Suicide-bidding was blamed for last year’s collapse of contractors Connaught and Rok.
But the signs are that the problem has not gone away, with reports of some bids being made 20% below the average.
At the same time, contractor Willmott Dixon achieved a 43% boost in pre-tax profit last year because market conditions allowed it to hire subcontractors at low rates, Building reported.
In an attempt to undermine suicide bidding, housing association Poplar Harca has introduced a clause in tenders awarded as part of its £145m refurbishment programme on 8,400 homes.
The clause gives Harca the right to ask contractors for evidence that the work can be carried out to standard if the bid is more than 10% below the average.
“In the event that… the employer still considers a tender price to be abnormally low, the employer reserves the right to discount that tender submission,” the clause states.
Meanwhile Willmott Dixon announced a 43% jump in pre-tax profit to £25.6m on a flat turnover of £989.5m.
Chief executive Rick Willmott explained that the firm had hired subcontractors at lower rates than they had tendered for, boosting profits. “Generally we work on fixed-price contracts and the supply chain market changed in 2010,” he said, adding the firm had been able to “buy [suppliers’] contracts lower than we tendered for.”
Paul Dooley, director of estate regeneration at Poplar Harca, said the housing association’s decision to introduce the clause against suicide bidding was taken after receiving a number low bids, some of up to 20% lower than the average.
“We feel that without a clause in the contract we could be subject to contractors making a challenge,” he said.
Other housing associations are understood to be following in Poplar Harca footsteps.
However, Rick Willmott believes the situation will change this year and that tender prices will increase, under the pressure of rising materials costs, leaving main contractors needing to employ more costly subcontractors for contracts signed last year at the bottom of the market.
“In 2011, [we] will see these prices move northwards by 5-10% … [which is] better for the rest of the supply chain,” he said.