Construction companies fighting for fewer contracts are caught in a double trap of rising costs and falling tender prices, according to a report.

The fourth quarter of 2008 saw new orders for work fall by 28 per cent compared with the same three months the year before and by eight per cent compared with the previous three-month period. The fall was revealed in the latest Tender Price Index compiled by the Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors (RICS).

As a result, the price of new construction work fell by two per cent in the fourth quarter of 2008 compared with the previous quarter and the same quarter a year earlier, with a fall of a further eight per cent predicted by BCIS in 2009. The organisation said, however, that costs are still going against the trend of falling inflation with an annual rise of 7.7 per cent for materials and 4.8 per cent far wage rates, placing further pressure on struggling firms.

A sharp decline of 12 per cent in new work output is expected during 2009 with a more moderate fall of two per cent expected in 2010 with growth returning to the industry in 2011. It is those operating in the private sector, particularly in housing, commercial and industrial that will suffer the most.

Tenders are expected to fall by eight per cent in 2009 and 1.4 per cent in 2010.