June 21, 2004—Cut-price tenders to win construction contracts could end up with companies incurring huge losses, according to the latest risk analysis by Atradius, a UK credit insurer.
Atradius warns that growing raw material prices, labor costs and looming interest rate hikes could mean that many contracts, especially fixed-price deals, might not return a profit. These losses could in turn set up a domino effect of bad debts and even company failures.
Commenting on the analysis, Jon Lindsay, Atradius Director of UK and Ireland, said: “On the face of it, the industry seems to have boomed over the past few years, but the underlying data shows that factors such as under-pricing tender bids and a slow-down in new orders are throwing up risks that companies should be aware of.”
The picture across the construction industry is generally upbeat with the perception that there is lots of business about, Atradius noted. However, a more detailed analysis reveals that there is a great deal of competition for contracts and some companies are under-pricing their tenders to win deals, with margins of 1.6% and lower being reported on some jobs—leading to the group’s warning.
—Elliott Chase
Reprinted with permission; copyright 2004 i-FM
