Tender prices stagnate as contractors absorb costs

Tender prices over the last three months of last year remained flat and are not expected rise for the rest of this year, with contractors expected to absorb rising costs in a bid to get work.

According to the latest UK construction Tender Price Index compiled by the Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors (RICS), tender prices in Q4 2011 showed an ongoing period of stagnation, remaining unchanged on Q3 2011.

The BCIS said that with tender prices remaining static in 4th quarter 2011 and only rising by 0.4% since Q2 2011, the increases seen in the previous year seemed to have “petered out”.

“This is supported by a recent BCIS survey of contractors, where the number of contractors expecting a rise in tender prices was very similar to those expecting static prices over the next six months,” the BCIS said.

The BCIS added that a large fall in new work output is projected for 2012 and although tender prices have risen around 8% since the low point at the beginning of 2010, the BCIS expected contractors would be willing to absorb some of the increases in input costs expected over the next year in a bid to get work.

THE BCIS added that building costs in Q4 2011 remained largely unchanged compared to the previous quarter, rising by just 0.3%, with material costs falling by 0.4%.

However, compared to Q4 2010 there was a rise of 3.3% on building costs and 4% on material costs, reflecting steeper rises earlier in the year.

The BCIS report also showed little sign of improvement in the labour market, with employment in the construction industry increasing by just 0.2% compared to the previous quarter and 0.9% on the last quarter of 2010.

Only 2% of contractors reported problems in recruiting skilled labour, compared with the pre-recession levels of 60-80%, the BCIS said. Average weekly earnings rose by an annual 1.4%, lagging behind the national average of 2.1%.

There was also sharp fall of 15% in new orders in Q4 2011, compared with the final quarter of 2010. The BCIS said this was largely felt by the public housing and public non-housing sectors which fell by 57% and 50%respectively. However, there was a double digit increase in new orders in the infrastructure sector of 14%.

The BCIS said that with the UK economy in recession and the government’s austerity measures starting to hit construction, it expected new work output in 2012 to go into a “fairly deep recession of its own”.

“It is anticipated that this will be followed by a shallower dip in 2013 before a private sector led recovery in 2014 as the economy as a whole continues to pick up. Further steady growth is predicted in 2015 and 2016,” the BCIS said.

Peter Rumble, BCIS information services manager said: “Despite the further expected fall of new work output in 2013, tender price increases in the year to Q1 2014 are expected to keep more in touch with input cost increases, with contractors more reluctant to absorb these for another year.

“We anticipate tender prices then rising in line with input costs in 2014 as growth begins to return, with them increasing a little faster than input costs in 2015 and 2016.”