Construction costs, funding and fragile supply chains: six questions for BCIS’s chief economist

Forecasting costs, keeping projects within budget and finding enough work were among the challenges reported by attendees at our recent webinar on rebuild cost movement in 2026. Their responses describe a difficult combination: pressure on project costs alongside constrained funding, weak demand and concerns about supply chain resilience.

We put six of these challenges to Dr David Crosthwaite, BCIS chief economist, to explore what they mean for clients, consultants and contractors, and how they can respond.

1. How can we forecast construction costs when the outlook keeps changing? 

Start with a clear distinction between the cost of labour, materials and plant, and the tender price a contractor will offer. They respond to different pressures and will not necessarily move together.

Use the latest relevant data but avoid treating a single forecast as a guaranteed outcome. Test your budget against different scenarios, including higher energy costs or a delayed start. Make assumptions explicit and revisit them as the design, programme and market conditions develop. The aim is to understand your exposure and allow for it, rather than predict every movement.

2. Why are tender prices exceeding client budgets when demand is weak?

Weak demand does not make every project cheaper. A budget may reflect an earlier price level, incomplete scope or assumptions that no longer match the scheme being tendered. Location, complexity, programme and the availability of suitable contractors can also affect bids.

Before concluding that the market has become more expensive, compare the tender with the budget on a consistent basis. Identify whether the difference comes from quantities, specifications, inflation or risk allowances. Early engagement with contractors can help establish whether the budget and delivery expectations are realistic.

3. How should we respond to uncertainty over fuel and delivery costs?

Look at where the project is exposed. Fuel costs affect transport and plant operation, while energy prices influence materials manufacturing. The impact will vary considerably between projects and products.

Ask suppliers about quotation validity, delivery arrangements and the assumptions behind their prices. A fall in crude oil does not immediately translate into cheaper diesel or materials, so avoid adjusting budgets on the strength of a few days’ trading. Procurement decisions should reflect the programme, storage costs and contractual responsibilities as well as expectations about prices.

4. What can public sector clients do when funding is constrained?

Separate what must be delivered from what can be deferred, phased or redesigned. That requires a clear understanding of the service the project needs to provide and the consequences of each saving.

Reducing the initial capital cost can create higher maintenance and operating costs later, so assess options over the asset’s life. Equally, delay is not automatically a saving: it can expose a project to further inflation and prolong spending on unsuitable facilities. Keep the business case current and show decision makers the financial implications of the available choices.

5. How should firms respond to weak workloads and pressure on fees?

Focus on the credibility of the pipeline, rather than headline announcements. Consider whether prospective projects have funding, approvals and a realistic route to procurement.

For consultants and contractors, winning work at an unsustainable price can create problems beyond the immediate contract. Understand the resources required, define the scope clearly and price the risks you are taking. Clients also need to recognise that sustained pressure on fees can reduce the capacity available to support delivery.

6. What do insolvency concerns and fewer tenderers mean for project planning?

A quiet market does not guarantee a strong field of suitable bidders. Specialist capacity, project risk and payment arrangements can all influence whether firms choose to tender.

Assess supplier capability and financial resilience alongside price. Engage early, maintain fair payment practices and understand dependencies on critical subcontractors. The lowest bid offers limited reassurance if the business cannot sustain delivery. Allowing time to select and retain a capable team is an essential part of managing project risk.

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