Property agent says tender prices are being cut by 10-15% in attempt to bolster order books
Contractors are so desperate to win work during the downturn that they are submitting bids that are too low to make a profit.
Jim Rowland, head of building, construction and project management at property agent King Sturge, said his firm was working on projects where tender lists had come back with “some contractors bidding on a zero-profit basis”.
He added that many tender prices were coming back 10-15% lower than clients had estimated. He said: “Contractors are buying turnover for next year. If we’ve got a list of four or five firms on a job, sometimes we’re seeing all the bids being under the estimate.”
Underbidding is most likely on contracts where there is direct competition rather than two-stage tendering. Rowland said he was aware of the practice emerging across contracts in the public and private sectors, particularly in London and the South-east where there is still more work available than in northern England. He said only long-term frameworks, such as some government contracts, were immune to the practice, as price benchmarks were set in advance.
Rowland warned that underbidding could severely damage firms that were already struggling with cash flow. He said: “With credit becoming harder to get, people won’t get through the downturn if their cash flow goes. If companies don’t have money to pay subcontractors they will go out of business.”
He added that although materials prices may drop over the year some firms may be making unrealistic assumptions.
Ian Gunter, business development director of Bouygues UK, said: “I’d be amazed if there weren’t some companies doing it. It’s typical during a downturn, but is also one of the quickest ways to cut your own throat.”