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Tender prices may have reached the bottom

28 Oct 10 Tender prices fell again in the second quarter of 2010, according to the latest UK Construction Tender Price Index compiled by the Building Cost Information Service (BCIS), but are not expected to fall any further.

The fall in tender prices has been slowing dramatically over the last year from an annual fall of 13% in Q2 2009 to 4% in Q2 2010, BCIS said. The quarterly fall of just 0.5% fall in Q2 2010 suggests an end to falling tender prices over the upcoming quarters, the organisation added. A recent BCIS survey of contractors also showed the majority are expecting tender prices to remain static over the next six months.

The upward push of the continued increase in resource costs is competing with the downward pull of uncertain future demand.

Material prices rose by 3.8% in Q2 2010 which is a 6.5% increase on 2009. National statistics show significant increases in certain material costs, including concrete reinforcing bars, ceramic tiles and fabricated steel work. Sharp increases in annual materials prices are expected through to Q2 2011.

Employment figures within the construction industry rose 2.6% from Q1 to Q2 2010 but were still 3.3% down on the same period in 2009. Average earnings within the construction industry however remained unchanged in Q2 and nationally agreed wage rates are expected to rise just behind the rate of inflation until Q3 2011.

Construction orders fell by 14% in Q2 2010, with all sectors in decline except the industrial sector which rose by 26%. However current levels of demand are holding up, with new work output rising by 9% in the first half of 2010 compared with the same period in 2009. New work output is now expected to grow strongly in 2010, with output slowing to marginal growth in 2011 as public spending starts to fall away, but private sector output starts to recover more strongly. Slow growth is expected in 2012 as public spending cuts deepen.

BCIS information services manager Peter Rumble said: “Although new work output is expected to grow strongly in 2010, it is anticipated that tender prices will remain unchanged over the second half of this year, with new work output growth in 2011 slowing to a little above a position of no change. Quite strong input cost rises coming through in Q2 2010, feeding through into tender prices in the remainder of the year, are also likely to prevent tender prices from falling further in 2010. Consequently, tender prices are only expected to rise modestly in the year to Q3 2010. Over the second year of the forecast, with subdued new work output growth in 2012, tender prices are likely to rise more or less in line with input costs.”

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