Tender prices are set to fall for another 12 months before finally recovering in early 2013, according to new research.
The last quarterly report by consultancy EC Harris, which tracks tender prices in the UK property and infrastructure sectors, predicts the slow recovery in the UK, Europe and US will continue to affect construction workloads and keep the pressure on contractors.
The report forecasts that prices will fall nationally by 1.1 per cent in the year to the second quarter of 2012, before finally rising by the first quarter of 2013 by 0.5 per cent.
It says when schemes do go to market contractors are prepared to make “considerably greater savings” to get the job and secure workloads. Margins will also be hit by increasing material costs.
EC Harris cost and technical research leader Paul Moore said clients buying at low tender prices now should be aware of the potential for supply chain failure as contractors look to deliver low tenders in the face of rising costs.
“The 20-30 per cent discount from 2008 prices is real and we can expect instances where projects continue to come in below expectations for some time to come,” he said.
Tender prices in infrastructure are still expected to show a rise in the third quarter of 2011, despite the grim predictions.
EC Harris is forecasting an increase of 3.2 per cent to the second quarter of 2012 due to different cost drivers.
And the picture is more positive in London, driven by office and residential, where the market is set to recover positive tender price movement in the second quarter 2012, with prices up by 0.8 per cent over the year followed by a further pick-up of 2.7 per cent in 2013.
The report comes as figures released last week by the Office for National Statistics and Chartered Institute of Purchasing and Supply showed further signs of weakness in the market.
ONS construction new order volumes for Q2 2011 were at their lowest levels in 30 years after a 16.3 per cent drop on the first three months of the year.
An index produced by economists Markit and the Chartered Institute of Purchasing and Supply recorded a slowdown in growth in activity and an eight-month slump in confidence. Industry groups warned the data presented a worrying picture for the industry.
Association for Consultancy and Engineering chief executive Nelson Ogunshakin said: “It is not long since growth in the construction sector led us out of recession, and now there is a risk that the UK may be heading towards another downturn.”
UK Contractors Group chief executive Stephen Ratcliffe said the ONS figures confirmed what the industry had been “telling the government for some time”, arguing it underlined the case for investment.
A Bam Construct spokesman said the tough conditions were forcing contractors to “look around as widely as possible” to find work in areas they could adapt to. But Costain strategic management director Ross Agnew played down concerns, arguing certain sectors were still healthy.