Increasing numbers of firms are bidding for work on a zero-profit basis as contractors resort to cut-throat tactics to win work

Research carried out for Building by consultant Davis Langdon said margins had collapsed from 5-8% in the summer to just 2.5-3% in the last quarter of 2008.

Margins had previously crept up because contractors could pick and choose jobs safe in the knowledge that plenty of work was around.

But Peter Fordham, a cost research associate at Davis Langdon, said margins were now under severe pressure as work dried up. He said: “In the next few months it could end up at 1% for those who can get it.”

Fordham said some firms were pricing jobs at 0% just to win work. He added: “It’s inevitable that more people will fall into the trap and go in at 0%, but if people are scratching around for work, that’s what happens.”

He said tender prices would fall 5-8% in the next year with a further drop of 4-6% predicted during 2010.

The research predicted a “large number” of firms would go to the wall, which will lead to more consolidation in the industry and the departure of immigrant workers.