Tender prices set to fall 10% by 2010

Tender prices are expected to fall by 10% throughout 2009 and 2010, according to a report by RICS’ Building Cost Information Service (BCIS).

Contractors are being driven towards low tender prices in an attempt to remain competitive and ride out the recession. New orders have fallen significantly and the demand for construction work is diminishing, according to the BCIS index.

The price of new construction work fell by 0.8% in Q3 2008 compared with the previous quarter and by 1.2% compared with a year earlier.

Overall, new orders for construction fell 10% in Q3 compared with the previous quarter and 18% compared with the same quarter the year earlier. Over the same period, costs continued their upward trajectory with materials rising 7.2%, and wage rates rising 4.6% in the year to Q3.

New work output is expected to fall in 2009 (-7.0%) and 2010 (-3.0%) with private housing, private industrial and private commercial set to suffer the most significant downturn over the next two years.

With BCIS analysts not expecting new work output to grow until 2011, tenders are expected to fall by 7.0% in 2009 and 3.6% in 2010.

Peter Rumble, BCIS information services manager, said that the current trend of falling tender prices “is going to continue for some time to come.”

Rumble added: “Contractors who traditionally carry out a significant proportion of public sector work are likely to fair better than those carrying out mainly private sector work. However, this is assuming that a prompt release of public funds is delivered, as promised in the pre-budget report, which is already looking unlikely.”