Dangers ahead as contractors cut profit to secure workload

[December 2009]

Tender prices for building work will continue to fall nationally for the next two years, by 6.0% over the next year and by a further 1.0% in the year to the 4th quarter of 2011, according to the latest Market View research conducted by EC Harris.

The report flags up the dangers in the market presented by contractors cutting profits to secure jobs. The last technical recession came to an end in the 4th quarter of 1991, but insolvencies peaked in 1992 when they were some 56% higher than two years previously. The latest contractor insolvency statistics already show substantial increases; based on figures for the first half of this year, insolvencies in 2009 are on course to be more than double those of last year.

The research shows that prices are expected to bottom out at the end of 2011 and as the industry recovers tender prices will rise by 3.5% in the year to the 4th quarter of 2012 and at around the same rate over the following two years. In London there are signs that the bottom of the commercial market may be called fairly soon as developers look longer term to invest in developments which will start on site before prices start picking up. As a result tender prices in London are expected to return to positive figures earlier with a marginal rise in the 4th quarter of 2011.

Paul Moore, Head of Cost Research at EC Harris commented; “The stock market has shown healthy growth during 2009, the UK economy is almost out of recession, and the private sector, particularly in London is showing signs of increased activity, not the least because developers have raised cash through sales or rights issues and are now looking to invest. However this future increase in private sector activity will be balanced by declines in health and education spending as the level of public borrowing casts a shadow over public sector investment.” 

Despite some increases in world commodity prices, materials prices in the UK are now some 17% below their 2008 peak while site rates for skilled labour, currently 7.5% down on last year’s rates, will to continue to fall as the labour force chases reduced opportunities.

- Ends-

Notes to Editors

About EC Harris

EC Harris is an International Built Asset Consultancy - acting as trusted advisors to clients - in planning and executing strategies that optimise the construction, operation, use and ownership of built assets.  The firm has 46 wholly owned offices in 24 countries employing 3,400 people.  Turnover in 2008/09 was £306m.