Cost update: June 2003

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Davis Langdon & Everest focuses on how much to pay for structural steelwork and carcassing timber in three UK regions, and reports back on the latest pay deals – particularly for plumbers

Hot rates: Structural steelwork and carcassing timber
This quarter's edition of Hot Rates examines structural steelwork and carcassing timber. The last time we examined these work sections in detail was May 1998. Since then, the sector has continued to increase efficiency but has also remained extremely competitive. Construction tender prices have risen by an average of about 35%, but prices for structural steelwork have risen by less than 10%. Most of that increase occurred in 2002, partly driven by substantial wage rises for steel erectors, but the decline in commercial office building market – particularly in London – is generating more competitive rates again. The longer-term decline in industrial building means that rates for portal frame structures are often lower than they were five years ago.
By contrast, since May 1998, carpenters' site rates have gone up about 50%, and imported timber prices have risen 90%. Nevertheless, tender rates for carpentry items have risen about 30%, slightly less than the construction tender index overall.
This time around, rates are examined in the North-west, the Midlands and East Anglia. The rates shown right are averages from successful competitively-bid tenders received over the past three months, for medium-sized building projects in the £500,000-10m range. The rates are for standard items and are representative of schemes with straightforward access. Rates include overheads and profit but exclude any allowance for preliminaries. Within regions and between projects rates can vary considerably.

Building materials

Consumer price inflation
Inflation, as measured by the headline Retail Prices Index, peaked in February at an annual of 3.2% and has maintained that level – the annual figure measured 3.1% in April. These figures match those of autumn 2000. The higher rate of increase has been driven by fares and other travel costs, which are 8.8% higher over the year, and housing, which has risen 8.6%. The latter was significantly influenced by this year's hike in council taxes.
The annualised rate of the government's target inflation index, RPIX, excluding mortgage interest payments, has stood at 3% for the past three months, a little above the government's target figure of 2.5%. Annual inflation portrayed by RPIX has not stood as high as this since May 1998. In the April Budget, Gordon Brown indicated that inflation was expected to ease back to 2.75% by the fourth quarter of this year and will revert to the target of 2.5% next year.
Inflation portrayed by RPIY, the index excluding mortgage interest payments and indirect taxes (such as council tax, duties, vehicle excise duty, insurance tax and air passenger duty) and therefore more indicative of true inflation, stood at a similar 2.9% over the past year, slightly down from March's 3.2%, which was the highest recorded annual figure since September 1993.
The Harmonised Index of Consumer Prices, the index of inflation calculated by each member state of the European Union for the purposes of European comparisons, continues to remain at a lower level (1.5% over the past year, below the EU average of 1.9%), largely as a result of the exclusion from the index of housing costs.

Input costs
The costs of materials and fuels purchased by industry generally show an increase of 0.1% over the year to April. This index has been particularly volatile over the past three years, peaking at an annual increase of 14.3% in June 2000 and an annual drop of –9.9% in November 2001, largely owing to the movement of crude oil prices. The movement of the index for industries excluding food, beverages, tobacco and petroleum industries has been far less volatile but currently shows an increase in input prices of 2.5% over the past 12 months, compared with a peak of 4.9% in April 2001 and a low of –5.2% in April 2002. Over this period, the price of plastics in primary forms has risen by 14.7%, whereas the price of imported non-ferrous metals has fallen by 10%.

Output prices
Output prices peaked in March 2003 at an annual rate of 2.1%, the highest figure since December 2000, but slipped back slightly in April to an annual figure of 1.7%. The decline was the result of a fall in petroleum product prices. The volatile price of petroleum products continues to dictate the direction of the all-industries output price index. This index, which excluding food, beverages, tobacco and petroleum products, is much more passive but currently measures a change over the past 12 months of 1.3%: the March annual increase of 1.4% was the highest registered annual increase in this index since July 1996.

Construction materials
ONS figures show that construction materials prices have risen by 2.5% over the year to April, with housebuilding materials rising by 1.7%. These figures show a marked fall from the annual figures recorded in March as the sudden increase in construction materials prices in April 2002 as a result of the introduction of the aggregates levy falls out of the index. Prices have risen by 1.0% in the first four months of this year: this is the most popular period for construction materials producers to increase prices and traditionally accounts for about 90% of annual inflation.
Heating and ventilating equipment prices remain subdued while electrical materials prices continue to show a small decrease over the past year, really registering no significant price movement over the past seven years.
Overall construction materials price changes remain benign but the specific price movements charted below left have been identified since compilation of the Spon's series of price books in spring last year.

Price adjustment formulae

Price Adjustment Formulae Indices were designed for the calculation of increased costs on fluctuating or Variation of Price contracts. Indices are published monthly by The Stationery Office in Price Adjustment Formulae for Construction Contracts: Monthly Bulletin of Indices. Guidance on cost changes in various trades and sectors can also be found in Spon's Price Books.
Over the past 12 months, April 2002 to April 2003, the average movement in the 60 Building Formula work categories has been an increase of 6.4%. Just one category showed a decrease over this period:

CategoryIndex Title% change (04/02-04/03)
3/22 Cladding and covering: Aluminium -0.8
Whereas another six showed increases of less than 3%:

3/36 Windows and doors: Hardwood +2.6
3/37 Windows and doors: Steel +2.7
3/46 Finishes: Flexible tiles, sheet coverings +2.1
3/47 Finishes: Carpets +2.2
3/49 Sanitary appliances +2.5
3/58 Pipes and accessories: Copper +1.5

The work categories showing the largest increases over this period (double digit inflation) are:

3/03 Filling: Imported, hardcore and granular +10.9
3/04 Piling: Concrete +11.4
3/06 Concrete: In Situ +12.8
3/08 Concrete: Reinforcement +11.7
3/13 Metal: Decking +11.2
3/51 Pavings: Coated macadam and asphalt +15.8
3/60 Pipes and accessories: Clay and concrete 14.5

Most of these substantial increases have arisen largely as a result of the aggregates levy, having a significant effect on the price of concrete and macadam as well as aggregates. The levy began to be charged from 1 April 2002, but the effects only appeared in the formulae indices from May 2002, as the method of compilation incorporates material price levels for the month preceding that to which the index refers.

Labour rates

Construction Industry Joint Council
Employers and construction unions agreed at the end of April a new three-year pay and conditions settlement in respect of the Construction Industry Joint Council. Over the three years, the agreement provides a total increase in basic wage rates of 23%. The wage rates form minimum rates of pay and represent a further closing of the gap between the Working Rule Agreement rates and rates actually paid on site.
The agreement provides for three annual wage increases, the first effective from 30 June 2003. The first part increases basic wage rates for general operatives, skill rates and craft rates by 5%, the lowest of the three increases. Basic pay for general operatives increases from £5.49 per hour to £5.77 per hour; the craft rate rises from £7.30 per hour to £7.67 per hour. In June 2004 basic rates will increase by 7.1%, followed by a further rise of 9.5% in June 2005, providing a rate of £9.00 per hour for the craft rate and £6.77 per hour for general operatives.
From 30 June 2003, the following rates of pay will come into effect:
Basic pay£ per hour
General operative5.77
Craft rate7.67
Skill rate 17.30
Skill rate 27.04
Skill rate 36.59
Skill rate 46.21
Additional payments for skilled work, such as for large excavator drivers, are not increased.

BATJIC one-year pay deal
BATJIC is a partnership between the Federation of Master Builders (FMB) and the Transport and General Workers Union (TGWU). The FMB represents small and medium-sized contractors and the BATJIC Constitution and Working Rule Agreement is estimated to cover 200,000 building industry workers. BATJIC promulgated a new one-year wage agreement, increasing standard rates of wages for craftsmen and adult general operatives 6.2% from 9 June 2003. A BATJIC craftsman now earns £7.75 per hour, slightly more than the CIJC craft rate, having matched the CIJC for the previous two years. The BATJIC general operative has traditionally been paid more than the CIJC equivalent: this has been maintained as the BATJIC general operative rate has now risen to £6.00 per hour.
Wage rates for semi-skilled grades, young adult operatives and apprentices or trainees have risen by a similar percentage. Additional skill payments, payments for discomfort, inconvenience or risk and tra vel allowances have also risen proportionately.
Standard rates of wages from 09/06/03 £ per hour
Craftsmen7.75
Adult general operatives6.00

Plumbers
Plumbers in England and Wales are now in the latter part of a two-year deal that began in September 2001, that lifted basic rates of pay by 27%. Current wage rates came into effect in December 2002 and negotiations between are expected to begin soon in anticipation of a new pay agreement for September 2003.
The Scottish & Northern Ireland Joint Industry Board for the Plumbing Industry also promulgated a two-year deal that began in September 2001 and is expected to be renegotiated in anticipation of a new wage award from September 2003. The Scottish & Northern Ireland award was in four parts and the last part came into effect on 7 April 2003. Overall, the two-year deal lifted wage rates by 29%, though this allowed for a discontinuation of separate abnormal conditions and tool allowances; frozen responsibility money, welding supplements and lodging allowances; overtime rates being paid only after 45 hours worked (previously paid after 39 hours); and the cancellation of travel allowances for the first 60 minutes of any outward journey.
From 7 April 2003, in the fourth and final part of the agreement, wage rates rose by 7.4% and the following rates came into effect:
£ per hour 
Technician plumber and gas service technician 10.77
Advanced plumber and gas service engineer 9.65
Plumber and gas service fitter 8.63
Plumbing labourer 7.61