Contractors are declining one in two bidding opportunities in the capital because of cost inflation and a shortage of skilled labour, according to research.
The latest London Contractors Survey from engineering consultants Aecom found that contractors were becoming increasingly picky about which projects they went in for.
Some firms indicated they were reducing their exposure to the residential market because of fears that the house price boom would cool. In contrast, contractors responding to the survey signalled they were increasingly going for low-risk, high margin office work.
Aecom said construction cost inflation across the South East was running at 10%, while wage rises for the most sought-after skilled workers could be more than 15% - particularly in the joinery trade.
The report warned of an icreased risk of an overheated market with materials and skilled worker shortages for contractors, yet plenty of opportunities being offered by clients.
The proportion of contracts the average contractor does not consider has risen from one in three in 2014 to one in two this year.
The survey suggested that some of the main contractors were in fact turning down three-quarters of new business opportunities. The strength of the market meant that the average respondent had secured 75% of its turnover for 2016 already.
Aecom director of cost management Brian Smith said: “The industry is taking a far more strategic approach, targeting schemes that will deliver planned margins. Other considerations increasingly include the reputation of the developer or whether there is any successful prior relationship, as well as the visibility of reliable funding.
“Risk appetite among contractors is low, with a desire for certainty meaning that projects may be taken on a smaller margin if the return is guaranteed. In this environment, clients can be confident that the contractors they engage with will be fully committed to successfully delivering a project. Developers do, however, need to consider how they can position their projects to best possible effect to attract and secure interest from the best qualified contractors.”
The contractors that took part in the Aecom 2015 London Contractors’ Survey were: Bam; Bouygues; Bowmer & Kirkland; Brookfield; Galliford Try; ISG; Laing O’Rourke; Mace; Sir Robert McAlpine; Skanska; Wates and Willmott Dixon.