This quarterly analysis looks at changes to material prices, labour costs and work item rates.
Recent updates have included the systematic examination of prices for different trades. This edition interrupts this pattern and temporarily returns to a broader basket of key across-all-trade items. This was last reported in Building in May 1997, since when, according to our indices, tender prices have risen 16%. The list below shows typical and keen rates for commonly encountered items. It was compiled from bids received by Davis Langdon & Everest over the past three months.
Figures are based on traditional competitively-let medium-sized contracts in the £1m-3m range in the outer London area, and exclude labours and other incidentals. Rates in most other regions are likely to be lower.
<b>Retail prices index</b>
Measures of retail price inflation have shown a decline since May 1998. The headline rate of inflation, in particular, has fallen from 4.2% a year in May 1998 to 1.1% in September this year.
Input costs to industry have, on the whole, risen in the past three months, but construction and housebuilding materials firms still report falling costs year on year. Following the interest rate rise in August, the pound has risen sharply, which should help to dampen material price increases.
The exception to this is the rapid increase in the cost of crude oil. Prices leaped 70% in the year to March 1999 and have now moved up to $23.25 a barrel, a rise of 125%. In due course, this is likely to affect manufacturing input costs. The Office of National Statistics' figures show that a representative basket of construction materials declined in price by 1.9% over the past year. This figure disguises the myriad changes of individual materials, which are included in the current edition of Spon's Architects' and Builders' Price Book (A&B) 2000.
<b>Price adjustment formulae for construction contracts</b>
<b>Building costs and tender prices</b>
DL&E reported on the latest tender price and building and mechanical and electrical cost trends in "Tender price forecast". The building cost index is forecast to rise 4.4% up to the fourth quarter of 2000. It was also noted that preliminaries have recently risen from 11% to 12-14%.
Price adjustment formulae indices are used to calculate how increased costs affect variation of price contracts. They also provide useful guidance on cost changes in various trades and industry sectors. The indices are published monthly by the Stationery Office in Price Adjustment Formulae for Construction Contracts: Monthly Bulletin of Indices.
They give guidance on the differential movement of work sections in Spon's price books. Of the 60 work categories in the third series, the average increase in costs over the past 12 months was 2.12%. The biggest influence on the indices was the June 1999 wage award, which resulted in the labour: building index rising 8.3% in July. Despite this, nine of the work categories registered falls in the past 12 months.
Fluctuating metal prices are still causing some of the most erratic price movements. For instance, copper pipes dropped 16.5% in the year to September 1999, metal decking fell 8.4% and copper cladding was down 6.6%.
Work categories displaying the largest percentage increases are generally the most labour-intensive, such as plasterwork (6.6%), formwork (5.8%) and brickwork and blockwork (5.7%).
<b>Tax and holiday pay</b>
<b>Construction Industry Scheme</b>
The three-month moratorium agreed for the Construction Industry Scheme ended on 5 November 1999. The Inland Revenue admitted a temporary problem caused by insufficient "watermarked" paper or vouchers, but also claimed that the building industry had been slow to apply for registration cards and vouchers. Contractors, many of whom were paying subcontractors on the previous SC60/714 scheme, now have to deduct tax before paying subcontractors without CIS5 or CIS6 certificates.
<b>Holiday with pay</b>
The Building and Civil Engineering Board has unveiled a new holiday pay plan, dubbed "the template", to respond to the Working Time Regulations 1998. Instead of fixed weekly holiday and benefit credits, employers will be able to choose both the frequency and amounts of holiday pay that they transfer into the B&CE central fund. Future holiday payments should now be based on average wages instead of national minimums. To encourage support from employers, B&CE is also offering them free accident and death benefit cover for their operatives. To meet the likely costs of the scheme, employers are advised to set aside 10% of their weekly wage bill, which DL&E calculates is equivalent to a 16% increase on the earlier B&CE cover scheme. The effect of this on the overall cost of labour would appear to be about +2.5%. However, the B&CE says many employers will not have to increase their overall contributions.
Building tender prices have risen faster in Greater London than in any other region of the country over the past year. The margin between costs in London and elsewhere has therefore increased, although the expected reduction in the growth of commercial activity in the capital may reverse this trend.
The table below indicates current variations in price level from outer London for various regions of the UK. It also shows the percentage adjustments advised to the major works measured rates section of Spon's A&B 000.
On 28 October 1999, the Joint Industry Board for the Electrical Contracting Industry promulgated a two-stage "industrial determination" that reviewed wage rates, allowances, working hours and benefit schemes.
The new wage agreement introduces three new categories of wage rates for operatives who work at the shop, operatives for whom the employer provides transport and operatives who provide their own transport. The first part of the determination will come into effect on 7 February 2000, increasing wage rates for operatives who provide their own transport by an average of 13.5%. The second part will come into effect on 8 January 2001, pushing up rates by a further 12.3%. The proposed hourly wage rates, from 7 February 2000, are set out here.
<b>Travelling time and travel allowances</b>
Operatives working on jobs (rather than in shops) are entitled to travel time allowance. Those providing their own transport are also entitled to travel allowances. However, because these two categories are now separately defined in the new wage rates structure, earlier allowances in the 1998-1999 determination have been significantly reduced.
<b>ECIBA credit values</b>
As of 27 September 1999, the weekly credit values increased by about +8.5% to the figures in the table above. At the same time, the Electrical Contracting Industry Benefits Agency provided participating member companies with guidance on a "top-up" funding facility to cover increased holiday pay in accordance with the Working Time Regulations. The guidance is only an example; each member company is likely to deal with such holiday liabilities in its own way.
From 4 October 1999, wage rates for electrical apprentices in England and Wales increased by 5% for senior apprentices, and 10% for junior apprentices. The London weighting increased from 25p to 26p per hour.
<b>All-in hourly costs for an electrical gang</b>
The build-up of rates for a notional 11-person electrical gang, figures effective from 7 February 2000, is shown left. The resultant rate of £13.83 an hour represents a typical gang net hourly rate, excluding site and head office overheads, preliminaries and profit. Increases accounted for by the extra holiday pay "top-up" provision account for 50p or 3.75% of the overall rate.