Tender Price Inflation Sits at 3.2%. The Average Hides the Risk.

For the first time in several years, the tender market favours the client. The BCIS panel for Q2 2026 recorded 67% of respondents saying contractors were eager to tender, while new orders fell 11.8% over the same quarter. Contractors are pricing to fill order books rather than protect margin.

For funders, this shift changes what to look for at credit committee. A soft tender market only produces a reliable price if the scheme behind it is ready. If not, the saving on day one is lost later, through variations, claims or a contractor unable to fulfil within budget.

Headline tender price inflation sits at 3.2% a year, modest by recent standards. That average hides a wide range: fabricated structural steel is up 17.7% year on year, while ready-mixed concrete is down 1.1%. A cost plan carrying a single blended inflation rate will misprice both, and a scheme priced against a blended rate will need renegotiating. Ask whether the cost plan applies inflation package by package rather than as one rate across the board.

Timing carries as much risk as the rate. Take a £10m contract at a 2.5% margin: £250,000 profit. If 40% of that value is unbought and the relevant costs rise 6%, roughly £240,000 of that margin disappears. A contractor with no margin left has less reason to hold the programme, resolve defects or absorb the next price rise. Margin erosion on the contractor's side becomes delivery risk on the funder's side.

Contractors are pricing an uncertain market as best they can. A client who hasn't fixed the value of long-lead and volatile packages (steel, cables and aluminium) early in the process is asking them to price risk they can't control, and that gap gets filled with contingency or appears later as a variation.

Before drawdown, it's worth asking a borrower whether the cost plan has been built package by package. Whether decisions on long-lead and volatile items were made early enough to remove that pricing risk from the tender. And whether the tender documentation is complete, since contractors hungry for work will still price in the gaps and ambiguities they find. A scheme that answers yes to all three is one where a competitive tender price is likely to hold to completion. A scheme that doesn't is one where the headline saving is still provisional.

Conditions like this don't last. For schemes that are genuinely ready, now is a good window to secure favourable pricing. For those that aren't, the current price is unreliable.