EC Harris warns of insolvencies as material prices soar

Cost consultants EC Harris has warned record material prices could trigger a further round of contractor insolvencies.

The firm predicts tender prices will stop falling this year, but warns a prolonged period of cut-throat bidding could have dire consequences for contractors and their suppliers.

Record prices are being paid on world markets for copper, energy prices are up 15% and reinforcement and structural steel prices are up by 12% and 10.5% respectively.

The latest EC Harris quarterly report predicts that prices will pick up again in the second quarter, but tender prices are expected to increase by just 0.2% by the fourth quarter of the year.

London tender prices are believed to have already bottomed out. They are forecast to grow by 1.7% to the end of 2011 as a result of a rise in orders particularly in the commercial office sector.

Paul Moore, head of cost research at EC Harris said: “Although we are now expecting tender prices to rise this year, the recovery of the industry is far from certain and could be delayed for a couple of quarters.

“Contractors’ opportunities to increase their tender prices are likely to remain limited and even when workload picks up the worry is the delivery of those low tender priced schemes.”

“Where contractors have pressurised their sub-contractors and cut their profit margins to the bone to secure workload, rapid increases in costs could mean that contractors find themselves caught out with limited options to recoup their losses.

He added: “Previous recessions indicate that the most dangerous time for insolvencies is when workload picks up.

“That brings with it the pressure of increased costs which can be enough to drive contractors on fixed price contracts into failure.”