More contractors risk collapse because lowest-price tendering is forcing them to price their work at unrealistically low levels.
That’s the warning from accountants body the ICAEW, who have cautioned against a “race to the bottom” that could lead to more insolvencies, as well as damage to supply chains.
The Institute of Chartered Accountants in England and Wales (ICAEW) has launched a new Audit Insight report offering firms guidance and recommendations on how to manage the risks of operating on low margins.
It has called on the sector to do more to embrace innovation and technology, as well as attracting and training new and diverse skilled labour in order to ensure it is fit for the future.
Andrew Hobbs, chair of the Audit Insights: construction working group and EY partner, said: “The construction sector is complex. Clients are often only looking for the lowest bid, which in turn encourages construction companies to offer unsustainable low prices in the hope that some aspect of the project will subsequently change to improve their profits. Unexpected changes can then turn small profits into losses and make it difficult to return a particular project to profitability.
“A robust approach to responsible project procurement and bidding is essential and needs to be supported by both sides. Contractors need to be more selective over which projects to bid for and ensure that they properly understand the risks. Clients need to ensure that tenders are based on best value and past performance rather than cost alone, and that they include performance incentives.”
The guide, Audit Insight: Construction – Bidding for lasting value, delivering for success, is available here.
