Civils firms hit by higher costs and lower tender prices

The latest quarterly workloads survey by the Civil Engineering Contractors Association makes for grim reading as higher costs combined with lower tender prices have reduced margins in the last three months of 2010.

Of those surveyed, 78% said costs have been increasing, while more than half said tender prices are still falling. This combination of trends has resulted in a further hit to margins, damaging the sector.

CECA members reported that tender prices for new work and repair and maintenance have been falling since October 2008.

The outlook for tender prices is not expected to improve any time soon, as consultants EC Harris predicts just a 0.2% increase in tender prices throughout 2011.

This situation does not bode well for the civil engineering sector, despite a slight improvement in the proportion of those saying things are getting better. Commenting on the survey Alasdair Reisner, director of external affairs at the CECA, said: “In the short term, we remain extremely worried that tender prices continue to fall while our members’ costs are rising. This is an unhealthy situation for the industry.”

There was also negative news on the jobs front, as a third of firms expect to have to shed jobs over the coming year, compared with just a quarter that expect to be hiring staff.

Overall, the survey may have shown some improvements on the third quarter, but Reisner added: “We must remember the figures remain negative: this is not the growth the industry needs.”

The outlook for orders is still in negative territory but there has been a significant improvement overall in the last three months. In the third quarter of 2010, 38% more firms said their order books were falling in size, rather than increasing. In the final quarter, this percentage net balance figure had fallen to 9%. But even this more positive figure masks what is still a negative outlook, as 39% of those firms responding to the survey said their order books were still falling.

There was also negative news on the jobs front, as a third of firms expect to shed jobs over the coming year, compared to just a quarter which expect to be hiring staff. Overall, the survey may have shown some improvements on the third quarter, but it is still a long way from being a positive outcome for the sector.