Cost update: June 2004

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This quarter, Davis Langdon tots up what it costs to improve access to your building. And over the page, why the price of fuel has exploded, plus find out what the going rate is for a plumber or labourer …

<B><font size="+2">Access regulations</font></b>
From 1 May 2004, the Building Regulations Approved Document M 2004 Edition Access to and use of buildings came into effect. It replaced the 1999 edition Access and facilities for disabled people.
The new document reflects changes covering the following access provision legislation and best practice:

The Workplace (Health, Safety and Welfare) Regulations 1992
Disability Discrimination Act 1995
Discrimination (employment) Regulations 1996
British Standard BS 8300:2001 Design of buildings and their approaches to meet the needs of disabled people – Code of Practice

Part M applies to new buildings, non-domestic building extensions and material alterations and buildings undergoing change of use where application for Building Regulation approval is made after 1 May 2004.
In addition, under the Disability Discrimination Act, from 1 October 2004, all providers of services to the public will have a duty to make reasonable adjustments to physical features of premises to remove, alter or provide a reasonable means of avoiding a physical feature that makes it difficult or impossible for people with disabilities to use services.
Similarly, from 1 October 2004, all employers (previously only applicable to employers with 15 or more employees) have a duty to make reasonable adjustments to their premises to enable universal access.
The following table provides indicative cost guidance for some of the requirements of Part M. Costs are at 2nd quarter 2004 national average price levels and relate to new buildings or assume a programme of modifications, rather than single items of work.

<B><font size="+2">Consumer price inflation</font></b>
The annualised increase in the Consumer Prices Index, now the government's target index for inflation monitoring, remains well below that of the other retail price measures. The 2% target of the Bank of England's Monetary Policy Committee was last achieved in 1996. For the past four years the average year-on-year increase has been as it stands at 1.2%.
CPI inflation is expected to rise from its current low levels, initially because of utility and petrol price rises but in the longer term as a result of increased supply pressures generally, which will push inflation above the 2% target within two years. The average of the Treasury's panel of independent forecasters suggests that CPI inflation will rise to 1.6% by the end of 2004, continuing to rise to 1.9% by the end of 2005.

<B><font size="+2">Input costs and output prices</font></b>
The price of materials and fuel purchased by manufacturing industry rose 2.8% between February and April, producing an annualised figure for April of 3.4%, the second highest figure for two years. The principal cause of the rise this year was the price of crude oil. The almost neutral change in the cost of input prices excluding food, beverages, tobacco and petroleum industries illustrates this fact. Crude oil prices rose 13.4% in the year to April; their continued rise will see the input price index increase further next month.
Output prices generally edged up in April, reflecting rises in tobacco, alcohol and petroleum product prices. Prices for products excluding food, beverages, tobacco and petroleum eased fractionally but have gone up 1.0% in the past six months.

<B><font size="+2">Commodity prices</font></b>
ONS figures show that fuel (electricity and gas) prices rose an average 7.1% over the year to April, crude oils 13.4% and imported metals 18.2%. However, oil prices rose another 17% between mid April and mid May, breaking 13-year records, leading to warnings that this would impact on prices throughout all industries. The surge has been caused by the Middle East crisis, booming Chinese demand and low US stocks. Although prices have eased slightly from their mid-month peak, these factors seem likely to ensure that oil prices remain high for some time to come.
Imported iron and steel and non-ferrous metals alike have risen in price more than 20% in the year to April. Demand for metals, driving up prices, has been widely blamed on the soaring Chinese economy. China's GDP has been growing in excess of 7% a year since 1999; officially the current growth rate stands at just under 10% but many consider the true rate more like 13%. During the last three years, China has accounted for one-third of global economic growth. Included within this is a massive building boom, including preparations for the 2008 Olympics.
This demand source has been instrumental in the rise in base metal prices on the London Metal Exchange over the last three years. Aluminum prices rose from below $1300 a tonne in 2002 to more than $1800 a tonne at the end of April; cash copper prices rose from a low of just over $1300 a tonne in November 2001 to a high of over $3100 a tonne at the end of March 2004; and lead prices rose from $400 a tonne in September 2002 to $975 a tonne at the beginning of March this year; and zinc from below $800 a tonne in May last year to $1150 a tonne at the beginning of March.
Of course, forward buying by manufacturers ameliorates the swings demonstrated by these cash prices but the trend is there. Since March there has been some decline in all metal prices from these peak figures.
Chinese demand has also been blamed for the surge in steel prices that has affected the market place this year not only in the UK but also in most of Europe and the US. Shortages of raw materials and higher shipping costs underpin the rise in prices. In the UK base prices for structural steelwork have risen up to £140 per tonne so far this year with further rises expected. The British Constructional Steelwork Association forecast that prices are likely to have risen 50% or £200 per tonne by the end of the year.
All construction materials made from steel are affected, from reinforcement bar to steel pipes, scaffolding, radiators, doors, cladding, fencing and plant. Scrap metal prices have risen even more, by as much as four times over the last year or so. As a result, rebar prices have risen by as much as 50% already this year.

<B><font size="+2">Labour rates: Builders, civil engineers and plumbers</font></b>
<B>Builders and civil engineers</b>
Last year the Construction Industry Joint Council adopted a three-year agreement on pay and conditions that establishes pay rates for builders and civil engineering workers until June 2006. Adherent bodies to the council include the Construction Confederation, the National Federation of Roofing Contractors and the National Association of Shopfitters.
The first annual part of the agreement came into effect on 30 June 2003, increasing basic pay rates 5.1%. The second part takes effect from 28 June 2004, when basic pay rates for general and craft operatives will rise a further 7.1%. The third part comes into effect at the end of June 2005, when rates will rise a further 9.5%, bringing the cumulative increase to 23% over the three year period.
From 28 June 2004, the basic pay for a general operative rises to £6.18 per hour and the craft rate rises to £8.22 per hour. Skill rates 1 to 4 also rise 7.1% but additional payments for skilled work, which range from 24p to £1.40 per hour, remain unchanged.
The table on the left illustrates how these basic rates translate into "all-in" hourly rates of pay – the cost to an employer. The calculations are based on a working week of 44 hours – 39-hour standard working week plus five hours' overtime a week. The resultant all-in hourly rates of £11.47 and £8.60 for craft and general operatives respectively exclude any bonus and incentive arrangements and travel and fare allowances.
<B>BATJIC rates</b>
The Building and Allied Trades Joint Industrial Council, a partnership between the Federation of Master Builders representing small and medium-sized contractors and the Transport and General Workers Union, has also agreed wage rates which come into effect from Monday 7 June 2004. Hourly rates become: <style type="text/css">  </style> <table border=0 width=100% cellpadding=1 cellspacing=0 bgcolor=#666666><tr><td><table bgcolor=#666666 border=0 width=100% cellpadding=2 cellspacing=1><tr><td valign=top bgcolor=#FFFFFF class=tm3>Craftsmen</td><td valign=top bgcolor=#FFFFFF class=tm3>£8.38 (an increase of 8.1% over 2003 rate)</td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3>Adult general operatives</td><td valign=top bgcolor=#CCCCCC class=tm3>£6.42 (an increase of 7.0% over 2003 rate)</td></tr> </table></td></tr></table> Intermittent and consolidated rates of pay for skill, payments for discomfort, inconvenience or risk and rates of pay for semi-skilled grades with continuous responsibility have all risen by a similar percentage.
<B>Plumbers</b>
Wage rates for plumbers in England and Wales rose 6% at the beginning of January. The Scottish & Northern Ireland Joint Industry Board for the Plumbing Industry promulgated a two-year wage deal last November, under which wage rates rose 5% from 22 March 2004, effective until the second part of the agreement comes into force on 30 May 2005.