Tender prices have further to fall over the next 12 months before an upturn in demand starts pushing up the prices contractors can pass on, according to the latest quarterly five-year forecast from the Building Cost Information Service, part of the RICS.
Tender prices dropped 2.2% in Q1 2012, 1% lower than previous predictions, according to the Tender Price Index compiled by BCIS.
Its data shows that tender prices in Q1 were 4% above the low point recorded in Q1 2010. However, since then material prices have risen 7%, indicating that contractors have absorbed much of this increase at the expense of their margins.
The BCIS also examines government data on construction output and orders as well as wage rates to forecast movement in tender prices and building costs.
BCIS information manager Peter Rumble told CM: “Tender prices have been keeping in touch with building [input] costs – that’s labour, plant and materials – for the past two or three years. Now, with a 9.5% drop in output expected this year, contractors will keep their margins as small as possible. So even though tender prices are at the bottom now, they might go lower.”
Rumble added that wage freezes were cancelling out the impact of rising material costs, which are forecast to average 2.7%-3% in the coming 12 months.
In Q2 compared to Q1, there were sharp increases in sand and gravel, cement and timber windows, all up 4%.
However, Rumble added that some construction employers are soon to take on responsibility for paying National Insurance on operatives’ holiday pay, after HMRC ended an exemption. The tender price forecast has not included this factor.
Other BCIS findings show that in Q1 2012, for the first time ever no contractors in a research sample reported difficulties in hiring general operatives. Before the recession, 60-80% reported difficulties.
However, 10-15% still reported difficulties in hiring bricklayers and carpenters.
