Contractors forced to hold down tender prices as input costs soar

Construction contractors are having to hold down prices to secure tenders despite rising input costs, according to the latest Tender Price Index compiled by RICS’ Building Cost Information Service (BCIS).

The price of new construction work in Q2 was the same as the previous quarter, which had itself registered a fall. But costs continued to rise: materials rose 5.5% and wage rates rose 4.4% year-on-year.

New orders for construction fell 8% in Q2 compared with the previous quarter, and 20% compared with the same quarter a year earlier.

BCIS said new work output is expected to fall 2% in 2008 and 3% in 2009, with private housing and private industrial being hit the hardest, and private commercial also suffering in 2009. 

Private housing is forecast to be down 28% by the end of this year, and to fall a further 14% in 2009. Private industrial is expected to drop 21.7% in 2008 and 10% in 2009. Private commercial is predicted to fall 12.7% in 2009.

BCIS said it expected that tender prices would continue to fall over the next year and a half, though with input costs set to continue rising there would be "little room to manoeuvre".