Four top cost consultants predict rapid fall and slow recovery in contract values

Tender prices will not return to today’s levels for another five years, according to an exclusive compilation of forecasts from a range of QSs.

The consultants say prolonged falls in tender prices will lead to further hardship for the industry, including redundancies, insolvencies and litigation.

The figures are compiled from five-year estimates by Davis Langdon, Cyril Sweett, EC Harris and Gleeds. They predict that by 2014, prices will have recovered to 1.7% above today’s level.

Paul Moore, head of cost research at EC Harris, said: “There’s general agreement that prices will fall for the next couple of years, bottoming out in mid to late-2011 and bumping along the bottom until mid-2012.”

Martin Smout, chairman and chief executive of GB Building Solutions, said: “If accurate, these figures would mean significantly more insolvencies, leading to a massive decrease in the industry’s capabilities.”

Sarah Davidson, head of corporate research at Gleeds, said: “If tender prices continue falling into 2011, we are all going to be suffering for a long time.”

She added that clients should avoid traditional lump-sum competitive tendering. “Clients must realise this is not the best policy. If they award long-term contracts, subcontractors’ costs may go up and the main contractor will have to find the money elsewhere, including through claims.”

Simon Rawlinson, a partner in Davis Langdon, said prices would eventually inch up because “even if output growth is limited, increasing raw material prices and reduced capacity” would lead to pressure on prices.

Tender price forecast

based on average estimates from Davis Langdon,
Cyril Sweett, EC Harris and Gleeds

Year to third quarter 2010 –6.3%
Year to third quarter 2011 –1.5%
Year to third quarter 2012 +2.2%
Year to third quarter 2013 +3.5%
Year to third quarter 2014 +4.2%