Contractors' costs rise by 1.75 times the rate of inflation

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Baseline costs are increasing sharply in price, according to the Civil Civil Engineering Contractors Association (CECA), who say costs have shot up by 7-7.75% in England and Wales, and by a staggering 10% in Scotland over the 12 months to April.

The rises were driven by increases in materials costs.

In its annual 'Special Question on cost trends', which surveys 100 member contractors, CECA found that costs accelerated in the 12 months to April 2008. CECA say that the rises will not fit into government spending models, which assume inflation to rise by the Retail Price Index (RPI) inflation figure, which currently sits at 4.2%.

The difference will hit contractors hard.

The figures show rises that outstrip last year's rise, which was 5-5.5% for the same period last year.

"It is no surprise to find that there has been an increase in the rate of inflation of civil engineering contractors' costs, which continues to run ahead of inflation in other areas of the economy," said CECA Chairman Peter Andrews.

"This is not good news at a time when there are indications that the trend in our members' workload may be weakening, especially in respect of site works for building developments the demand for which is affected by credit conditions.

"Contractors always do their best to raise efficiency and absorb cost increases, but it is very hard to cope with increases running at more than 7% a year when they have absolutely no control over the costs of key items such as fuel and steel.

"Clients need to recognise this. They must acknowledge the pressure on contractors and allow for this in their budgets."

Record prices have been recorded for both steel and oil over the past month.

In its annual survey, CECA monitors 20 items, which includes human resources, materials and products, and services. Costs were calculated by changes in both list prices, and changes in discounts and rebates and in costs of delivery of materials to sites.

In January 2008, CECA found that the proportion of respondents saying costs were rising faster than they had done a year earlier for the first time rose to just above half, and this result was repeated in April.

Fuel costs rose from between 14.25% and 15.25%, whilst for gas oil fuel rises were as high as 16.5-19.5%. For both fuels more than a third of replies indicated increases of more than 20%.

For steel price rises, reinforcement shows the greatest cost increase, of 12.5-14.75%, with increases for steel for piling and fabricated steelwork close behind. Disposal costs to landfill also indicated double-digit increases.

By comparison, labour costs remained steady, and even fell slightly for engineering staff. The fastest rate of increase was in employing skilled operatives, the slowest rate of increase in employing administrative staff.

In Scotland the results were amplified, with costs rising by 10%.