Increasing construction costs take Olympic toll

Tuesday, 12 August 2008 12:00 AM

Large scale public sector projects such as Crossrail and those linked to the 2012 Olympic Games are in danger of dipping further into the public purse, according to new research.

Projects - including the East London Line and Thameslink - have been hit by significant increases in costs, according to the Civil Engineering Market report from the Royal Institution of Chartered Surveyors (Rics) Building Cost Information Service (BCIS).

As the survey explains, civil engineering costs rose over 12 per cent in the year to second quarter of 2008, as did materials, and have been the main inflationary drivers.

For example, cement prices have risen 11 per cent in the past year, coated macadam and bituminous products have gone up 13 per cent and steel piling nine per cent.

The rises in the cost of fuel, 45 per cent for gas oil and 20 per cent for diesel engine road vehicles (DERV), have also had a dramatic impact on construction costs.

However, labour and plant costs also continued to rise at about the rate of inflation.

Despite the increases, output in the industry has continued to expand.

The BCIS expects output to continue to grow with strong demand from all sectors; including railways, harbours, water supplies, roads and sewage.

Overall output from infrastructure is expected to rise nine per cent in 2008 and seven per cent in 2009. Additionally, civil engineering costs are predicted to rise 6.5 per cent in 2008 and six per cent in 2009.

"Most of the infrastructure growth will come from public spending and in the current uncertain climate the threat of delays to some projects due to funding constraints is a real concern," finds BCIS.

"However, the size of the current commitments and the connection of some schemes to the 2012 Olympics should ensure a strong growth in demand over the next three years."

The Civil Engineering Contractors' Association's (CECA) latest State of Trade survey shows that 16 per cent more contractors reported increasing order books than reported a decline in order levels.

The largest balance in favour of increased orders was in firms with 115 to 299 employees, where 37 per cent more respondents reported growth than reported a decline.

Chris O'Toole

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