Clients warned of fresh wave of contractor failures

Aaron Morby 13 years ago

Cost consultants E C Harris has warned record material prices will trigger a further damaging round of contractors going to the wall.

In the firm’s latest tender forecast, QSs predict the painful period of tender prices falls is over. But cost analysts have warned that prolonged cut-throat bidding is set to have catastrophic consequences for contractors and their suppliers.

Record prices are being paid on world markets for copper, energy prices are up 15% and reinforcement and structural steel prices are up by 12% and 10.5% respectively.

Paul Moore, head of cost research at EC Harris said: “Although we are now expecting tender prices to rise this year, the recovery of the industry is far from certain and could be delayed for a couple of quarters.

“Contractors’ opportunities to increase their tender prices are likely to remain limited and even when workload picks up the worry is the delivery of those low tender priced schemes.”

“Where contractors have pressurised their sub-contractors and cut their profit margins to the bone to secure workload, rapid increases in costs could mean that contractors find themselves caught out with limited options to recoup their losses.

He added: “Previous recessions indicate that the most dangerous time for insolvencies is when workload picks up.

“That brings with it the pressure of increased costs which can be enough to drive contractors on fixed price contracts into failure.”

The latest E  C Harris quarterly report predicts that prices will turn the corner in the second quarter, but tender prices are expected to edge up by just 0.2% by the fourth quarter of the year.

London tender prices are believed to have already bottomed out. They are forecast to grow by 1.7% to the end of 2011 as a result of a rise in orders particularly in the commercial office sector.

Infrastructure tender prices, on the other hand, have not been impacted by a fall in workload, but rather due to lower wages and increased competition.

Following the UK Government’s Autumn Review there is likely to be a shift in focus towards the rail and renewable sectors for long term revenue.

The EC Harris report predicts infrastructure tender prices will bottom out in the first quarter of 2011 and then pick up to show an annual increase of 2.1% by the end of 2011.

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