Cost update

<b>Hot rates</b>
This quarter's Hot rates examines prices being received in different regions of the UK for common work items associated with disposal systems. The rates given are associated with medium-sized building projects worth £500 000-5m. The rates relate to the Standard Method of Measurement of Building Works items for schemes with normal access and working conditions. The rates shown are averages from successful competitively bid tenders received over the past three months. Rates can vary within regions and between projects.

<b>Building materials</b>
Headline retail price inflation over the past 12 months hit 3.3% in June, the highest year-on-year figure for two years. The increase was largely fuelled by rising oil and petrol prices. Petrol prices this June were 20% higher than in June 1999. Since June, oil companies and petrol retailers have eased prices back, partly because of a stabilising of oil prices but also in response to the public campaign against expensive petrol.
The year-on-year increase in material and fuel costs hit 14% in June, close to the 10-year high of 14.3% that was reached in February. The index jumped 1.5% in June alone, reflecting further rises in crude oil and food prices. Crude oil has risen 94% in the year to June. Oil prices have been relatively static in the three months since June, averaging about $28 a barrel, but most City forecasters expect the price to ease back to $25-27 by the end of the year.
These oil price rises are now being reflected in output costs. Generally, output prices of manufactured products have increased 2.9% over the past year, the highest annual figure for more than four years, but have risen 1.8% in the past four months alone. Once again, excluding the food, beverages, petroleum and tobacco industries, the annual increase in prices remains a relatively stable 1%.
The rate of increase in materials prices has been creeping up since autumn. Figures from the Office for National Statistics show that prices rose 2.5% in the year to June, with housebuilding materials up 2.2.%. These are the highest annual increases since 1997. Most of the increase took place in January when many manufacturers raised prices.
The table above lists a number of increases in materials prices over the past 12 months. These have been incorporated into the 2001 editions of Spon's Price Books.

<b>Building costs and tender prices</b>
DL&E reported on the latest tender price and building, mechanical and electrical cost trends in Tender price forecast (14 July).

<b>Price adjustment formulae for construction contracts</b>
These are 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.
In the year from July 1999, every work category in Building Formulae: Series 3 has shown an increase except metal decking, which fell markedly in the second half of 1999 and has now returned to the same level of a year ago. The average increase in costs has been 4.2%. All have been influenced to a greater or lesser extent by labour rate increases.
The most significant increases in the year to July have been registered in the categories in the table on the right. The highest riser has been aluminium cladding and covering, up 12.2%. Primary aluminium prices, as traded on the London Metal Exchange, had fallen to a five-year low in March 1999 but made a rapid recovery during the year, rising 42% by January 2000. The next three months saw prices fall 13%, but 7% was recovered between May and July. This means cash prices are still 32% higher than in March 1999.
Zinc cladding and covering costs have risen 9.7% and, once again, this has largely been in response to the movement of zinc prices on the metal exchanges. Zinc prices had fallen to a five-year low in January 1999. Price movement has not been as dramatic as for aluminium but prices had increased 27% by the end of 1999 and are now just 4% lower than that peak.
Waterproof liquid applied coatings and macadam and asphalt pavings have both shown significant increases. This is because of price rises in oil-based materials used in these work categories.

<b>Labour</b>
<b>Builders and civil engineering workers</b>
In June, the Construction Industry Joint Council adopted recommendations for a three-year agreement on pay and conditions. The first part came into effect on 26 June and increased basic rates of pay for all grades by 5%. By July 2002, the hourly craft rate will be £7.30, up 21% from the £6.05 rate that applied in May this year. All three parts of the agreement provide for uniform percentage increases across the grades of 5% in 2000, 5.5% in 2001 and 9% in 2002. The agreement is summarized in the CIJC wage agreement table.
The all-in hourly rates table calculates pay based on the 26 June agreement. It assumes 1864 productive hours a year or 42 a week (including three hours overtime a week). This is in line with the assumptions used in Spon's Architects' and Builders' Price Book 2001. The rates represent a 6% increase on the all-in rate for craft operatives used in the 2000 edition of the Price Book and a 4% increase for general operatives.
<b>The new BATJIC rates</b>
Operatives employed by members of the Federation of Master Builders under the rules and conditions of the Building and Allied Trades Joint Industrial Council received a 4.4% pay increase from 12 June. The standard hourly rates are now £6.32 for craftsmen and £5.22 for adult general operatives. In a 39-hour week, craftsmen will earn £246.48 and adult general operatives £203.58.
<b>Plumbers</b>
The Joint Industry Board for Plumbing Mechanical Engineering Services in England and Wales completed its pay review in July. Revised rates came into effect on 21 August.
The new basic hourly rates (including tool allowance) is a 5% rise for all grades of operatives, apprentices and adult trainees. The rate for technical plumbers and gas service technicians is £8.40; advanced plumbers and gas service engineers earn £7.56; and trained plumbers and gas service fitters get £6.48.
Daily travel time allowances rose 5% but there was no change to the mileage allowance, plumbers' welding supplements or lodging or subsistence allowances. It is intended that the lodging and subsistence allowances will be combined into one increased allowance but this is subject to approval by the Inland Revenue.
Responsibility money (previously 33p an hour) has been discontinued and absorbed into a new responsibility/incentive allowance. From 21 August, employers may enhance the basic graded rates by paying up to 84p more an hour, where it is agreed that the work involves extra responsibility, productivity or flexibility.
Plumbers in Scotland and Northern Ireland have received a parallel 5% increase following an agreement by the Scottish & Northern Ireland Joint Industry Board for the Plumbing Industry.