The construction industry has absorbed significant material cost inflation over the past three years. For developers and contractors operating on fixed-price contracts, the consequences have been severe. For those with more flexible procurement structures, the picture is more nuanced — but the pressure is universal.
Steel, concrete, timber, and insulation products have all experienced double-digit price increases. Supply chain disruption, energy costs, and geopolitical factors continue to create volatility that shows little sign of stabilising in the near term.
- Early procurement of long-lead materials is now standard practice on major projects
- Provisional sums are being replaced by firm subcontract packages at tender stage
- GMP contracts are being preferred over lump sum to share inflation risk more fairly
How procurement strategy is adapting
Forward-thinking contractors are restructuring their procurement approach to reduce exposure to mid-contract cost spikes. This includes locking in subcontract prices earlier in the programme, building material price fluctuation clauses into contract terms, and developing direct supply relationships with manufacturers to bypass distributor margin increases.
Developers are also responding by building longer pre-construction periods into their programmes to allow more time for competitive tendering and value engineering before costs are committed.
- Direct manufacturer relationships reduce exposure to distributor price increases
- Fluctuation clauses are becoming standard in NEC and FIDIC contracts
- Value engineering reviews at RIBA Stage 3 are recovering significant cost on large schemes
What this means for project delivery
The most resilient projects are those where cost transparency between client and contractor is highest. Open-book cost management, early contractor involvement, and collaborative contract structures are producing better outcomes than adversarial fixed-price approaches in the current market.
- Early contractor involvement at RIBA Stage 2 reduces cost risk at tender
- Open-book cost management improves trust and reduces dispute risk
- Two-stage tendering allows design development alongside cost certainty
"The contractors who are performing well in this market are those who got ahead of the procurement challenge rather than waiting for it to hit them on site."
