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Tender prices set for bigger fall

Tender prices will drop more than previously expected, Construction News’ survey of price prediction data has revealed.

The drop comes as materials prices edge up, potentially leaving contractors in a deeper hole than had been expected.

The outlook for tender prices has worsened during 2010. Average expectations are for a reduction of 3.7 per cent, compared with previous expectations of a reduction of 3.5 per cent, according to CN’s quarterly Tender Price Consensus.

The outlook for future years is also less positive, with expectations for growth in 2011, 2012 and 2013 pared back as the industry struggles to exit the recession.

The consensus figures are an amalgamation of forecasts from a number of cost consultants, including the Building Cost Information Service, Davis Langdon and Faithful & Gould.

Tender prices increases of 1 per cent in 2011 should provide some respite for the industry, although this is down from previous expectations of a 1.2 per cent increase.

In 2012, growth expectations have been cut back further, with forecasts down from an average of 2.9 per cent growth to an average of 2.4 per cent.

The same trend is also expected for 2013, where the previous growth figure of 3.8 per cent has been scaled back to 3.2 per cent.

Although the increase in tender prices is positive for contractors that have suffered in the recession, materials prices have also been on the increase, putting further pressure on profit margins.

Contractors will have to take price increases on materials such as steel on the chin, rather than pass them on to customers.

According to research from the consultancy EC Harris, the prices of materials such as oil, steel and copper have increased significantly over the last year.

EC Harris senior research analyst Juliet Hirst said: “Copper prices rose by 180 per cent between December 2009 and April 2010, so plumbing and electrical services materials have seen big increases.”

Evidence of higher materials prices were also seen in the recent state of trade survey from the Construction Products Association.

It found that 40 per cent of building contractors, on balance, reported that materials costs rose in the second quarter of 2010, while 47 per cent of light side manufacturers reported rising raw materials costs and 45 per cent of heavy side manufacturers said that fuel/energy costs rose.

The dip in tender price expectations came as a raft of data indicated varying fortunes for the construction industry.

Figures released yesterday by the Royal Institution of Chartered Surveyors pointed to falling confidence. Total workloads went back into decline after a positive reading last quarter. The balance of surveyors reporting increasing workloads stood at -7 per cent for the second quarter, from +5 per cent in the first quarter of the year.

The surveyor data is often seen as a leading indicator of workloads given that those responding are involved early on schemes.

Civils contractors reported better conditions. A Civil Engineering Contractors’ Association survey showed a balance of respondents reporting increasing workloads is still in negative territory, at -24 per cent, but it was a significant improvement on previous quarters.

Meanwhile, the ONS showed output volumes in construction up by 8.6 per cent between the first and second quarters of 2010.

CPA chief executive Michael Ankers said: “Construction was particularly badly hit by the poor weather in the early part of the year and so the second quarter was always going to see a sharp pick-up.”