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Nine out of 10 construction firms report cost increases as demand drives up wages

Nine out of 10 construction firms have reported an increase in costs for 2014 despite benefiting from historically low fuel prices, according to Construction News

According to a new cost survey by the Civil Engineering Contractors Association, 90 per cent of firms saw costs increase, compared to 63 per cent in 2013.

Around one in five firms endured cost increases of more than 5 per cent, according to CECA.

Overall construction costs 2013-14_CECA

Source: CECA

As workloads have improved in the industry, the biggest pressure on costs has come from wage inflation. For engineering staff, wage inflation grew from 0.7 per cent in 2013 to 3.3 per cent last year.

CECA chief executive Alasdair Reisner told Construction News that he expected staffing costs to increase further throughout 2015.

“It’s a little surprising they didn’t go up by more,” he said. “That could be because we’re looking back at the last 12 months (as a whole) rather than where we are now.

“What’s happening now is there are more significant rises in costs, particularly in certain roles where there are skills shortages.

“The challenge is keeping hold of people because there’s no guarantee you can replace them for the same price.”

Fuel costs 2013-14_CECA

Source: CECA

The sharp rise in staff costs comes as price inflation elsewhere has slowed.

In particular, the cost of fuel fell dramatically throughout the year as oil prices tumbled.

Diesel pricing dropped by an average of 2.2 per cent, compared with a 3.9 per cent rise in 2013, while gas oil pricing was down 2.4 per cent after rising 3.6 per cent in 2013.

As recently as 2011, inflation for both was 10.4 per cent.

But Bam Construction construction director Michael Donegan said that cheaper fuel was having little impact on costs for the larger contractors.

Engineering staff costs 2013-14_CECA

Source: CECA

“It’s minor compared to the inflated state of the market,” he told Construction News when asked about the impact of fuel pricing.

Commenting on the rapid rise of staff costs, he added: “A lot of the cost plans we have don’t reflect what’s currently going on in the market because they were done two or three years ago and there’s been a dramatic hike [in costs].”

Construction Products Association economist Rebecca Larkin, said: “For years it’s been fuel and transport costs that have been leading costs increases, but for the past few quarters the price in oil has led to a fall in fuel costs and the main driver of costs for manufacturers and civil engineers is wages.”

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