Cost consultant Turner & Townsend’s Autumn UK market intelligence report – published this week – suggests tender prices in UK infrastructure will grow by just 3.0% next year, but this increase is driven almost entirely by increases in raw material costs – not profits.
“Profits continue to be suppressed, and in some cases below zero to maintain order books and turnover,” it says.
It also warns that 2012 could become known as year of the insolvency as – ironically - the recession nears an end.
“Historically, as the construction industry starts to recover from a recession the number of insolvencies within the industry starts to rise,” it says.
This happens as a general rule because contracts won in a recession period are generally at artificially low levels due to increased competition. These then become challenging as the industry starts to recover and prices begin to rise with it. Coupled with that, with a reduced workflow and increased costs, modestly capitalised suppliers find that positive cash flows that they rely heavily on are worsened.