Construction costs begin to slide

GOVERNMENT nerves about building expensive new hospitals, schools, health centres, garda stations and other building projects may be eased, as construction costs have started to slide.

Both Government, with capital projects worth hundreds of millions of euro in hand and others put on hold, and private firms taking on major capital spending projects, will benefit from a reported 5% drop in construction tender prices.

The Society of Chartered Surveyors said that building tender prices dropped 2.8% in the second half of 2002, following a 2.2% reduction in the first half of last year.

The overall 5% drop for 2002 comes after a staggering 37% rise in building costs from 1998 to 2001, an average of over 7% increase pa.

Competitiveness has clearly returned to the industry, says Conor Hogan, chairman of the SCS quantity surveying division, who noted the drop in tender prices had come about despite continuing rises in material and labour costs.

Building firms had cut their margins to secure contracts, he said, and also forecast that most firms competing for work will have to absorb the 1% VAT increase announced in the 2003 Budget.

“With the current uncertainty in all non-residential sectors of the industry, it is likely that this downward trend will continue during the year,” says Conor Hogan.

“Contractors’ and sub-contractors’ margins are therefore reducing as they compete for a dwindling supply of work.” he states.

It is likely the drop in building tender costs will be mirrored in the country’s major civil engineering projects as well, in what could be a double area of saving for Government which is now mid-way through its National Development Plan.

And, as Government has put a number of capital spending projects on hold, this publicly unpopular stance may end up saving it money in the medium term.

The continuing drop in tender prices “is good news for the Government, and for any other businesses about to commit to building projects,” according to Mr Hogan.

The SCS tender price index is based on predominately new-build projects with values ranging from 0.5m to 10.0m, and is a measure of average construction tender price increases across differing project types and locations.