Tenders fall lower despite stabilisation in new work output

New work output levels stabilised during the second quarter of 2009, remaining virtually unchanged from the previous quarter, however despite this change in trend tender prices fell even further during Q2, hitting a rate of decline not seen since the early 1990's, says the latest Tender Price Index compiled by BCIS, the Building Cost Information Service of the RICS, published today.

The price of new construction work fell another 4.0 percent in the second quarter of this year, and is 11.7 percent down on the same quarter last year.  Since a peak in prices in late 2007, prices have fallen 13.1 percent, with BCIS predicting that they still have a further 3.3 percent to go over the next year, before starting to recover in 2011.

The main driver for declining tender prices has been the increased competition in the market caused by the steep drop off in orders and the consequential decline in new work output. Despite new work output stabilising in Q2 compared with Q1, it remains 14 percent lower than a year ago, and although construction orders saw a quarterly rise of 25 percent, they also fell by 14 percent compared with the same quarter in 2008. 

The Q2 figures for new work output and orders point to annual falls slowing down over the coming quarters, but new work output is still expected to fall in 2009 and 2010 as a whole, which suggests that tender prices will continue to drop.

Cost pressures are becoming less of an issue, as the rate of increasing costs almost halved to 2.2 percent for Q2 from 4 percent in Q1 as a result of materials remaining unchanged and wage rates only rising 3.5 percent.

Joe Martin, Executive Director of BCIS comments:

"It is clear from the latest tender prices that the recession is really taking its toll on the construction industry, and despite new orders appearing to have experienced a small turn around in fortunes, it is unlikely that we will see this reflected in prices for some time. The next year will remain tough and with new work output expected to fall in 2009 and 2010 as a whole tenders will continue to edge downwards, although at a slower pace. The fact that cost pressures are expected to remain less of an issue will be of small consolation to those contractors who are seeing their margins getting ever smaller as they compete to stay in business."

 
Notes for editors:
The full report 'Indices and Forecasts' can be purchased for £185. To order a copy, order online at www.bcis.co.uk and add 4360 in the search box ; T +44 (0)870 333 1600 (select option 2 for BCIS) quoting item code 4360, or email sales@bcis.co.uk.

The data is also available via a subscription to BCIS Online - BCIS' capital cost database. Contact BCIS for a free demonstration www.bcis.co.uk/site/custom_scripts/free_demo.aspx