ACCORDING to the Chartered Institute of Purchasing and Supply, December 2010 was notable for the wrong reasons as the sector was caught, figuratively, between a rock and a hard place.

The CIPS’ Construction Purchasing Managers’ Index showed the industry being squeezed from both sides as a substantial rise in contractors’ input costs collided with the first fall in construction activity for nine months.

The rise in costs has been put down to construction inflation running at a higher level than retail inflation in the UK, reflecting a booming global market for raw materials.

Undoubtedly, the severe weather that hit the North of England for much of December, and disrupted parts of the south later in the month, played a significant part in the fall in activity. The same happened in the winter of 2009/10.

However, the Royal Institution of Chartered Surveyors (RICS) backs up CIPS’ feeling that public spending cuts were largely responsible for a downbeat outlook on the future.

Basic laws of supply and demand kicked in and when the market is gloomy, it is obviously difficult to increase tender prices to cover growing costs.

Clearly, contractors can’t just give up. We have seen more businesses in the sector go to the wall at the start of 2011, but a fighting spirit remains part of our sector. If that means cutting margins to win work, then that is what contractors will do. Sadly, it could also mean pressure being passed on to subcontractors. This is clearly not something that is only for the immediate short term.

Those who monitor and predict trends in tender prices are in disagreement about how things will pan out over the coming year, but some say they see national tender prices continuing to fall throughout the first half of this month, with the exception of London.

Others see a rise through to the third quarter of 2011, after the market bottomed out around that time last year.

While the industry can play its part, cutting margins and riding the squeeze through the contractor and subcontractor levels, clients can also play their part by looking to put measures in place to mitigate the risks of inflation on projects.

When contractors are walking a tight line, and some are not surviving, it is in the client’s own interest to do what it can. After all, the cost of having to replace a contractor if it goes bust is one the client would clearly wish to avoid.

For more information please contact Catriona Lingwood, on 0191 374 0233 or catriona@cene.org.uk.

Catriona Lingwood, chief executive, Constructing Excellence in the North East