AtkinsRéalis tender price inflation forecast increases for construction sector

AtkinsRéalis, a global design, engineering and project management company, has released its latest Construction Intelligence Report suggesting increased taxes and pressures on the supply chain are leading to rising TPI* (Tender Price Inflation) in the construction sector.

Analysis by the professional services experts for Q1 2025 highlights the increase in National Insurance, among other tax rises announced in the November Autumn Statement, leading some developers to cast doubt on the viability of certain schemes. 

There is also a risk that companies will put off much-needed investment in training and technology as a result of the tax increases – both of which are seen as essential drivers for growth in the sector.

However, despite these concerns investment in the sector remains strong, and the government’s announcement of an additional £100bn in spending, coupled with planning system reform, will have a positive impact on property and infrastructure development. 

The report also points to the National Infrastructure and Construction Pipeline’s (NICP) planned investment of £164bn between 2023 and 2025 - underscoring the UK’s dedication to enhancing its infrastructure landscape with a focus on energy, transport and utilities. 

As a result of this mixed picture the AtkinsRéalis TPI forecast this quarter has been raised from 3% in Q4 last year to 3.5% in Q1 2025.

The impact of this rise means extra costs on projects, potentially preventing some from going forward - Deloitte has reported this month a slowdown in construction starts, blaming cost inflation and increasing regulatory complexity. 

But overall, while the UK construction sector faces challenges such as labour shortages and rising costs, the outlook remains positive with potential for growth driven by technology increasing productivity, government investment, and a focus on sustainability.

The Chancellor Rachel Reeves in her speech at the end of January outlined the measures the government will be taking to enable increased levels of construction across various sectors including housing, transportation and major infrastructure projects.

James Butler, managing director for project and programme services at AtkinsRéalis said: “The construction sector is the engine for driving the government’s growth agenda, but the quarterly flux in TPI demonstrates how exposed this sector is to short term economic impacts. 

“As such, it is vital that recent commitments from government to get Britain building, evolve into concrete programmes that will give industry the confidence to invest in the technology and skills needed to deliver on the growth agenda.”

Max Wilkes, market intelligence lead at AtkinsRéalis added: “Against a backdrop of contractors maintaining a risk-averse approach to tendering, the additional tendering opportunities as a result of the government’s push for growth will be welcomed, albeit carefully scrutinised. 

“But while there are currently pressures on costs stemming from November’s Autumn Statement, in our view it would be a mistake to make cuts in areas such as skills training and technology, which is typically what happens in a tight situation. 

“This would lead to higher costs, delays, and less appetite for developers to invest in property and infrastructure. Indeed, it is the increased adoption of technology and digital tools that will create the efficiencies necessary to offset the increased costs as a result of a higher TPI.”

For the full report go to: Construction Intelligence Report Q1 2025 – AtkinsRéalis

What is TPI?

*The TPI or tender price inflation is a measure intended to show the trend of contractors' pricing levels in accepted tenders, i.e. cost to the client. It includes allowances for output cost rises caused by materials, plant and labour. It also reflects commercial decisions made by the contractor such as level of preliminaries, discounting obtained, profit and overheads margins, allowance for risk, directors adjustments indicating their desire to win the work.

About AtkinsRéalis

Created by the integration of long-standing organizations dating back to 1911, AtkinsRéalis is a world-class engineering services and nuclear company dedicated to engineering a better future for our planet and its people. We create sustainable solutions that connect people, data and technology to transform the world's infrastructure and energy systems. We deploy global capabilities locally to our clients and deliver unique end-to-end services across the whole life cycle of an asset including consulting, advisory & environmental services, intelligent networks & cybersecurity, design & engineering, procurement, project & construction management, operations & maintenance, decommissioning and capital. The breadth and depth of our capabilities are delivered to clients in strategic sectors such as Engineering Services, Nuclear and Capital.  News and information are available at www.atkinsrealis.com or follow us on LinkedIn.