Building costs rose at the end of the year due largely to a change in holiday pay rules, but material prices remain steady. Peter Fordham of Davis Langdon, an Aecom company reports
01 / KEY CHANGES
- All construction cost measures have reversed their decline but largely due to withdrawal of National Insurance concession on holiday pay
- Consumer price inflation is on an upward trend as a result of government decisions on university fees and utility requirements
- Industry input and output cost inflation are both benign
- Recent sterling deflation may result in inflation in imported construction materials, metals and oil prices
- Construction materials prices were subdued throughout 2012
- Steel prices declined in second half of 2012 but are rising at start of 2013
- Most construction operatives secure small wage increases at start of 2013
The following chart shows how Davis Langdon’s index series, reflecting cost movements in different sectors of the construction industry, have fared since 2000, with the movement of the Consumer Prices Index for comparison.
|Building cost index||1.6||▲|
|Mechanical cost index||0.5||▲|
|Electrical cost index||0.8||▲|
|Consumer prices index||2.7||▲|
|(Fourth quarter 2012 figures are provisional)|
Building cost index
The index jumped 1.3% in the final quarter of 2012, largely because of the withdrawal of the National Insurance concession on holiday pay schemes.
Mechanical cost index
Materials prices were declining as the year ended but increased National Insurance payments on payrolls pushed the index up.
Electrical cost index
There was a further drop in materials prices at the end of the year but the end of the National Insurance concession also increases electricians’ employment costs.
Consumer prices index
Jumped 1.2% in the fourth quarter, largely due to higher university tuition fees and gas and electricity bills. The annual rate of increase remained at 2.7% in January but cheaper clothing and footwear brought the index down by 0.5%.
Guide to data
Davis Langdon’s cost indices track movements in the input costs of construction work in various sectors, incorporating national wage agreements and changes in materials prices as measured by government index series. They provide an underlying indication of price changes and differential movements in the various work sectors but do not reflect changes in market conditions affecting profit and overheads provisions, site wage rates, bonuses or materials’ price discounts/premiums. Market conditions are recorded in Davis Langdon’s quarterly Market Forecast (last published 1 February).
02 / PRICE ADJUSTMENT FORMULAE FOR CONSTRUCTION CONTRACTS
Price Adjustment Formulae indices, compiled by the Building Cost Information Service (previously by the Department for Business, Innovation and Skills), are designed for the calculation of increased costs on fluctuating or variation of price contracts. They provide useful guidance on cost changes in various trades and industry sectors and on the differential movement of work sections in Spon’s Price Books.
Over the 12 months between February 2012 and February 2013, the 60 building work categories recorded an average rise of 1.3%, reversing the downward trend that had characterised the previous 15 months.
The largest price increases over the last year have been in the following work categories:
|Feb 2012-Feb 2013||% change|
|Pipes and accessories: clay and concrete||4.2|
|Cladding and covering: lead||4.1|
|Linings and partitions: plasterboard||3.9|
And the largest fallers are:
|Windows and doors: aluminium||-3.3|
|Pipes and accessories: aluminium||-2.6|
|Cladding and covering: aluminium||-2.4|
|Windows and doors: steel||-1.4|
|Pipes and accessories: spun and cast iron||-1.2|
Falls in prices have occurred in those work categories that have a high steel or aluminium content.
Steel prices declined steadily throughout 2012 but the beginning of 2013 has seen prices beginning to rise again. The decline in aluminium-based work categories reflects the decline in aluminium (and other metals) prices in the first half of last year.
Materials: Cheaper imported goods are balancing the rises in consumer inflation
03 / EXECUTIVE SUMMARY
- Consumer prices remain stubbornly above target and are forecast to rise further in the short term ▲
- Food and fuel prices have pushed industry input costs higher but have been balanced by cheaper imported goods ▲
- Industry output price inflation below 1.5% since mid 2012 ▶
- Metals prices have taken a recent dip ▼
- Recent decline in the value of the pound will push up the price of imported construction materials ▲
- Construction materials subdued throughout 2012 and ended year in decline ▼
- Steel prices led the price decline in the second half of last year ▼
Jan 12-Jan 13
|Consumer prices index||▲|
The annual rate of increase remained at 2.7% for the fourth consecutive month but the index fell 0.5% in January as sales prices for clothing and footwear took effect. Inflation is forecast to rise in the short term as the pound’s recent depreciation lifts import prices.
|Industry input costs|
|Materials and fuels purchased by manufacturing industry||1.8||▲|
|Materials and fuels purchased by manufacturing industry excluding food, beverages, tobacco and petroleum industries||0.6||▲|
Industry output prices rose 0.2% in January but the annual rate of increase decreased slightly to 2.0% and the narrower index held steady at around 1.4%.
|cash prices||Feb 12 average - 21 Feb 13|
Metals prices have generally been rising since last August but took a downward dip in mid-Feburary on concern over Chinese demand. Over the year lead prices have shown the largest increase with prices boosted by demand for batteries following Hurricane Sandy. Nickel prices have shown some recovery since the end of last year but price recovery lags other metals due to high inventories and anticipated market surplus.
Materials price increases for the construction industry over the last year (to December 2012) are detailed below:
|Dec 11 - Dec 12|
|Construction materials generally|
|Non-new housing work||+0.3||▼|
|Repair and maintenance||+0.4||▼|
Construction materials prices in 2012 were generally subdued and ended the year in decline.
|Jan 12 - Jan 13|
|Mechanical services materials|
|Electrical services materials||0.5||▶|
Prices for housing mechanical services materials declined steadily throughout 2012; prices for non-housing work have shown little movement. Prices for electrical materials rose in the first part of 2012 following the movement of copper prices but fell back and have shown little change since. A few materials have shown above or below average price movement over the last year:
|Jan 12 - Jan 13 (provisional)|
|Bricks and clay products||5.7|
|Veneer sheets and wood-based panels||5.0|
|Timber doors and windows||-4.4|
|Steel for reinforcement||-9.0|
Labour: Weekly earnings have fallen, but new wage agreements have come into effect
05 / EXECUTIVE SUMMARY
- Over the three months to December 2012, weekly earnings in construction averaged £543, 0.4% lower than the same period the year before
- Average earnings throughout the whole economy rose by 1.4% over the period
- Construction redundancies in the October-December 2012 quarter rose back to 22,000 after improved figures of 18,000 and 12,000 in the two previous quarters. However, the latest Markit/CIPS UK Construction PMI reported higher employment levels in January, the first time in four months.
06 / WAGE AGREEMENTS
New wage agreements came into effect at the beginning of 2013 for building and civil engineering operatives, heating and ventilating operatives, electricians and steelworkers.
Builders and civil engineering
Builders’ wage rates set under the Construction Industry Joint Council agreement were last revised in September 2011. A new agreement provided a 2% increase in basic pay rates from 7 January 2013, hourly rates becoming:
Heating and ventilating
A 2013-14 wage agreement was concluded just before Christmas. An increase in pension contributions and some allowances came into effect from 28 January 2013 and a 1.5% increase in wage rates and other allowances will take effect from 1 April 2013.
With the last revision to wage rates in January 2010, electricians have waited three years for a wage increase. From 7 January 2013 hourly rates rose by 1.5%. The principal rates for operatives with own transport became:
|National standard rate||London rate|
The agreement provides for a further 2% increase in basic rates from 6 January 2014.
The National Joint Council for the Engineering Construction Industry has agreed a three-year deal that provides annual reviews for operatives starting with a 2% wage increase from 7 January 2013.
WAGE AGREEMENT SUMMARY
The following table summarises the wage agreements currently in force for the principal wage fixing bodies within the construction industry
|Operatives||Agreement body||Current basic hourly rate||Effective since||Details in||Date of next review|
|Builders and Civil|
|Craft rate: |
|7 Jan 13||See above||Not before 2 January 2014|
|Building and Allied Trades|
Joint Industrial Council
|£10.73/hour||12 Sep 11||Spon’s Architects’ and Builders’ Price Book 2013||17 June 2013 - rates will rise by 2-3%|
|Plumbers||The Joint Industry Board for Plumbing Mechanical Engineering Services in England and Wales||Advanced plumber: £13.50/hour||2 Jan 12||Spon’s Architects’ and Builders’ Price Book 2013 / Cost Update 27 May 2011||7 January 2013 - currently in discussions|
|Scottish and Northern Ireland Joint Industry|
Board for the Plumbing Industry
|Advanced plumer £12.89/ hour||6 Jun 11||Negotiations ongoing for 2013-14|
|H&V operatives||Joint Conciliation Committee of the Heating, Ventilating and Domestic Engineering Industry||Craftsman: |
|4 Oct 10||Spon’s Mechanical and Electrical Services Price Book 2013 / Cost Update 26 November 2010||1 April 2013 - rates will rise by 1.5%|
|Electricians||The Joint Industry Board for the Electrical Contracting Industry/Scottish Joint Industry|
Board for the Electrical Contracting Industry
|Approved electrician £14.57/hour (own transport)||7 Jan 13||See above||6 Jan 14|