According to the Bureau for Economic Research (BER) the Building Confidence Index (BCI) for the third quarter of 2022 is now 11% higher year-on-year than it was in the second quarter - thus indicating that the gap between input costs and the tender price is becoming narrower. 

A senior economist specialising in the construction sector at the BER, Craig Lemboe, tells the OFM Business Hour that the higher BCI means that contractors are no longer shouldering the burden of higher building costs, opting instead to pass it on to clients. This means the bill that a client incurs in building is 11% higher now than it was last year.

For a while contractors have been taking on the burden of high input costs

Lemboe says in the past few years tender prices rose by less than 4% year-on-year as contractors chose to shoulder the inflationary financial pressures on building material. Whilst these commodity-related pressures were exogenous, the construction industry in the country was also under strain, he adds. In order for contractors to score projects, they would often have to sacrifice profit margins to keep things afloat. However, things appear to be changing, albeit slowly, as contractors leave the higher bills squarely for clients to foot.

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The BER senior economist cautions that this does not mean that the industry is going to see a massive rebound in building activity. However, experts are of the view that we are going to observe marginal improvements in the sector which are also tied down to the property cycle and inflation.

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The building cost index is based on BER’s quarterly survey done amongst quantity surveyors. It measures the escalation in tender prices. Whereas building confidence indices measure contractor sentiment, in other words how satisfied contractors are at a particular point in time. “There is some co-movement. If work is low and civil contractors are dissatisfied, you would see this coincide with relatively low tender price inflation, especially in an environment where there is rising input costs,” Lemboe explains.

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