Cost update: September 2002

Hot rates: Groundworks

This quarter's edition of Hot Rates concentrates on groundworks and indicates current rates for typical items in different regions of the country. The rates are for substructure or site works items associated with medium-sized building projects in the £1.5m to £5m 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. Within regions, rates can vary considerably. The rates shown are averages from successful competitively bid tenders received over the past three months.
Rates for groundworks were last examined in detail in September 1997. Five years on, they have, not surprisingly, increased markedly. Landfill tax came into operation in October 1996; total tax receipts have since increased steadily as the standard rate of tax has risen yearly, and the tonnage subject to the lower rate of £2 per tonne has progressively decreased each year. Most particularly, rates for fill have been influenced dramatically by the introduction of the aggregates levy in April 2002.

Building materials

<B>Consumer price inflation</b>
The annual increase in the Retail Prices Index has edged back up to 1.5%, slightly higher than the average over the past year of 1.3%. The cost of leisure services, such as television licences and rentals, and foreign holidays, has shown the biggest increase (up 8.2% over the past year). On the other side, the cost of clothing and footwear has fallen by 4.8% over the year.
The Retail Prices Index excluding mortgage interest payments, the government's preferred measure of inflation, has increased by 2% over the past year – still below the government's target of 2.5%. Most City and independent forecasters believe inflation will stay at about this level for the remainder of this year, but will rise to the government's target figure by the end of next year.
UK inflation, as measured by the Harmonised Index of Consumer Prices, remains at a lower level (1.1% over the past year), largely as a result of the exclusion from the index of owner occupiers' housing costs, such as depreciation.

<B>Input costs</b>
The costs of materials and fuels bought by industry generally have fallen slightly over each of the past three months and stand 3.5% lower than a year ago. However, there have been slight increases in the index excluding the food, beverages, tobacco and petroleum industries over the past two months and this index now shows a 2.2% decrease over the year, the smallest annual reduction for nine months.
The aggregates levy is estimated to have added 0.17 index points (0.19%) in April to the main input index and 0.42 index points (0.50%) to the input index excluding food, beverages, tobacco and petroleum products.

<B>Output prices</b>
Output prices of manufactured products generally showed no change between June and July, reflecting a fall in petroleum and clothing product prices, offset by a rise in tobacco and chemical product prices. Over the year, prices have now risen by just 0.3%. Excluding food, beverages, tobacco and petroleum, output prices have risen by 0.5% over the past 12 months.
The price of petroleum products has fallen 5.7% over the past 12 months. However, crude oil prices have risen to $27 a barrel – 40% higher than at the beginning of the year – and industry is concerned at the prospect of a sustained increase in oil prices as the war against Iraq looms larger.

<B>Construction materials</b>
ONS statistics show that construction materials prices have risen by 3.8% over the year to July 2002, the highest annual increase since December 1995. This has in large part been caused by the aggregates levy, which introduced a tax of £1.60 per tonne on aggregates extracted or dredged in the UK, with subsequent knock-on effects on the price of fill, concrete, precast concrete goods and bitumen macadam. The index has registered an increase of 3.5% since March as the effects of the levy filter through.
Housebuilding materials similarly have increased in price by 3.4% over the year and by 3.1% since March.

Price adjustment formulae for construction contracts

Over the past 12 months, between July 2001 and July 2002, the average movement in the 60 Building Formula work categories was an increase of 4.5%. Three work categories have shown a decrease over this period:

<table width="450" border="0"> <tr valign="bottom"> <td> <div align="left"><b><font face="Arial, Helvetica, sans-serif" size="1" color="#FF0000">Work category</font></b></font></div> </td> <td> <div align="left"><b><font face="Arial, Helvetica, sans-serif" size="1" color="#FF0000">Index title</font></b></font></div> </td> <td> <div align="right"><b><font face="Arial, Helvetica, sans-serif" size="1" color="#FF0000">% change July 2001-July 2002</font></b></font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/45 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Finishes: rigid tiles and terrazzo work </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">-2.7 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/13 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Metal: decking </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">-1.8 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/22 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Cladding and covering: aluminium </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">-0.8 </font></div> </td> </tr></table>
The work categories showing the largest increases over this period are:

<table width="450" border="0"> <tr valign="bottom"> <td><b><font face="Arial, Helvetica, sans-serif" size="1" color="#FF0000">Work category</font></b></td> <td><b><font face="Arial, Helvetica, sans-serif" size="1" color="#FF0000">Index title</font></b></td> <td> <div align="right"><b><font face="Arial, Helvetica, sans-serif" size="1" color="#FF0000">% change July 2001-July 2002</font></b></font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/03 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Filling: imported, hardcore and granular </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">+13.5 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/06 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Concrete: in situ </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">+10.1 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/42 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Finishes: screeds </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">+9.4 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/12 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Softwood carcassing and structural members </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">+8.8 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/04 </font></td> <td><font face="Arial, Helvetica, san-sserif" size="1">Piling: concrete </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">+8.1 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/48 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Finishes: painting and decorating </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">+7.9 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/44 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Finishes: plaster </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">+7.8 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/53 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Site planting </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">+7.6 </font></div> </td> </tr> <tr> <td><font face="Arial, Helvetica, sans-serif" size="1">3/51 </font></td> <td><font face="Arial, Helvetica, sans-serif" size="1">Pavings: coated macadam and asphalt </font></td> <td> <div align="right"><font face="Arial, Helvetica, sans-serif" size="1">+7.1</font></div> </td> </tr></table>
The large increases in most of the above categories are largely the result of the effect of the aggregates levy, which came into operation on 6 April, bringing up the cost of concrete and bitumen macadam as well as aggregates used in fill.
The other main influence has been the rise in labour costs from the end of June: the last part of the Construction Industry Joint Council's three-year pay and conditions agreement has resulted in a 9.1% rise in the cost of employing labour. This is reflected most significantly in those work categories with a high labour content such as plaster (a labour weighting of 72%) and painting and decorating (82%).

<B>Notes:</b>
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. 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.

Labour rates: Heating and ventilating operatives

<B>HVCA wage rates</b>
On 7 October 2002, the third and last part of the three-year wage agreement for 2000/1 to 2002/3 comes into effect. This is part of the agreement promulgated in September 2000 by the Joint Conciliation Committee of the Heating, Ventilating and Domestic Engineering Industry comprising the employers, represented by the Heating and Ventilating Contractors' Association, and employees, represented by the Manufacturing, Science and Finance Union.
The table shows the current rates and the new ones that will come into effect, raising basic hourly rates by an average 16.2% from the current levels. All grades, including apprentices, will receive wage increases of this size.
In part compensation for this sizeable increase, travelling allowances are being cut (see table, below). The daily travelling allowance for craftsmen will reduce by £1.93 and by £1.66 for mates and apprentices (an average cut of 22% for travelling between 20 and 50 miles a day). No travel allowance will be paid for distances below 15 miles (increased from 10 miles) while the allowance for travelling 15 to 20 miles has been cut by 50%.

Labour costs

The labour rate used in Spon's Mechanical and Electrical Services Price Book 2003, based on JCC October 2002 rates, is £19.72 per hour, inclusive of overheads and profit. The build-up of this rate, based on a notional 12-man gang, is shown in the table below.