Cost update: Q4 2009

01 / Key Changes
See attached graphic.

Guide to data
Davis Langdon’s cost indices track movements in the input costs of construction work in various sectors, incorporating national wage agreements and changes in materials prices as measured by government index series. They provide an underlying indication of price changes and differential movements in the various work sectors but do not reflect changes in market conditions affecting profit and overheads provisions, site wage rates, bonuses or materials’ price discounts/premiums. In the current market, many costs recorded here are rising but prices charged to clients are still falling. Market conditions are recorded in Davis Langdon’s quarterly market forecast (last published 29 January).

02 / Price adjustment formulae for construction

Over the last 12 months between February 2009 and February 2010, the 60 Building Work categories have recorded an average rise of 1.4% but over the last six months between August 2009 and February 2010 an average rise of 2.0% has been recorded, illustrating how the trough of the cost trend occurred mid Summer last year.

Sixteen work categories still show a price decline over the last year (compared to 32 categories six months ago). In most cases the decline is now less than 2% but some steel based categories still show higher price falls over the last year:

See attached graphic, below.

Copper, lead and zinc prices rose by more than one and a half times over the year to January (though have since slipped back a little) and these price increases are still feeding into the price of metals products.

The price adjustment formulae indices are compiled by the Department for Business Innovation and Skills.

They are designed to help with the calculation of increased costs on fluctuating or variation of price contracts. They also provide useful guidance on cost changes in trades and industry sectors and on the differential movement of work sections in Spon’s Price Books.

03 / Executive summary

See attached graphic, below.

04 / Key indicators

See attached graphic, below.

05 / Executive summary

• Average earnings in construction in the last three months of 2009 were 0.8% higher than a year previously
• Average pay in construction last December was £557 per week
• 34,000 people were made redundant in the construction industry in October-December 2009, down from the peak of 50,000 in January-March and the lowest figure since the July-September 2008 quarter 1
• Pay freezes in operation for builders, plumbers and heating and ventilating operatives
• Wage increases in January for electricians and engineering construction workers
• Local authority craft workers face pay freeze from April

Earnings data

The normal wage review anniversary for plumbers in England and Wales is in January. This year there were no changes to rates of pay or allowances and the rates that came into effect in January 2009 will remain in place until January 2011.

Similarly rates of pay for plumbers in Scotland and Northern Ireland have been frozen at their June 2009 levels and will remain at that level until June 2011.

Heating and ventilating operatives’ wage rates, effective since October 2008, have been frozen until October 2010.

Electricians however have benefited from a three-year agreement that was promulgated in September 2007, the third and last part of which provided for a 5% increase in rates and allowances from

4 January 2010. The new national standard rates are as follows:

See attached graphic, below.