Property agent says tender prices are being cut by 10-15% in attempt to bolster order books

Contractors are so desperate to win work during the downturn that they are submitting bids that are too low to make a profit.

Jim Rowland, head of building, construction and project management at property agent King Sturge, said his firm was working on projects where tender lists had come back with 鈥渟ome contractors bidding on a zero-profit basis鈥�.

He added that many tender prices were coming back 10-15% lower than clients had estimated. He said: 鈥淐ontractors are buying turnover for next year. If we鈥檝e got a list of four or five firms on a job, sometimes we鈥檙e seeing all the bids being under the estimate.鈥�

Underbidding is most likely on contracts where there is direct competition rather than two-stage tendering. Rowland said he was aware of the practice emerging across contracts in the public and private sectors, particularly in London and the South-east where there is still more work available than in northern England. He said only long-term frameworks, such as some government contracts, were immune to the practice, as price benchmarks were set in advance.

Rowland warned that underbidding could severely damage firms that were already struggling with cash flow. He said: 鈥淲ith credit becoming harder to get, people won鈥檛 get through the downturn if their cash flow goes. If companies don鈥檛 have money to pay subcontractors they will go out of business.鈥�

He added that although materials prices may drop over the year some firms may be making unrealistic assumptions.

Ian Gunter, business development director of Bouygues UK, said: 鈥淚鈥檇 be amazed if there weren鈥檛 some companies doing it. It鈥檚 typical during a downturn, but is also one of the quickest ways to cut your own throat.鈥�

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