Building contractors were forced to cut prices by 5 per cent on average last year amid a steep slowdown in non-residential construction activity, new data show.

The decrease contrasts markedly with the 37 per cent increase recorded in the five boom years to 2001, the annual tender price index compiled by the Society of Chartered Surveyors shows.

Having slumped to 2000 levels, tenders are set to fall even further this year, despite escalating labour costs, the society predicted.

"With the current uncertainty in all non-residential sectors of the industry, it is likely that this trend will continue," said Mr Conor Hogan, chairman of the society's quantity surveying division.

"Contractors and sub-contractors margins are therefore reducing as they compete for a dwindling supply of work. This is significant as it is occurring against a background of high overall inflation levels. If wage inflation was removed from the equation, the fall in prices would be even more pronounced," he said.

The index slipped to 130.1 in the second half of 2002, from 133.9 in the first half. It peaked at 136.9 in late 2001, having been as low as 100 in 1998.

The findings make sober reading for an industry that is facing 15,000 redundancies this year as the Government drastically cuts infrastructure spending, which accounts for 45 per cent of general construction work.

Overall, output will tumble 8 per cent in 2003, construction costs firm Davis Langdon PKS has forecast.

But there is little indication that the downturn gripping the sector will spread to the housing market. Property prices for January increased by 0.8 per cent from December. Year-on-year prices climbed 15.2 per cent, the highest annual rise since the 12 months to May 2001.

The tender price index is compiled by 850 members of the Society of Chartered Surveyors and is based on tender returns for non-residential projects, ranging in value from €500,000 to €10 million.