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Contractors are being forced to keep tenders low in an attempt to remain competitive and ride out the recession, as a result of new orders falling significantly and the demand for construction work drying up, according to the latest Tender Price Index compiled by RICS' Building Cost Information Service (BCIS) published today.
The price of new construction work fell by 0.8% in Q3 2008 compared with the previous quarter and by 1.2% compared with a year earlier, and BCIS expect tender prices to fall by a further 10% throughout 2009 and 2010.
Overall new orders for construction fell 10% in Q3 compared with the previous quarter and 18% compared with the same quarter the year earlier. Over the same period costs continued their upward trajectory with materials rising 7.2%, and wage rates rising 4.6% in the year to Q3 putting a tighter squeeze on potential profits.
New work output is expected to fall in 2009 (-7.0%) and 2010 (-3.0%) with private housing, private industrial and private commercial set to suffer the most significant downturn over the next two years. There is more optimism in the public sector with the Government planning to bring forward many projects in an attempt to stave off the impact of the recession; however with many of these projects still struggling for private finance, doubts about the effectiveness of these measures are already being voiced.
With BCIS analysts not expecting new work output to grow until 2011, Tenders are expected to fall by 7.0% in 2009 and 3.6% in 2010.
Peter Rumble, BCIS Information Services Manager said: "The next two years are going to be tough on the construction industry. Contractors are going to have to be competitive in order to stay in business.
"As a result it is expected that the current trend of falling tender prices is going to continue for some time to come. Contractors who traditionally carry out a significant proportion of public sector work are likely to fair better than those carrying out mainly private sector work. However this is assuming that a prompt release of public funds is delivered, as promised in the Pre-budget report, which is already looking unlikely."
(GK/JM)
