Input costs and output prices are both on the way down, according to Davis Langdon & Everest, while plumbers are enjoying a wage rise
<B><FONT SIZE="+1">Hot rates: Lifts and escalators</b></FONT>This quarter, Hot rates examines prices currently being tendered in the lifts and escalators market. High levels of commercial activity over the past five years have provided plenty of work opportunities for lift manufacturers. But in spite of the buoyant market, prices of lifts have increased only marginally over the last year.
Machine room-less lifts such as Kone's MonoSpace, Schindler's Smart MRL and Otis' GEN2 range have taken an increasing proportion of the market over the last four years. Lead times are little changed over the last year – 25-30 weeks should be allowed for manufacture and installation of a lift from a standard range and for bespoke products, up to 70 weeks may be required.
There are no large regional differences in the cost of lift installations so these rates are representative of tender prices around the country. The rates relate to projects with normal access and working conditions and standard rather than bespoke lift installations. They are specialist subcontract rates and are exclusive of main contractor's preliminaries, profit and overheads. They also exclude attendances by the main contractor and all associated builders' work.
<B><FONT SIZE="+1">Hot Building costs</b></FONT><B>Retail prices</b>
The Retail Prices Index, excluding mortgage interest payments, has risen 2.3% over the year to September, very close to the government's target figure of 2.5%. In August, the annualised figure reached 2.6%, the highest figure since January 1999.
Headline retail price inflation is shown as only 1.7% over the last year, held down by mortgage interest payments, which have fallen by 11% over the last 12 months. Excluding mortgage interest payment and indirect taxes, inflation is shown as somewhat higher, at 2.8% over the last year. In August this figure reached 3.1%, its highest figure since 1993.
All three index series show reduced rates of inflation over the last few months, as illustrated in the column showing percentage increases since May in the table (far right).
Most independent and City forecasters believe the Retail Price Index and retail price inflation will remain at about the government's target of 2.5% for this year and next.
<B>Input costs </b>
Input costs to industry, as shown by the Office for National Statistics index of materials and fuel purchased by manufacturing industry, turned negative in July and the latest figures show that input costs in September were 6% lower than at the same time last year. This has largely been in response to falling oil prices, but also to a significant fall in the cost of imported metals.
The ONS still excludes the effect of the climate change levy, which came into effect in April 2001, from its statistics. DTI energy statistics indicate that the levy might add 0.8% to the input (materials and fuel) index in September 2001.
The annual change in output prices also turned negative in July. Although the September figure shows the reduction at only 0.2% since September 2000, such a figure has never been recorded in the 43 years that this index has been running. The index has fallen back 0.4% since June.
<B>Construction materials </b><rR>The annual rate of increase in the price of construction materials, as measured by the ONS, peaked at 3.25% in November 2000. Since then, the annualised figure has been in decline and, in September, the figure had fallen to 1.6%. There has been virtually no increase in prices recorded over the last four months in either construction materials or housebuilding materials. Few manufacturers appear to have passed on any extra costs arising from the climate change levy.
Inflation in mechanical and electrical engineering materials prices remains even more subdued, registering rises of 1% and 0.3% respectively over the last year and showing small reductions in price over the last four months. These have been in response to lower input costs for manufactures. Copper prices have fallen 9% over the last year and the price of imported plastics has fallen 6% over the last 15 months.
<B><FONT SIZE="+1">Labour costs</b></FONT><b>Plumbing work</b>
Plumbers received a substantial wage increase which came into effect on 3 September 2001. Basic wage rates in England and Wales rose 12.7% and in Scotland and Northern Ireland 5%. In England and Wales the increase in basic rates was offset by reductions in travel allowances.
The Price Adjustment Formulae for Construction Contracts produced by the DTI register an increase of 5.7% in the Labour: Plumbing index in September, representing an increase in the total cost of employing plumbing labour. Largely as a result of this the following work categories have shown increases since May as shown (right).
In July, the Joint Industry Board for the Electrical Contracting Industry promulgated a three-year wage agreement for electricians. The agreement grants electricians rises in basic pay rates of 18% nationally and 22% in London between 2002 and 2004. The structure has been further rationalised and from next year there will be just two categories of pay rates: where transport is provided by the employer and where operatives travel to site via their own transport.
See right for a summary of the rates that come into effect on 7 January 2002.
The second part of the agreement comes into effect on 6 January 2003. National standard rates will rise by 4.8% where transport is provided and by 5% for operatives providing their own transport. London rates will increase by an additional percentage point, 5.8% where transport is provided and 6% for own-transport grades.
In 2004 the national standard rates will rise a further 7.2% and London rates again 1% more at 8.2%.
In the third table (right) are current prime cost figures for dayworks purposes, calculated in accordance with the definition of prime cost of dayworks carried out under a building contract; carried out under a heating, ventilating, air-conditioning, refrigeration, pipework and/or domestic engineering contract; or carried out under an electrical contract, published by the RICS and the appropriate trade body.
The fourth table (above) provides indicative figures for overheads, profit and incidental costs currently tendered as additions to prime cost of labour, materials and plant in accordance with the definitions above.
The above figures represent national average percentages tendered. The percentage on labour will vary around the country depending on local labour costs as well as prevailing market conditions.
In London, the percentage tendered on building labour can currently be expected to be 140-160%, generating daywork rates of £19.70 to £21.30 per hour for building craftsmen.
<B><FONT SIZE="+1">Civil engineering work</b></FONT>DL&E compiles a constructed civil engineering cost index, based on the DTI's Price Adjustment Formulae for Construction Contracts. The weighting for each index has been derived from an analysis of actual projects. The index is published in Spon's Civil Engineering and Highway Works Price Book, dating back to 1990. Indices over the last 3 years are shown in the table, right (1970 = 100).
The index shows that civil engineering costs rose 2.5% over the year to the third quarter 2001, compared with a 4% increase measured in DL&E's Building Cost Index.
Bricks and clay products have risen 5.1% over the period, and labour and supervision costs 5%. These costs have been partly offset by a 4.2% fall in timber costs and a 3.1% fall in reinforcement costs.