The Scottish Government

« Previous | Contents | Next »

Listen

ANALYSIS OF HISTORICAL CONSTRUCTION COST MOVEMENTS IN SCOTTISH SOCIAL HOUSING FINAL REPORT

5.0 OUTPUT PRICES

5.1 Introduction

Output prices are defined by BCIS as measuring "the current price paid for construction work, i.e. work carried out in the period as distinct from work tendered in the period. The indices relate to cost to client but reflect the fact that current contractors output is made up of work tendered in previous periods adjusted, in the case of Variation of Price (VOP) schemes, for cost inflation".

The data for the trends identified are sourced from

• Building Cost Information services (BCIS)
• Department of Trade and Industry (DTI)
• Building Maintenance Information (BMI)

5.2 Output deflators for construction work

The principal purpose of output price indices for construction work is their use as deflators to convert output volumes of construction work from current to constant prices.

The Output Price indices compiled by DTI and BCIS simply lag the trends of their respective tender price index series, reflecting the price of work undertaken at a given period in time that had been tendered during an earlier period.

Chart 5.1 illustrates this by comparing the BCIS All-in Tender Price Index and the BCIS All-in Ouput Price Index (both deflated by the GDP Deflator to show real price changes).

The DTI have generated separate Output Price Index series for Public Housing, Private Housing, Infrastructure, Public Works, Private Industrial, Private Commercial as well as a combined index for All New Construction. These are the sectors under which construction output statistics are collected at current prices.

On examination, the trends for these series simply lag the trends of the respective tender price index series in a similar way to that illustrated in Chart 5.1

Chart 5.1 BCIS All-in Tender Price Index and Output Price Index

5.3 Output deflators for direct labour and contractors

DTI also produce 'Output Deflators for Direct Labour'. These are derived from the resource costs of labour and materials and are produced to convert the output at current prices of local authorities' Direct Labour organisations to constant prices. The Output Deflators measure the actual price levels of all DLO Works being carried out in any given quarter.

Separate index series are available for:

• Public Housing
• Public Works
• Public Housing Repairs & Maintenance
• Public Works Repairs & Maintenance

A separate Output Deflator is compiled for Contractors for whom a single index for Repairs & Maintenance is available.

Chart 5.2 illustrates the trend of the DTI's Output Deflators for Direct Labour for Public Housing Repairs and Maintenance and for Public Works Repairs & Maintenance and the Output Deflator for Contractors for Repairs and Maintenance. The chart illustrates a steeper increase in direct labour costs than in contractors' costs each year between 1998 and 2001, which may suggest greater productivity and/or flexibility on the part of contractors over this period but which is generally at odds with other data collected and may need further investigation.

Chart 5.2 Comparison of Output Deflators for Direct Labour and Contractors

5.4 BMI Output Price Indices

Building Maintenance Information also compile a series of Output Price Indices. These indices monitor the prices paid to contractors for maintenance work and may be said to be the only true indices specific to maintenance work reflecting market prices. The indices produced by BMI for non-housing and public housing are based on current term contracts for maintenance. Regrettably the series only run from 1998.

Chart 5.3 plots the BMI Output Price Index for Public Housing Maintenance work with the DTI's Tender Price Index of Social Housebuilding (TPISH), the Scottish Executive's Housing Tender Price Index and the Resource Cost Index of Maintenance for House Building (HOMACOS) since 1998.

Chart 5.3 Output Prices of Public Housing Maintenance Work

The chart shows that for the first two years, 1998-2000, the real price change of the BMI Output Price Index for Public Housing Maintenance matched that of both the DTI's Tender Price Index of Social Housebuilding and the Scottish Executive's Housing Tender Price Index. However, over the last two years, 2000-2002, the real increase in TPISH has accelerated ahead of the other two series. The Resource Cost Index has displayed a consistently lower rate of increase over the whole period than the other series in the comparison.

The chart and table above show that the overall increase in the four years 1998-2002 has been exactly the same for BMI's Output Price Index for Public Housing Maintenance as the Scottish Executive's Housing Tender Price Index. Although the trends are based on only four years' data (and any conclusion must consequently be treated with caution), this comparison suggests that maintenance work, when tendered in competition, is likely to move in line with tendered new build work.

BMI's Output Price Index for Public Housing Maintenance is clearly an index relevant to social housing maintenance work that should be monitored in future for those in local and central government responsible for monitoring local authority housing maintenance costs.

« Previous | Contents | Next »