More than one in eight – thirteen per cent – of UK construction firms are pricing jobs for no profit according to a KPMG survey, Building reported.
KPMG’s global construction survey also reveals half of the UK’s construction firms have been forced to cut bid prices by at least 5-10% over the past year. However, 38% said their pricing strategy over the past year remained unchanged.
The figures highlight the impact of the recession on construction prices and raise fears that low bidding could lead to more insolvencies in 2011, Building claimed.
Fiona McDermott, KPMG’s global head of building and construction, told the magazine: “Globally, around 5% of people are increasing prices, but in the UK everyone’s reducing. The UK is clearly feeling the pain more, and this shows just what a really challenging time it is.
“The expectation is that when the investigation into Connaught’s collapse is complete it will be found they were pricing below break-even levels. I think it is inevitable we will see more similar fall-outs.
“Larger companies can do this for longer as they can spread it among more projects, but smaller firms in particular will suffer. And once you reduce pricing, it’s really hard to go back to original levels without offering something more innovative.”
The survey shows that many contractors are still reducing the price of bids, with 25% of companies reporting margins on new projects that are more than two percentage points lower than on their historic backlog of work. The remaining 75% reported no change in their margins, while no firms reported an increase in margins.
The KPMG report comes amid continuing concern over the outlook for the UK industry in 201, and follows the collapse of two major contractors – Rok and Connaught – which had resorted to submitting low bids in their final months in trading.
Meanwhile the magazine reported the latest market predictions from the Construction Products Association, which warned that the sector could could be heading for further declines in output next year, after two earlier falls in output since the recession began in 2007.
