Demands To Drop Prices Spark Resentment Among Subcontractors

[ncw0505]

Interesting read in today's FT on the houusebuilders squeezing subcontractors to maintain their own margins. Apologies if already posted.

http://www.ft.com/cms/s/0/93a7885c-ce0b-11...0077b07658.html

[conifer]

If builders are cutting their agreed payments to subcontractors ON EXISTING PROJECTS, things must be bad.

[bobthe~]

If builders are cutting their agreed payments to subcontractors ON EXISTING PROJECTS, things must be bad.

It's the new IVA, if you will.

[Fairies Wear Boots]

I still can't understand how builders can't make a profit if prices drop 30 %? If John two jags Prescott can get a three bedroom house built for 60K then they must be paying an absolute shed load for the land.

Does this mean they're going to make big losses on the land banks they have accumulated?

[teddyboy]

"Taylor Wimpey has good long-term relationships with its supplier base and this is part of the natural process of reducing costs in the supply chain when general market conditions are tighter. "

"We share the benefits when times are good and we want to talk about costs now that conditions are more difficult."

Absolutely SPOT ON!!! Prices are OVER-INFLATED at the moment by the suppliers coz Bricks & Mortar ONLY GO UP. Well now its tough, the EASY MONEY is over... its just going back to what it was.... I think the House Builders are WELL within their right to demand this. BUT... they should take SOME of the hit of dropping prices and not pass it ALL on to the suppliers.

TB

[winkie]

What about the extra thousands of affordable homes the government promissed they would build...does all this mean they now will not be built as the builders can't afford to build them.

Edited January 29, 2008 by winkie

[Loggy]

The subcontractors may start walking away if they dont get paid, I remember during/after the last crash friends of mine buying a place in a new build development on an old factory grounds in Chadwell Heath. They got it cheap because it had no kitchen or bathroom fittings. ie; it was left unfinished by the builder.

Edited January 29, 2008 by Loggy

[ezekiel]

I think its going to be this way across the economy as the slowdown/recession comes in.

There's been a lot of talk about inflation but I think there are many deflationary pressures potentially out there too. Given that prices of so many things have been so high (property and services being obvious examples) then it seems to me there's plenty of fat to be trimmed on prices (in some areas - not all). An example of this so far has been the likes of Tesco's abosrbing some (not all) of the increased costs in foods as a result of greater demand and fuel hikes.

The simple analogy to me is that a plumber should not be earning £70k+pa - there simply should not be that much value in the trade. A policeman's work represents a similar level of training (and more responsibility) but they command only £30kpa - something isn't right (economically) when the plumber can demand much higher fees.

I'd expect a lot of people in various inflated trades and services to find their income being squeezed for the next 4-5 years. The hopes of many that wage inflation will ease their debt may not come to pass.