Construction price rises need procurement control

By SubTrada ·

Construction price rises are back in the post room. The fix for main contractors and developers is not a bigger contingency line. It is knowing, package by package, which prices are still valid, which packages are already ordered, and which surcharge letters have any contractual standing at all. If your procurement tracker cannot answer that on a Monday morning, you are carrying inflation risk you have not priced.

What the numbers say

Construction News reported on 5 October that 32% of construction businesses expect to raise their selling prices in October, according to the ONS Business Insights and Conditions Survey. That is the highest share for construction since February 2023, and the highest of any industry in the survey, against 17% across the wider economy.

Rebecca Larkin, head of construction research at the Construction Products Association, told CN that oil above $100 a barrel earlier in the year takes time to feed through into products, haulage and plant hire, and that inflation will now be "higher and for longer". She also pointed to strain on existing contracts that did not allow for faster inflation, and at contract award between clients and contractors.

In Scotland, Advance Construction said on LinkedIn that it had received numerous letters and notifications from suppliers and subcontractors advising of price increases and fuel-related surcharges, as reported by Scottish Construction Now on 2 October.

Gardiner & Theobald's Autumn Tender Price Indicator, published in September, trimmed its 2026 UK tender price forecast to 3.25% from 3.50%. That is not because costs have eased. G&T's view is that weak demand is limiting pass-through, so more cost is being "absorbed, qualified or carried through preliminaries and risk allowances". Its Main Contractor Survey from July pointed to shorter price validity, more qualifications and more caution on fixed-price commitments, with MEP the tightest package and façades, passive fire protection and steelwork also tightening.

Put that together and the squeeze sits in the middle. Clients want fixed numbers. The supply chain wants shorter validity and is sending surcharge letters. The main contractor sits between them with a tender sum built on quotes that may already have lapsed.

Where the money actually leaks

The loss rarely comes from the headline inflation figure. It comes from gaps in the paperwork.

The quote that expired between tender and order. A mechanical package is priced at tender with 60-day validity. The main contract is signed eight weeks later and the order is placed at week fourteen. The specialist re-prices and you have no grounds to argue, because the offer you were relying on no longer exists.

The surcharge letter treated as a variation. A supplier letter is not an instruction. On a fixed-price subcontract with fluctuations deleted, a price increase letter on a placed order is a request and nothing more. If site teams start paying them through the valuation because everyone else seems to be, you have rewritten the subcontract by habit, and you will struggle to recover any of it from the client.

The design that moved after pricing. Many re-prices are justified, because the drawings the specialist priced are not the drawings now issued. If you cannot show which revision a package was tendered on, you lose that argument by default, in both directions.

The specialist that cannot absorb it. Larkin's warning about strain on existing contracts lands hardest on smaller specialists. A firm that priced tight and is now eating fuel and material increases is a firm that may not finish your job. Replacing a failed M&E or façade contractor mid-build costs far more than any surcharge.

A worked example

The figures below are illustrative, not from any real project.

Take a £4.2m M&E package on a mixed-use scheme. It was tendered in June on Stage 4 drawings at revision C, with 60-day validity. The main contract was signed in late August. The order still has not been placed in October because the client is holding a plant room layout decision.

The subcontractor writes in with a 4% uplift. Before anyone replies, the commercial team needs four facts in front of them:

  1. The validity end date on the tender return.

  2. The drawing revisions the price was based on.

  3. What has changed on those drawings since.

  4. Who or what delayed the order.

If validity lapsed because the client held a decision, the uplift belongs in a conversation with the client, ideally already flagged under the main contract change process. It should not come out of your margin. If validity lapsed because procurement drifted, the cost is yours. If the drawings moved from revision C to revision E, the specialist has a point, and you should ask for a priced breakdown against the actual changes rather than a percentage. If nothing moved and validity is still live, the answer is a polite no in writing.

On these numbers, 4% is £168,000. That is the value of having those four facts in one place rather than spread across four inboxes and a buyer's spreadsheet.

Checklist for your next procurement meeting

  • Record the validity end date for every tender return, and flag any package where it falls before the planned order date.

  • Tie each return to the drawing register revisions it was priced on, and keep that link when drawings are reissued.

  • Set order-by dates from the programme and the validity dates together, not from when the buyer gets round to it.

  • Log every price increase or surcharge letter against its package with a response date.

  • Keep surcharges out of the valuation until they are either rejected in writing or approved as a numbered instruction.

  • Check the fluctuation provisions in the main contract and in each subcontract before agreeing anything.

  • Refresh financial checks and insurance status on the tight packages, especially MEP, façades, fire stopping and steelwork.

  • Tell the client early, in writing, where a held decision is pushing a package past its validity date.

Contract positions to check

Under JCT, the fluctuation option chosen is the starting point. A lot of subcontracts go out fixed price with fluctuations deleted. That gives you a firm position on placed orders, but a firm position against a specialist heading for insolvency is worth very little. Sometimes paying a justified, evidenced amount to keep a key package alive is the commercially sensible call. The point is that it should be a decision, recorded and numbered, not a drift.

Under NEC, the secondary Option X1 for price adjustment for inflation is either in the contract or it is not. Without it, a general rise in costs is not a compensation event on its own.

For packages not yet let, the issue is validity and the assumptions in your own tender. If the quotes behind your offer carry 30 or 60-day validity, your offer to the client should not sit open for 90 days without qualification.

Where SubTrada fits

Most of this is a records problem. In SubTrada, tenders are issued with drawings pulled from the platform's drawing register, so each return is tied to the revision it was priced on, and the auto tender and procurement trackers sit alongside the RFIs and pricing that come back in the same place. When a price change is accepted it goes through the variation route and gets an instruction number before it reaches a valuation, and the client profile can see where design and procurement actually stand.

My view

Put validity dates and order-by dates on the agenda at every procurement meeting this month, and refuse to pay any surcharge that has not been through a numbered instruction. Teams that hold that line early and politely will have far fewer awkward conversations at final account, and their clients will trust the cost reports more.

FAQ

Do I have to accept a subcontractor's price increase letter?

On a placed, fixed-price order with fluctuations deleted, generally not. It is a request to change agreed terms. Check the subcontract, reply in writing, and make a separate judgement about whether the package is at risk if you refuse.

What quote validity should I expect at the moment?

G&T's survey work points to shorter validity and more qualifications. Whatever you receive, match your own tender validity to the shortest critical quote behind it and set order-by dates to suit.

Can fuel surcharges be claimed as a variation?

Not on their own under most standard forms. A variation changes the works. Cost increases are dealt with through fluctuation provisions such as the JCT fluctuation options or NEC Option X1, where they have been included.

How can developers reduce their exposure?

Make design decisions on the dates the programme needs, agree a fluctuation mechanism on volatile packages where a fixed price is not realistic, and ask for visibility of procurement status so held decisions show up before quotes lapse.

Sources

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