Declining Tender Prices Are Coming To An End
22 January 2011
The question is....Will tender prices now
fall further as the Public Sector(PS) squeezes more value out
of their contractors for less money? It seems that many PS
organisations are focussing on cost rather than quality....is this
a false economy? Will we get to a point where contractors /
suppliers will just bow out and say "Sorry we cannot tender the
margins are too small"?
Tender prices fell once more in Q2 2010 according
to the latest UK Construction Tender Price Index compiled by
BCIS.
The fall in tender prices has been slowing dramatically over the
last year from an annual fall of 13% in Q2 2009 to 4% in Q2 2010;
with only a 0.5% quarterly fall in Q2 2010 suggesting an end to
falling tender prices over the upcoming quarters. A recent BCIS
survey of contractors also showed the majority are expecting tender
prices to remain static over the next six months.
The upward push of the continued increase in resource costs is
competing with the downward pull of uncertain future demand.
Material prices rose by 3.8% in Q2 2010 which is a 6.5% increase
on 2009. National statistics show significant increases in certain
material costs, including concrete reinforcing bars, ceramic tiles
and fabricated steel work. Sharp increases in annual materials
prices are expected through to Q2 2011.
Employment figures within the construction industry rose 2.6%
from Q1 to Q2 2010 but were still 3.3% down on the same period in
2009. Average earnings within the construction industry however
remained unchanged in Q2 and nationally agreed wage rates are
expected to rise just behind the rate of inflation until Q3
2011.
Construction orders fell by 14% in Q2 2010, with all sectors in
decline except the industrial sector which rose by 26%. However
current levels of demand are holding up, with new work output
rising by 9% in the first half of 2010 compared with the same
period in 2009. New work output is now expected to grow strongly in
2010, with output slowing to marginal growth in 2011 as public
spending starts to fall away, but private sector output starts to
recover more strongly. Slow growth is expected in 2012 as public
spending cuts deepen.
Peter Rumble, Information Services Manager at BCIS
comments: "Although new work output is expected to
grow strongly in 2010, it is anticipated that tender prices will
remain unchanged over the second half of this year, with new work
output growth in 2011 slowing to a little above a position of no
change. Quite strong input cost rises coming through in Q2 2010,
feeding through into tender prices in the remainder of the year,
are also likely to prevent tender prices from falling further in
2010. Consequently, tender prices are only expected to rise
modestly in the year to Q3 2010. Over the second year of the
forecast, with subdued new work output growth in 2012, tender
prices are likely to rise more or less in line with input
costs."
SOURCE www.BCIS.co.uk