Tender prices drop as competition for work rises

Rising competition for work has lead to a fall in tender prices, data published today has revealed.

The latest tender price index, complied by the Building Cost Information Service (BCIS) of the RICS, showed new orders for construction work fell by 8% between the third and fourth quarter of 2008, and 28% from the previous year. In line with this, the price of new construction work fell by 2% in the fourth quarter of 2008, compared with the previous quarter. The BCIS has predicted a further 8% fall over the course of the year.

Meanwhile, costs are going against the falling inflation trend, with an annual rise of 7.7% for materials and 4.8% for wage rates.

It is predicted that 2009 will see a sharp fall of 12% in new work output, with a more moderate fall of 2% expected in 2010 with growth returning to the industry in 2011.

Tenders are consequently expected to fall by 8% in 2009, and 1.4% in 2010.

Commenting on the figures, Peter Rumble, BCIS Information Services Manager said: “It is clear that demand is now the main driver for setting tender prices. Contractors are being left with little choice but to keep tenders as low as possible as competition for work reaches new highs and they can no longer pick and choose projects.

“It is going to be tough over the next two years,” he added. “Those that are focused on private sector work are going to suffer the most. With the significant contraction of work over the next two years, the rate of unemployment in the industry will undoubtedly rise sharply, with the loss of skilled tradesman, some of whom will not return to the industry once work begins to pick up.”