Contractors are being caught between sharply rising materials prices and falling workloads, the website Construction Enquirer reported.
It quoted the RICS Construction Market survey, which showed that material costs increased sharply in the last quarter of 2010, with 56% more RICS surveyors reporting a rise in costs, up from 28% during the previous three months.
At the same time, the cost of hiring site trades and fees for professional consultants fell, reflecting the growing competition for jobs which is driving down the cost of labour.
In a clear example of rising materials costs, Construction News reported on the £95 per tonne hike in structural steel prices imposed by Tata Steel, said to be the result of Australian coal mines being flooded.
The fear is that contractors who are already bidding at reduced or zero margins will be unable to deal with inflation in building materials.
David Heron at Miller Construction’s Edinburgh office told Construction Enquirer: “Continued overly aggressive pricing levels still being pursued by certain contractors is driving down tender prices to unsustainable levels.”
Simon Rubinsohn, RICS Chief Economist, said: “Although bad weather at the end of the year will clearly have had some impact on responses to the survey, the bigger picture here is of an industry under significant pressure as public spending cuts begin to bite, while there is little sign of a private sector recovery across large parts of the country.”
In the RICS survey, quantity surveyors said the market became increasingly competitive in the last quarter of 2010 as firms struggled to secure work.
Paul O’Shaughnessy at the Berkshire-based QS Andrews Partnership, said: “A shortage of work is pushing contractors to be more competitive, while clients are becoming more aggressive at capitalising on this situation.”
Alan Robinson at QS practice Tompkins Robinson Surveyors in Northamptonshire, said: “While the politicians speak of a recovery being underway, first-hand experience indicates a bottoming out of the downturn at best.
“Tender prices remain extremely competitive, landing around 2004/5 levels.”
The RICS market survey predicted that jobs will continue to be lost, with 14% more respondents expecting employment levels to fall rather than rise over the next 12 months.
The survey showed workloads continued to fall in the fourth quarter of last year with 5% more surveyors reporting falls than rises.
Public housing and public non-housing sectors were the hardest hit, with 20% more surveyors reporting falling activity.
Surveyors warned that the spare capacity created by falling public sector workloads is yet to be taken up by the private sector.
