Contractors are no longer pursuing every available opportunity, with a steady flow of government-backed projects allowing firms to be more selective, according to Gleeds’ Q1 2026 market survey.
Findings from the latest survey of developers and contractors indicate a shift away from aggressive bidding in a weaker market. Instead, firms are exercising greater caution, with reduced appetite for risk shaped by ongoing global uncertainty.
Education continues to lead tender activity for a fourth consecutive quarter, supported by increased delivery of SEND schemes and continued programmes from the Department for Education addressing the condition of the school estate.
Energy, infrastructure and defence are also maintaining a consistent pipeline, helping to underpin workloads while private housing and commercial sectors remain relatively subdued.
Data centres remain a strong area of demand, with hyperscale operators and AI-driven requirements sustaining a pipeline of high-value, technically complex projects.
Gleeds highlights contractor discipline as the defining characteristic of current market conditions.
Andy Ellis, UK MD at Gleeds, said: “The conflict in Iran is already affecting construction costs and confidence, with the sector particularly vulnerable if prices continue to rise and we experience a slump in demand.
“Contractors are stepping back from risk, clients are seeing reduced appetite to tender, and the market is becoming more cautious. We expect to see greater use of fluctuation clauses and more defensive commercial strategies as volatility persists.”
The survey found that 85% of firms reported either they or their supply chain had declined to bid for work during the quarter, signalling a widespread move towards targeting projects that can be delivered with greater certainty.
Projects are being passed over where labour availability is uncertain, supply chains appear unstable or contractual risk is not clearly defined. This reflects a focus on protecting margins that remain under pressure.
One respondent noted reduced competition, stating firms were “either folding or restructuring and lowering their targets”, creating short-term opportunities while pointing to wider instability across the sector.
Risk appetite remains limited, with 57% of respondents reporting a reduced willingness to take on risk, only slightly improved compared with late 2025.
This caution is influencing pricing strategies. Contractors are factoring in higher risk allowances, seeking longer delivery programmes and requiring more clearly defined scopes before committing to bids.
Margins have held steady but remain tight. Typical main contractor overhead and profit levels are just above 6% for projects in the £10m to £30m range, consistent with the previous quarter.
Labour costs continue to rise, with nearly 80% of contractors reporting increases in rates. Skills shortages remain an issue, and any easing in pressure is linked more to reduced demand than an improvement in workforce availability.
Material prices have stabilised to some extent, though the market remains exposed to external factors. Energy-intensive materials such as cement and steel are particularly sensitive to price fluctuations, with the potential for rapid increases.
Tender price inflation is currently sitting in the low to mid single digits for 2026. Gleeds notes that the primary risk lies in sudden cost spikes rather than sustained upward trends.
