RICS survey shows price of construction work has dropped despite rising costs to the industry

Tender prices fell 2.4% in the first three months of the year, suggesting contractors are not passing on rising material and wage costs, new figures show.

The Royal Institution of Chartered Surveyors (RICS) said the price of new construction work dropped in the first quarter of 2008 in spite of costs rising by 1.1% in the same period.

The body said contractors were not passing on costs for fear of a “credit crunch backlash” from clients unable to secure finance for new orders. But it said tender prices should improve in the remainder of the year.

Overall workload demand remained “on trend” in the period as falls in housing workloads were offset by increased infrastructure, public and commercial work, according to the Building Cost Information Service (BCIS) Tender Price Index.

Contractors appear to be a little nervous about future workloads

Peter Rumble, BCIS Information Services manager

But the RICS said new work output was expected to fall in 2008 and remain steady in 2009 before climbing again in 2010.

Peter Rumble, BCIS Information Services manager, said: “Contractors appear to be a little nervous about future workloads currently, and with new work output expected to fall slightly this year, input cost rises are likely to be the key driver of tender price rises. Input cost rises are currently quite strong, and are expected to remain so over the coming year.

“The credit crunch and the slowdown in economic growth are expected to have a greater effect on construction output than first thought. However, it is anticipated that the public non housing and infrastructure sectors will both grow over the next three years, with particularly strong growth in 2008 and 2009.”