IN Brief:
- Contractors forecast 3% sector inflation for 2026, AECOM said.
- Tender activity rose to just over 70%; Tier 1 and Tier 2 combined activity was 64% in 2025.
- Contractors reported increased AI use for tendering and estimating, alongside labour pressures.
London’s main contractors are experimenting with artificial intelligence in practical, commercial workflows, as a more competitive market collides with persistent labour and materials pressure. That is one of the clearer signals from AECOM’s London Main Contractor Survey 2026, which also points to a tendering environment that is busy, but not cheap.
AECOM said contractors predict 3% sector inflation for 2026, above the Treasury’s 2.2% forecast, with costs for both skilled and unskilled labour cited as a key factor weighing on short-term confidence. The survey covered contractors with a combined turnover of £6bn, and found that while competition has intensified, most contractors continue to maintain margins and pass on labour and material price increases in tender pricing.
Tender activity has increased materially. AECOM reported that Tier 1 contractors bid for new work at rates not seen since the pandemic period in 2022, with tender activity rising to just over 70%. Across Tier 1 and Tier 2 combined, tender activity was 64% in 2025, up from 59% in 2024. AECOM defines tender activity as the number of tender invitations versus the number of bids submitted per contractor — a useful proxy for how hard companies are chasing workload, and how much choice they have in what they pursue.
Against that backdrop, contractors are looking for process advantages. AECOM said one key trend for 2025 was “the adoption of artificial intelligence (AI), with contractors reporting increased use of the technology for tendering and estimating.” Used well, those are exactly the functions where speed, consistency, and early risk detection can separate a controlled bid from a loss-leading gamble.
Brian Smith, Head of Cost Management and Commercial at AECOM, said: “This year’s survey shows contractors are balancing the need to secure work with managing risk exposure.” He added: “One growing trend we’ve identified this year is the trialling of AI by contractors. If AI becomes more deeply integrated in their operations, the potential benefits are likely to accelerate rapidly as contractors look for new ways to drive efficiencies.”
Labour constraints remain the structural limit. AECOM highlighted that rising demand for data centres is straining an already limited supply of mechanical, electrical, and public health (MEP) subcontractors, driving up prices and pushing some contractors toward developing in-house MEP capacity to support projects. That change has knock-on effects across programme certainty, commissioning risk, and supply chain concentration.
Looking further out, AECOM said Tier 1 contractors reported healthier order books for 2026, with a more diverse mix of sectors rather than reliance on a single market. The survey points to a continuing shift away from residential activity in London toward commercial, refurbishment, public sector, life sciences, and infrastructure projects — a diversification that may offer more stable pipelines, but still requires delivery capacity that can keep pace with technical complexity.
