The latest trade survey from the Construction Products Association highlighted the cut-throat nature of tender races.

The survey said: “The weakness of demand ensured that the industry remained highly competitive in 2011 Q1, exerting further downward pressure on tender prices, according to 63%, on balance, of building contractors.

“Only 5% of building contractors were able to raise tender prices in 2011 Q1, compared with 2010 Q4, while a significant 68% shaved tender prices down further in an attempt to secure work.

“A combination of rising costs and falling tender prices put profit margins under further pressure.”

The survey showed that construction output grew during the first three months of the year casting further doubts on Government figures showing a 4% drop.

But firms are gloomy about future prospects as spending cuts bite and material price inflation hits home.

Noble Francis, Economics Director at the Construction Products Association said: “This survey highlights that construction improved during the first quarter of the year, contrasting sharply with the ONS’s construction output figures that indicated construction fell 4% over the same period.

“However, this improving situation is compared to the final quarter of last year, which was badly affected by poor weather in November and December.

“The industry’s near term future is likely to be extremely challenging with domestic demand remaining subdued, exacerbated by expectations of further rises in fuel, energy and materials costs.”

Stephen Ratcliffe, Director UKCG, said:  “The survey highlights that the situation for contractors improved in Q1 compared to the weather affected final quarter of 2010.

:However, there remains a great deal of concern regarding the year ahead given that we have not yet seen the full impact of the public sector cuts.

“The government has stated that construction is at the heart of its growth strategy for the UK economy and, as it accounts for around 10% of the UK’s economy, it is vital that investment in essential schools, hospitals and housing is maintained at levels that will provide the basis for economic recovery.”

Julia Evans, Chief Executive of the National Federation of Builders added:  “Once again, the industry is working through a difficult set of challenges with rising costs, falling margins and lower demand.

“However, an obsessive focus on quarterly figures risks losing sight of the bigger picture.

“The overall downward trend is not encouraging. As long as the fundamental issues of difficulty with access to finance and prioritising cost over value remain, the trend is unlikely to be reversed.”