Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Single-stage deals on the rise as market cools

Contractors have been taking on riskier single-stage tenders to try to fill order books as the market cools, according to Turner and Townsend.

Use of single-stage tenders has increased 10.7 per cent since the start of 2016, while two-stage contracts have fallen 5.1 per cent over the same period.

Turner and Townsend said: “Such a swing towards single-stage is a sign of a greater urgency among contractors to secure turnover in a UK market where order books are more difficult to fill.”

Of the contractors surveyed by the consultant, 77 per cent said activity was either slowing down or stable.

The consultant added that as the market cooled, contractors were “likely to be willing to jump through additional hoops” to win work, potentially increasing risk.

“That’s certainly the case in London, where 39.9 percent of projects awarded in the final quarter of 2017 were single-stage tenders,” Turner and Townsend added.

The consultant urged clients to resist exploiting contractor desperation as the market toughened.

Turner and Townsend director Paul Connolly said: “Clients need to remain cautious on what risk is actually being taken on and managed by contractors.

“The failure of Carillion and the rising number of insolvencies suggests risk transfer in the current environment can be illusory.”

Last month Balfour Beatty chief executive Leo Quinn told Construction News that clients needed to be “more discerning” when it came to selecting and working with contractors.

Turner and Townsend said clients would need to work more collaboratively with contractors and their supply chains to manage risk as firms face “a perfect storm of weak demand and compressed margins”.

Labour and material prices are both expected to increase over the next 12 months, while tender prices are forecast to only increase “modestly”, forcing contractor overheads and profit down.

There was a significant variance in output across UK regions, the consultant added, with areas that had elected mayors and devolved powers recording almost twice the construction output growth since April 2016 compared with other regions.

“Output increased by 30.7 per cent in North-west England, by 27.8 per cent in the West Midlands and 27.2 per cent in the South-west,” Turner and Townsend said.

“All of these are regions with a high degree of devolution, including directly elected mayors and significant regional decision-making powers.”

One exception to this was London, which has seen output tumble 5 .7 per cent since the middle of 2016.

The consultant said investors had been put off the capital due to due Brexit-related uncertainty given London’s “heavy reliance on financial services”.

Output data for February released by the ONS yesterday showed construction activity had declined for the fourth period in a row, with bad weather being blamed in part.

However, upward revisions to data for the second half of 2017 meant that the industry was not in fact technically in recession.

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.