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Fall in demand forces construction tenders to remain low

22 October 2008

Construction Contractors, faced with a huge drop in demand, are having to hold prices in order to secure tenders, despite pressure from increasing resource costs, according to the latest Tender Price Index compiled by RICS’ Building Cost Information Service (BCIS).

The price of new construction work in Q2 2008 remained the same as the previous quarter (which had already seen a fall) whilst costs continued to rise: costs of materials rose 5.5 percent whilst wage rates rose 4.4 percent in the year to Q2. Overall new orders for construction fell eight percent in Q2 compared with the previous quarter and 20 percent compared with the same quarter the year earlier.

New work output is expected to fall in 2008 (-2.0 percent) and 2009 (-3.0 percent) with private housing and private industrial being hit the hardest, together with private commercial in 2009. Data used to compile the Tender Price Index forecasts private housing to be down 28 percent by the end of year and to fall a further 14 percent in 2009 and private industrial to see a fall of 21.7 percent in 2008 and 10 percent in 2009. Private commercial is expected to fall 12.7 percent in 2009.*

As a result of the decline in new work output in 2008 and 2009 tender prices are now expected to continue to fall over these two years, however with input costs set to continue rising there will be little room to manoeuvre.

Peter Rumble, BCIS Information Services Manager, comments:

“With the construction industry clearly heading to a prolonged recession it is understandable that contractors are being cautious with their tenders. With output levels set to decline in all sectors but infrastructure and public non-housing, competition for tenders will be much higher. Contractors, or their subcontractors, will increasingly have to bear the brunt of any increases in resource costs, and will not be able to pass them on to the client in order to secure new orders.”

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