a time when activity across all commercial construction is at exceptionally high levels across the country.

"The main reasons for current price inflation are high price volatility across a range of building materials - particularly insulation, cement, plasterboard metals and fuel - labour shortages and the extremely high demand for projects across all tiers as the industry continues to readjust in the wake of the Covid crisis," he explained.

Mr Brady said Russia's invasion of Ukraine is having an impact on the price of material previously sourced from the region - especially steel and base metals.

He also pointed out that the war has led to a dramatic increase in fuel and energy costs.

"This is a huge concern for all within the building trade, but we will have to wait until our next survey is out in mid-summer to capture the inflationary effect the war has had on construction costs," he said.

Mr Brady said the labour cost increases which followed the implementation of the Sectoral Employment Order which came into effect on 1 February are also expected to contribute to the inflation rate in the first half of this year.

"This sets the statutory minimum rates of pay and other conditions (sick pay and pension entitlements) for persons employed in the construction sector," he explained.

"This has applied increases of pay across construction trades and it is expected that the Tender Price Index will also see some impact of this in our next report," he said.

In terms of the outlook for the rest of this year, Kevin James, Vice President of the SCSI said chartered quantity surveyors expect the rate of material price increases to continue.

"The SCSI Tender Price Report published in October 2021 expected material price inflation to ease into 2022 and anecdotally, this easing of some material prices was becoming more evident in the second half of the year.

"However, Russia's invasion of Ukraine, is expected to undo some of the expected easing of prices for the short to medium term, with the scale of increase very much dependent on the duration and outcome of the war," he said.

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Mr James said their members say there is a nervousness in the sector at the moment, especially when tendering for new contracts.

"They say developers and contractors are taking a more conservative approach to risk when negotiating construction contracts."

"Management of risk has now become a primary focus for companies to ensure that construction competitions awarded are adequately structured to protect against inflation pressures within the market," he explained.

Mr James said some contracting firms are no longer accepting previous contract risks due to material inflation and are either delaying jobs or selecting jobs where the client is taking on the risk.

"This is particularly apparent in the private sector," he said.

The SCSI has said it is calling on the Government to mitigate the impact of construction inflation on public projects by facilitating more balanced risk pricing.

"From a public sector perspective, additional measures need to be introduced by government to ensure that existing projects are afforded an equitable level of price variation," Mr James said.

"This will enable contractors to respond to the frequent increase of material prices facing the market at present and ensure more balanced risk pricing," he added.

He said recent changes to new contracts were welcomed by the sector when Covid led to higher inflation rates, and they are now calling for similar supports to be introduced to counter the impact of inflation due to high energy costs.

"While we have little or no control over global issues, we would urge Government as it prepares for Budget 2023 to focus on solutions to reduce costs by refocussing efforts to address planning permission issues and improve public procurement procedures," Mr James said.