Tender Price competition worst in years

Tendering price competition is at its worst since the end of 2011, indicated by respondents to the latest FNB/BER Civil Confidence Index.  This is due to civil contractors facing keener competition and weak demand for new construction.  The limited availability of construction work has noticeably intensified tendering competition.

The index shows that the state of the civil construction industry in South Africa has deteriorated in the second quarter of 2015.  Although confidence was up, the growth in construction activity was flat at best.  This follows a slower growth in preceding quarters.  The index increased by five points to register a level of 44 in the second quarter of 2015.

The current level of the index, however, indicates that more than half of the respondents are dissatisfied with prevailing business conditions.

“It seems firms are relieved that construction activity  didn’t moderate further this quarter, which likely lifted confidence a little,” said Jason Muscat, senior industry analyst at FNB.

“The outlook  however, is bleak with respondents remaining concerned about subdued demand for new construction work.”

According to Muscat the higher confidence was probably due to the growth in construction work which remained stable.  This is opposed to it having  moderated  further in preceding quarters. 

Muscat pointed out that, overall, the rise in confidence  is deceptive in that the state of the civil construction industry seems to have worsened in the second quarter in 2015.  Profitability was largely unchanged.  “this is likely due to increased cost cutting, particularly labour,” noted Muscat.

According to the SA Reserve Bank, annual growth in the real value of construction work moderated to 1.0% in the first quarter of 20154, from 3.3% in the fourth quarter of 2014.

Source : Engineering News 25/6/2015

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