Fearful constructors absorb rising costs

The price of construction work fell significantly during the first quarter of 2008, as fearful contractors refrained from passing on increasing costs to consumers.

According to the Royal Institution of Chartered Surveyors (Rics) Building Cost Information Service (BCIS), the average cost of construction work fell by 2.4 per cent over the first three months of the year.

This is despite a 1.1 per cent recorded increase in the cost of materials and labour, argues the organisation

Fear of a credit crunch backlash from clients unable to secure finance for new orders is behind the phenomenon.

"Contractors appear to be a little nervous about future workloads currently, and with new work output expected to fall slightly this year, input cost rises are likely to be the key driver of tender price rises," said Peter Rumble, BCIS information services manager.

"Input cost rises are currently quite strong, and are expected to remain so over the coming year."

Overall workload demand for the year to quarter one of 2008 remained on trend, despite drops in public (down six per cent) and private (down ten per cent) housing workloads, on the back of an increase in the amount of infrastructure, public non housing and commercial work being undertaken.

However, a fall in new work output is expected for 2008, with output remaining unchanged in 2009, but increasing at around its long-term trend rate in 2010.

"The credit crunch and the slowdown in economic growth are expected to have a greater effect on construction output than first thought," added Mr Rumble.

"However, it is anticipated that the public non housing and infrastructure sectors will both grow over the next three years, with particularly strong growth in 2008 and 2009."

The increasing pressure of rising input costs however should see tender prices improve throughout 2008 providing demand remains reasonably stable.





Annual change in tender prices, compared to fluctuations in the retail price index (RPI).

Chris O'Toole