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Recession forces tender prices down

Contractors are being forced to keep tenders low to remain competitive as demand for construction work dries up, according to the latest Tender Price Index compiled by RICS' Building Cost Information Service.

The Index, published today, showed that the price of new construction work fell by 0.8 per cent in Q3 2008 compared with the previous quarter and by 1.2 per cent compared with a year earlier.

It expects this trend to continue with tender prices falling by a further 10 per cent throughout 2009 and 2010.

New orders for construction fell 10 per cent in Q3 compared with the previous quarter and 18 per cent compared with the same quarter in 2007.

Contractors are finding that potential profits are also being squeezed by rising material costs and wage rates.

New work output is expected to fall in 2009 (-7.0 per cent) and 2010 (-3.0 percent) with private housing, private industrial and private commercial set to suffer the most significant downturn over the next two years. Building Cost Information Service analysts do not expect new work output to grow until 2011.

Building Cost Information Service information services manager Peter Rumble said: 'The next two years are going to be tough on the construction industry. Contractors are going to have to be competitive in order to stay in business. As a result it is expected that the current trend of falling tender prices is going to continue for some time to come.'