Cost update

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• Hot rates: Ventilation and air-conditioning</b>
• Hot rates continues to focus on the mechanical services sector, this time examining current rates for ventilation and air-conditioning systems. With much of this work currently concentrated in London and South-east England, the table compares rates now being received in these areas for ductwork and associated items of work. The rates given are for building projects where the value of the mechanical services installation exceeds £1m. The rates relate to projects with normal access and working conditions and are averages from competitively bid subcontract tenders received over the past three months. The rates are exclusive of preliminaries and do not include main contractor's profit or overheads. Within regions and between projects, rates can vary considerably.
• <B>Labour costs</b>
• Labour shortages have been apparent in London and the South-east for some time now, and site rates may be well in excess of national wage agreements. The national wage agreement for a mechanical craftsman provides a basic hourly rate of £7.20. In London, to employ a craftsman through an agency will cost about £18 an hour. Rates have risen about 20% in the past 18 months. In London, the "all-in" rate for a mechanical craftsman is £22.50 and £24.75 for a senior craftsman.
• Labour may typically represent 50% of the total cost of a mechanical services installation. In items such as ductwork, the labour cost will be disproportionately high for smaller ducts (up to 65% of the cost) and relatively low for larger ducts (down to 30%).
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• Building materials</b>
• Headline retail price inflation slowed for the fifth consecutive month in April, thanks in large part to changes in housing costs. These included a fall in mortgage rates, following the recent reductions in general interest rates.
• The retail prices index excluding mortgage interest payments has been remarkably steady over the past two years, fluctuating between 1.8% and 2.2%. City forecasters believe that it will remain at 2.0 % until the end of this year, but will move up to 2.3% by December 2002.
• Materials and fuel bought by manufacturing industry have risen 6.6% over the year. Annual figures have averaged 5.3% in the first four months of this year, compared with 11.5% in 2000. Last year's figures were influenced by a surge in oil prices, which has since moderated. Excluding the food, beverages, petroleum and tobacco industries, the increase in input prices over the year has been a more modest 3.6%.
• Despite the high input costs, the change in output prices has fallen to just 0.5%. This is the fifth consecutive monthly fall. Output prices excluding the food, beverages, petroleum and tobacco industries have risen only 0.3%. This index has been very restrained for some time. For the three years from the beginning of 1997 and the start of 2000, the annual change swung from +0.5% to –0.7% and back to +0.5%. It peaked at 1.2% in July 2000 and has since been in decline.
• In the first four months of 2001, OPEC held oil prices roughly in the middle of its target range of $22 to $28 a barrel. May witnessed something of a resurgence, with the price of Brent crude nudging $30 for the first time since December 2000. Forecasters believe that prices will be back to about $24 by the end of this year; most predict that prices will continue to fall, reaching about $22 by the end of 2002.
• <B>The climate change levy</b>
• The climate change levy came into force on 1 April. It consists of different levies on fuels, but is generally regarded as equating to a levy of 10-15% on the cost of gas and electricity, and it must be paid by all UK businesses and public sector organisations.
• The levy is revenue-neutral because, at the same time, a 0.3% cut in employers' National Insurance contributions was introduced (right). However, energy-intensive industries can claim an 80% discount if they have signed up to energy-saving targets agreed between the government and trade associations. More than 50 bodies, including the British Cement Association, the Gypsum Products Development Association, the National Council of Building Material Producers and the UK Steel Association, have reached agreement or are in negotiations with the DETR. These agreements are yet to be ratified by the European Union, which views them as a form of state subsidy.
• The Office of National Statistics currently excludes the effect of the levy. However, the Department of Trade and Industry has estimated that it might add 0.9% to the input (materials and fuel) index in April 2001.
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• New day rates for plant</b>
• The RICS has published a new edition of Schedule of Basic Plant Charges for daywork under a building contract. It has been revised to reflect the types of plant likely to be available on a building site. Known as the 2001 edition, it came into force on 1 May. The last edition was issued in October 1989 and was effective from 1 January 1990. The table right illustrates some of the new rates and changes over the decade.
• Percentages tendered by contractors for "incidental costs, overheads and profit" on the prime cost of plant used in dayworks has typically averaged 20-25% over recent quarters. The percentages shown in the table suggest that negative percentages could soon be tendered to allow contractors to retain the same recovery.
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• Labour: Builders and civil engineering operatives</b>
• The Building and Allied Trades Joint Industrial Council has agreed new wage rates that come into effect on 11 June for operatives employed by members of the Federation of Master Builders (table, right). The new rates represent a 6% increase for craftsmen and a 3.8% rise for adult general operatives.
• Wage rates for semi-skilled grades with continuous responsibility and additional rates of pay to general operatives applying skills on an intermittent basis will rise 15%.
• Payments for discomfort, inconvenience or risk, for example, for detached work, exposed work, cranes, work in swings, and furnace firebrick work, also increase 15% from 11 June.
• <B>Construction Industry Joint Council</b>
• Last June, the Construction Industry Joint Council adopted recommendations from its employer and trade union bodies for a three-year agreement on pay and conditions, split into three parts. The second part of the agreement comes into force on 25 June. The general operative, skill and craft rates will all increase 5.5% (table, right).
• Additional rates of pay for intermittent skill, responsibility or working in adverse conditions (Schedule 2 of the Working Rule Agreement) will increase by a similar rate (1 to 3p per hour).
• Daily fare and travel allowances and subsistence allowances increase on the same date in accordance with an index formula (although the actual figures have not been calculated at the time of going to press).
• <B>National Insurance and climate change</b>
• As announced in the chancellor's March 2000 budget, employers' National Insurance contributions have been reduced by 0.3% from 6 April this year, to balance the additional costs of the climate change levy.
• For "not contracted-out" earnings, the employer's contribution has been reduced from 12.2% to 11.9%. At the same time, the earnings threshold (below which no National Insurance contributions are due) has been raised to £87 a week (from £84).
• Most plumbers are enrolled in the plumbing Industry Pension Scheme. This means their and their employers' National Insurance contributions are "contracted-out". For plumbers and other members of contracted-out occupational pension schemes, the employer's NI contribution has been reduced to 8.9% (from 9.2%) on all earnings between the earnings threshold and the upper earnings limit – now £575 a week, up from £535. All earnings above the upper earnings limit attract an employer's NI rate of 11.9% (down from 12.2%).