The rise in construction activity has led to a sharp increase in hourly rates in the M&E sector, particularly in London. Davis Langdon & Everest looked at what this has meant for wage deals and the prices of key components
Hot rates: Electrical installations

With most M&E contractors reporting full order books, Hot rates examines the services sector once again, this time looking at rates for electrical installations in London, where there is most activity. The table (right) examines tender rates in the capital for building projects where total cost of electrical services installation exceeds £250,000.

These rates cover projects with normal access and working conditions and are averages from competitively bid subcontract tenders over the past three months. The rates do not include preliminaries or the main contractors' profit or overheads. Rates can vary considerably within regions and between projects.

Labour costs
In January nationally agreed Joint Industry Board hourly rates for electricians outside London rose 11-14% for operatives providing their own transport giving them £9.35 an hour. For electricians in London pay rates rose 12-15%, giving an hourly rate of £10.02. Rates will rise again in January, up 5% outside London and 6% in London.

The cost of hiring an electrician in London through an agency costs about £13.50 an hour, although rates have risen less rapidly over the last year than the JIB's basic.

Contractors often make an extra charge for "incidental costs, overheads and profit" in addition to the prime cost of labour in dayworks in specialist electrical services installations. In busy areas such as London, Cambridge and Edinburgh this addition is about 150%. If this is taken into account the "all-in" rate for an approved electrician in London is £31.28 an hour and £29.18 elsewhere.

(see table attached)

Building costs

Retail price inflation
Headline retail inflation fell to just 1.6% last month, and has been in fairly steady decline since it peaked at 3.3% in the middle of last year. The much higher cost of foreign holidays (10% up on last year) has been more than offset by a 3.9% fall in clothing and footwear costs over the year.

The underlying rate of inflation, excluding mortgage interest payments, fell slightly last month to 2.2%, down from 2.4% in May and June, the highest annual figure for two years. This inflation measure remains close to the government's target of 2.5%.

More tellingly, the retail prices index excluding mortgage interest payments and indirect taxes hit an annualised figure of 2.8% in May and June, which was a sharp climb from 1.5% in January. The index has not reached this level since the end of 1996.

In spite of these inflationary signs, the Bank of England surprised the markets this month by reducing the interest rate for the fourth time this year. This index eased to an annual inflation figure of 2.6% last month.

Input costs
The cost of materials and fuel bought by manufacturing dropped 3% last month. It is now 0.3% lower than one year ago. This fall was largely caused by a decline in the price of crude oil. Last year industry faced an 11% increase in input prices as world oil prices rose. However, the price of domestically-produced materials rose only 5% while the price of crude oil fell 6.1% and the cost of other imported raw materials declined 0.9%. Fuel costs have risen 4.8% over the past 12 months The DTI estimates that the climate change levy could add 0.9% to the input (materials and fuel) index in July.

Output prices
Output prices of all manufactured products rose 0.1% in the year to July, a small increase perhaps in view of fears about the climate levy. The annualised rate of inflation has been declining since last November, when it stood at 2.8%. However, output prices have risen 0.4% since March.

Construction materials
ONS statistics show that construction materials prices rose only 2.1% between January 1996 and January 2000. Prices did rise 2.9% last year but have fallen since. Construction materials prices have risen about 1% since the start of the year and 1.8% over the past 12 months. This slower rate of increase is in line with most other industries. Housebuilding materials prices have increased slightly more, up 2.1% over the last year.

Exporters have long bemoaned the effect of the strong pound, although manufacturers have benefited from the lower cost of imported raw materials. The pound, measured against a basket of currencies in the sterling index, was 15% higher in value in spring last year than at the start of 1997. With construction materials imports in 1999/2000 approaching $6bn a year, the industry was saving almost £1bn a year.

Sterling has experienced a series of falls and rallies since then. The pound has fallen just over 5% against the euro and is now nearly 4% lower than its average level against the euro last year, though 4% higher than its average level in 1999.

Against the dollar, the currency in which internationally traded raw materials tend to be priced, the pound has had a minor rally since it slumped to a low of $1.37 in June to stand at $1.44 in the middle of this month. But the pound has been in steady decline against the dollar over the last 18 months. At the start of last year the exchange rate stood at $1.65 to the pound, 15% above its level this month. The sterling index has declined 4% from this year's peak at the start of last month. It is now 3% lower than the average last year but remains 0.4% higher than the average for 1999.

Price adjustment formulae indices
Price adjustment formulae indices were designed to calculate the effect of increased costs on fluctuating price contracts. Indices are published monthly by the Stationery Office in Price Adjustment Formulae for Construction Contracts: Monthly Bulletin of Indices. They also provide guidance on cost changes in trades and industry sectors and on the differential movement of work sections in Spon's Price Books.

The average increase in the 60 building formula work categories has been 2.75% in the 12 months ending in July. The building labour index has risen 5.1%. Three work categories have shown a minor decrease and two work categories have shown no overall change.

Labour costs

Plumbers: England and Wales
Plumbers in England and Wales have negotiated a two-year wage agreement, beginning on Monday. Basic hourly rates for all operatives, apprentices and adult trainees rise 12.7%.

The second part of the agreement comes into effect 15 months from now, on 2 December 2002, lifting rates 13%.

The objective of the JIB for Plumbing Mechanical Engineering Services at pay talks last month was to cut differentials between JIB plumbing operatives and heating and ventilating fitters on larger sites. This has been achieved as the rates listed below indicate.

The basic hourly rates for main operatives are shown in the table (plumbers' rates table, right). In addition, rules for overtime payments and travel allowances have been amended, partly to offset the increases in basic rates.

Overtime rates now trigger after 39 hours have been worked Monday-Friday; after 2 December next year the threshold will be 45 hours.

Travel allowances will no longer be paid for distances less than 20 miles after this week. In addition, the allowance for 20-30 miles has been halved and allowances for greater distances are maintained at their pre-September 2001 levels.

Travel time allowances from 2 December next year will be held at the level in September.

Plumbers: Scotland and Northern Ireland
The Scottish & Northern Ireland JIB for the Plumbing Industry has also agreed a two-year deal on wages and allowances. This will be in four parts. Under the first stage, starting on Monday, basic rates for operative plumbers, gas service operatives, apprentice plumbers and fitters and adult trainees rise 5%.

Under the second phase of the agreement, which comes into effect on 8 April next year, rates rise 7%. Rates rise again, by another 7%, on 28 October, and again, by another 7.5%, on 7 April 2003. By that time the wage rate of an advanced plumber will have risen from £7.48 to £9.65, an increase of 29%.

However, from this Monday premium overtime rates will no longer be paid until 45 hours have been worked Monday to Saturday, rather than from the standard 39-hour working week.

Another part of the agreement provides for a progressive reduction in travel allowances, starting from 8 April next year. By 28 October 2002, no payment of travelling time will be paid for the first 60 minutes on any return journey outwith normal working hours.

Heating and ventilating operatives
The second part of the three-year wage agreement in the Heating and Ventilating Contracting industry comes into effect on Monday. This provides for a 5% increase in all hourly wage rates, following on from the 5% rise provided in the first part of the agreement from 2 October 2000. Corresponding increases in daily travelling allowances and responsibility allowances also come into effect. The rates are shown in the table above.

A new method for the calculation of overtime premium payments comes into effect on Monday. 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 the levels on 2 October last year.

From now on, overtime payments will consist of two elements:

  • The normal hourly rate payable in respect of the hours worked
  • The corresponding premium payment – derived from time-and-a-half or double time based on 2 October 2000 normal hourly rates.

The new overtime premium payments are known as premium rate 1, where overtime working previously merited payment at time-and-a-half, and premium rate 2, where overtime working previously merited payment at double time.

The JIB for the Electrical Contracting Industry has promulgated a three-year deal, starting 7 January next year, which lifts hourly rates for electricians 18% by January 2004. Full details will be given in the next update, which will be published in November.

Demolition workers received a 7% increase in basic hourly rates from 23 July. A grade 3 operative now receives £6.21 an hour and a grade 1 (general labourer) £5.36 per hour.

  • The 2002 editions of the Spon's Price Books will be published in the next two weeks. Most of the updated data here will be incorporated.