This quarter's Hot rates examines prices being received in different UK regions for common work items associated with piped supply systems. Rates are given for medium-sized building projects of £500 000-5m in value with normal access and working conditions, and relate to Standard Method of Measurement of Building Works items. The rates are averages from successful competitively bid subcontract tenders received in the past three months, and exclude main contractor's profit and overheads. Rates can vary greatly between regions and projects.
Headline retail price inflation, which reached a two-year high of 3.3% in June, returned to that level in September. The past six months have seen the index rise 2.0%.
Inflation excluding mortgage interest payments also rose, with the annual increase in prices standing at 2.2%. However, over the past six months the index has risen 1.5%.
The largest upward effect in both series came from motoring costs, as a result of increases in crude oil costs.
The input price index for industry generally leaped 3.7% in September alone, caused mainly by oil prices. Over the past 12 months, the price of materials and fuel purchased by manufacturing industry increased 14.5%, the largest annual rise for almost 20 years. Fuel costs (electricity, gas and oil) over this period are actually 4.3% lower. Excluding the petroleum industries, materials and fuel purchased by other industries have risen a more modest 4.4% over the past year and only 1.7% over the past six months.
The year-on-year rise in the price of construction materials has now overtaken that of manufactured products generally, having risen 3.1% in the past 12 months, while output prices generally rose 2.5%. Excluding the food, beverages, petroleum and tobacco industries, output prices of manufactured products increased only 1.2% over the past year, considerably below the rise in input costs. The 3.1% rise in construction materials prices is the highest annual figure since January 1996.
Mechanical and electrical engineering services materials have seen less inflation, UK-produced goods benefiting from the high level of sterling in reducing the costs of imported materials in recent years. However, this effect may be over. Figures from the Office for National Statistics show that the price of imports in the three months to July was 4.4% higher than a year ago. Even excluding distorting items such as oil, the increase was 2.1% – the highest for four years. Given the amount of imported construction materials, this change in emphasis may give a further nudge to construction's market-led inflation.
The 2001 editions of Spon's price books include a general guide to materials prices this spring. Specific price changes that have since been identified are given in the table above.
Civil engineering and landscaping work
Davis Langdon & Everest's Constructed Civil Engineering Cost Index, based on DETR figures and published in Spon's price books, rose 7.3% over the year to the third quarter of 2000, compared with a rise of 5.1% in its Building Cost Index.
Plant costs are a big factor in civil engineering, and over the past year the cost of gas oil fuel has risen 42%. Higher crude oil prices have pushed up coated roadstone – the most important material in the Civil Engineering Index – by 11.4%. The index's 3% rise between the second and third quarters of 2000 was partly a result of the June wage increase for civil engineering operatives. Between July and September, the index rose 0.7% as gas oil fuel continued its charge, but this was tempered by small falls in coated roadstone and cement.
Civil engineering tender prices, as measured by the DETR's Tender Price Index of Road Construction, were volatile in 1999. However, provisional figures show that road construction prices in the second quarter of this year were 9% higher than a year ago – a far bigger rise than for tender prices in the building sector.
DL&E's Landscaping (Hard Surfacing and Planting) Cost Index, based on the DETR's Price Adjustment Formulae for Construction Contracts, and published in Spon's Landscape and External Works Price Book, assumes about 50% soft landscaping area and 50% hard external works.
Over the year to the third quarter of 2000, the index rose by 4.9%. The largest impact was from soft landscaping, which has a high labour content. Other contributory factors were site preparation, which has a high mechanical plant content and has been affected by fuel costs, and bituminous surfacing, which has seen cost rises this year as a result of crude oil prices.
From July to October, the index rose by 0.4%, with the same three factors largely responsible.
Labour: Heating and ventilation operatives
Heating and ventilation operatives' three-year wage agreement was due to expire on 4 September 2000. However, protracted negotiations between the Heating and Ventilating Contractors' Association and the Manufacturing, Science and Finance Union did not conclude until the end of September.
The result was a three-year accord starting on 2 October and lasting until 6 October 2003. By 7 October 2002, basic wage rates will have risen in three stages by a total of 28%, with the bulk of the increase taking place in the third year, 2002/3.
There will be a 5% increase in each of the first two years in hourly rates for all grades and corresponding rises in travel and responsibility allowances.
There were only two exceptions to the 5% rise. From 2 October 2000, the responsibility allowance for senior craftsmen undertaking day-to-day supervision of larger work squads will rise from 31p an hour to 66p an hour.
The other exception was a larger increase in the hourly rate for foremen – up 9% from £8.73 an hour to £9.50 an hour.
The new agreement is summarised in the table on the right.
From 3 September 2001, the basis for calculating overtime payments will change. This is intended as a means of mitigating the overall cost effects of the agreement.
In effect, the premium of time-and-a-half or double time will be reduced and the premium part of the overtime rate will be held at 2 October 2000 levels.
For example, from 3 September 2001 a craftsman's basic hourly rate will rise to £7.56 but the "time-and-a-half" overtime rate will be £7.56 plus half of the October 2000 rate (£3.60). The new premium payments will be known as "premium rate 1" (where overtime previously merited payment at time-and-a-half) and "premium rate 2" (where payment at double time was previously merited).
This provision will remain in place for the third year of the agreement.
Travel allowances and holiday credit
To further balance the large increase in basic hourly rates in the third year of the agreement, from 7 October 2002 no daily travelling allowance will be paid for journeys of less than 15 miles and rates for other mileage bands will be reduced accordingly.
A number of adjustments are being made to WELPLAN, the industry's holiday pay and welfare scheme, to allow employers to meet holiday pay regulations under the Working Time Regulations.
From 2 October 2000, the value of the weekly holiday credits has increased by between 5% and 12.5% depending on the grade. From October 2001, further changes are likely to be introduced, including an increase in the number of credit categories.