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Construction firms facing increasing cost pressures

Construction firms already under pressure from rising costs are being forced to hold prices steady in order to win work, according to new figures.

The latest Tender Price Index compiled by RICS' Building Cost Information Service showed the price of new construction work in the second quarter remained the same as the previous three months despite costs rising.

With a decline in new work output forecast, tender prices are expected to fall further over 2008 and 2009.

According the cost of materials rose 5.5 per cent, while wage rates rose 4.4 per cent in the year to the end of June 2008.

But overall new orders for construction fell 8 per cent in the second quarter to the end of June compared with the previous quarter, and were down 20 per cent against the same quarter last year.

New work is expected to fall 2 per cent in 2008 and 3 per cent in 2009.

BCIS information services manager Peter Rumble said: "With the construction industry clearly heading to a prolonged recession it is understandable that contractors are being cautious with their tenders.

"With output levels set to decline in all sectors but infrastructure and public non-housing, competition for tenders will be much higher.

"Contractors, or their sub-contractors, will increasingly have to bear the brunt of any increases in resource costs, and will not be able to pass them on to the client in order to secure new orders."

www.cnplus.co.uk

Author: Nick Whitten