Aggressive bidding and eurozone uncertainty will see tender prices hit harder and longer, piling the pressure on UK suppliers, it was claimed this week.
Low-level bidding was cited as a contributing factor to a string of tender price indices downgrades in the past week.
The latest EC Harris tender price index forecasts a 2.8 per cent fall over the 12 months to January next year, with recovery set back by a further six to nine months.
EC Harris cost and technical research leader Paul Moore said the present level of prices is unsustainable. “The consequences for the supply chain of ‘buying’ work at these levels could be serious problems and clients should be mindful that entry price doesn’t necessarily equal exit price,” he said.
Prices are already at their lowest over the past five years, according to EC Harris, and while infrastructure is the one area bucking the trend, even London’s commercial market has stalled and is not expected to recover until 2014.
Click on graph to enlarge
Falling workloads and increasing competition are taking their toll, while concerns over the euro have exacerbated the situation in the industry, said Mr Moore.
The UK sources a reported £12 billion of construction materials from abroad while exporting £6bn.
As 60-65 per cent of both imports and exports are with the eurozone countries, the euro exchange rate is significant to both UK construction costs and the wider economy, according to Simon Raine, commercial director at construction cost consultancy Faithful and Gould.
“Recent months has seen a small increase in the exchange rate as markets continue to be worried about the inability of the euro countries to deal decisively with the issue,” he said.
“Should this situation continue it will put our exporters under pressure, as their goods will become less competitive and the euro market will shrink.”
He said some major European suppliers with UK divisions may be at risk when internally trading, as they tend to fix exchange rates for set periods of time, while most continental suppliers will only fix exchange rates once orders have been secured.
Gardiner & Theobald said the UK construction industry is “perhaps more exposed than others”, especially with regards to components such as lifts, mechanical and electrical items, curtain walling and glazing.
Gardiner & Theobald’s tender price forecasts are flat this year, rising in 2013 by 1 per cent.
The Building Cost Information Service predicts a 0.4 per cent rise in prices between now and the end of the year.