EC Harris warns tender prices to drop by up to 10%

Building tender prices could fall by up to 10% over the next year, according to the latest Economics Survey published by EC Harris.

With work being slashed, contractors are doing whatever is necessary to secure workload, including cutting margins and putting pressure on sub-contractors.

Labour and materials cost increases have been virtually shaken out of the system, and the expectation is that tender prices for building work will fall by up to 10% over the next year, with the mean decrease expected to be around 5%.

Over the following year a further slowdown in workload is expected to produce further falls of the order of 3 - 5%.

Speaking about the price cuts, Paul Moore, Head of Cost Research at EC Harris, said: "As contractors and suppliers begin to appreciate the full impact of the market, margins are rapidly being cut.

The danger is that in a volatile and unpredictable marketplace, contractors are 'buying' work by pricing at low or negative margins.

As pressure to secure workload increases, the risks also rise, including the probability of subcontractors chasing workload by moving into areas where they have less knowledge, undercutting more experienced players, but bringing risks to control and quality.

"A falling market brings additional risks which call for greater caution at the procurement stage.

As prices are slashed, the risk of contractor / supplier insolvency is substantially increased, requiring far greater attention and caution in deciding which companies to choose.

The lowest and apparently most attractive offer could be a sign of desperation.

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