Middle East Conflict: Construction Cost and Procurement Implications
In these uncertain times, our priority is to help our clients stay informed and supported by sharing clear and practical advice to protect budgets, programmes and procurement decisions.
Geopolitical instability is now regarded across the construction industry as the most significant threat to construction cost stability over the next 12 months.
The ongoing conflict in the Middle East is already causing increased volatility in UK construction costs through sustained pressure on energy and fuel prices, disruption to global supply chains, and reduced supplier price certainty. Logistics risks, including potential disruption to the Red Sea and Suez Canal shipping routes, are contributing to higher transportation costs and extended lead times.
Current market intelligence indicates broad-based input inflation of between 5%-20% across a range of key materials and products, including insulation, roofing membranes, sheet materials, timber, plasterboard, mortar, metals and steel. Continued pressure is also reported across aggregates, ready-mix concrete, and asphalt prices.
In response to heightened uncertainty, suppliers are increasingly responding with shortened validity periods and greater reliance on surcharges and fluctuation protection.
We therefore recommend that cost plans should adopt enhanced inflation and risk contingencies, and that published indices are applied with caution in the near term, as they are likely to underestimate true inflationary risk. Certain published series, including the current BCIS All-in Tender Price Index are acknowledged as out of date, having been compiled prior to the current conflict.
More collaborative procurement and contract strategies including two-stage or negotiated approaches, may be particularly appropriate in the current environment. For longer-duration schemes, the use of fluctuation provisions or target cost mechanisms can assist in maintaining affordability and programme certainty.
Rising inflation will also impact demand. In the short term, further reductions in base rate appear unlikely, and the potential for interest rate increases which would suppress private and speculative development activity.
If you have any questions or are seeking advice on cost stability during these uncertain times, please contact us today, we are always happy to have a chat.
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