Cost update: December 2002

In this quarter's Hot Rates, Davis Langdon & Everest throws the spotlight on concrete prices, and overleaf there's an update on the latest labour costs and materials price changes

Hot rates: Concrete

This quarter's edition of Hot Rates concentrates on concrete, last examined in detail in November 1997. Building tender prices overall have increased by almost 50% in Greater London over that period and about 45% nationally. Many concrete rates have risen in excess of these average figures, particularly formwork items, for which the boom in construction workload has driven up site rates for shuttering carpenters. Until recently, reinforcement rates had risen at only about half the general trend rate. This year, insitu concrete rates have been affected by the imposition of the aggregates levy and reinforcement rates by the uncertain supply following the collapse in July of ASW, the UK's only rebar manufacturer.
The rates here are for concrete, formwork and reinforcement used in substructure, superstructure and external works associated with medium-sized building projects in the £1-10m total value range. The rates are for standard method of measurement of building works level items and are representative of schemes with straightforward access and normal ground conditions. Rates include overheads and profit but exclude any allowance for preliminaries. Within regions, rates can vary considerably. The rates shown are averages from successful competitively bid tenders received over the past three months. The typical high rates may be expected to apply to projects in central London, the typical mean rates may be found in East Anglia and the South-west, for instance, and the typical low rates may be more likely in the North and Scotland.

<B><font size="+2">Building materials</font></b>
<B>Consumer price inflation</b>
The increase in the headline rate of inflation, the Retail Prices Index, reached 2.1% for the year to October, the highest annual figure for 14 months. The largest contributor was housing costs – which rose 5% over the year – but leisure services rose 8.8% in price. The latest forecasts compiled by the Treasury show that the average view is that the RPI will have climbed to 2.8% by the end of 2003.
The government's target inflation index, the RPIX, excluding mortgage interest payments, has reached 2.3% – close to the target figure of 2.5%. The consensus is that this level will be maintained to the end of 2003 and beyond.
The Harmonised Index of Consumer Prices, the index of inflation calculated by each member state of the European Union, remains at a lower level – 1.4% – largely as a result of the exclusion of owner–occupiers' housing costs from this index.

<B>Input costs</b>
The costs of materials and fuels purchased by industry generally increased 2% over the year to October, after the annualised figure had been negative for the previous 15 months. However, the cost of materials and fuel purchased actually fell slightly in October: the sudden increase in the annualised percentage was caused by a drop in the index between September and October 2001, caused by a sharp fall in the price of crude oil.
Over the past six months, overall input prices have fallen by 0.4%, driven by a continuing fall in the cost of fuel purchased – though this seems to have stabilised since July.
The index excluding the food, beverages, tobacco and petroleum industries is less volatile as a result of the lower weighting for crude oil, which rose 27% in the year to October after last year's fall. Input prices continue to show a decline over the year of 1.5% but have been virtually static since March and, allowing for seasonal adjustments, have moved little since December last year.

<B>Output prices</b>
Output prices of manufactured products have risen 0.6% over the past year, the highest recorded figure since May 2001. There has been little change in the index over the past six months. Excluding food, beverages, tobacco and petroleum products, the output index has only varied month on month by 0.2% or less for virtually the last five years. However, it increased 0.7% over the past year, the highest annual rise for two years and went up in October, following a 6.4% rise in recovered secondary raw material prices.

<B>Construction materials</b>
By contrast with the overall trends in input and output prices, Office for National Statistics figures show that construction materials prices have risen by 4.2% over the year to October, with housebuilding materials rising by 3.7%. 2.3% of the increase in construction materials prices occurred between March and April, reflecting the immediate effects of the aggregates levy which came into effect on 1 April. Much of the increase over the last six months has also been the result of the levy as the effect has continued to filter through into the price of items such as precast concrete goods and bitumen macadam surfacing materials.

<B><font size="+2">Price djustment formulae for construction contracts</font></b>
Since July 2002 few of the 60 building formula work categories have moved by more than one point. Those displaying any additional change are scheduled below:

Reductions have begun to occur in work categories involving metals, such as cladding and pipes. Lead (work category 3/21) and aluminium (3/22) cladding and coverings have also shown minor cost reductions (0.8%), together with aluminium pipes and accessories (3/59), also down 0.8%. This is because metal prices have declined since the middle of the year. ONS figures show that the price of imported metals generally is 15% less than at their six-year peak in September 2000. Prices declined steadily to a low in November 2001. This fall was clearly reflected in a decline in the price of copper cladding (down 7% between October 2000 and November 2001) and zinc coverings (down 8% between November 2000 and December 2001). Since November last year, the ONS index shows that imported metals prices overall have been fairly steady.

<B><font size="+2">Labour: Plumbers</font></b>
<B>England and Wales</b>
In June 2001 the Joint Industry Board for Plumbing Mechanical Engineering Services in England and Wales promulgated a two-year wage agreement (in two parts) that was to increase the basic hourly rates of pay of operatives, apprentices and adult trainees by 27.4% from the rates that had been in force since 21 August 2000. One of the objectives of this significant rise was to cut the differentials between JIB plumbing operatives and heating and ventilating fitters on larger sites.
The first part of the deal came into effect on 3 September 2001 lifting basic hourly rates for all categories 12.7%. The second and final part of the agreement came into effect a few days ago, on 2 December 2002, raising all rates another 13%.
To part compensate for the large increase in basic hourly rates, overtime rates (normally paid at time-and-a-half) will no longer be paid after 39 hours and will not come into force until 45 hours have been worked Monday to Friday.
Similarly, mileage allowances, subsistence allowances, responsibility/incentive pay allowances and welding supplement payments are frozen at their August 2000 levels.
The higher basic rates from both September 2001 and December 2002 also reflect some inclusion of daily travel time allowances. Since September 2001, travel allowances have no longer been paid in addition for one-way distances less than 20 miles. The allowance for 20-30 miles was also halved and allowances for greater distances maintained at their pre-September 2001 levels. Travel allowances from December 2002 have not changed.

<B>Scotland and Northern Ireland</b>
In July 2001 the Scottish and Northern Ireland Joint industry Board for the Plumbing Industry promulgated a four-part revision to wages and allowances, operative from September 2001 to September/October 2003.
From 3 September 2001 basic wage rates rose by 5% followed by a 7% increase from 8 April 2002. The third part of the agreement came into effect on 28 October 2002, lifting rates a further 7%. Rates will rise another 7.5% on 7 April 2003 as the fourth and final part of the agreement.
The table below sets out the current rates and those that will come into effect on 7 April 2003. As part of the trend of amalgamation of allowances into basic pay rates, abnormal conditions allowance and tool allowance were discontinued from September 2001.

Responsibility money, plumbers' welding supplements and lodging allowance have been frozen at their September 2000 levels. Ahead of the change in England and Wales, overtime rates became payable only after 45 hours since the first part of the agreement came into force in September 2001. From 28 October 2002, no payment became due for travelling time for the first 60 minutes (up from 30 minutes) on journeys incurred outwith normal working hours.

Cost update: December 2002

Hot rates: Concrete

Related files/tables

Insitu concrete work

Price changes

Key indicators

Joint Industry Board for Plumbing Mechanical Engineering Services in England and Wales

Wage agreement summary for major wage-fixing bodies

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