Inflation in the construction industry - Revision history

Designing Buildings at 08:55, 11 October 2022

2022-10-11T08:55:39Z

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−	[[File:Graph-~~163509 640~~.jpg]]	+	[[File:Graph-163509_640.jpg\|link=File:Graph-163509_640.jpg]]

	= What is inflation? =		= What is inflation? =
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	= How is inflation measured in the construction industry? =		= How is inflation measured in the construction industry? =

−	The Department for Business, ~~Innovation and Skills~~ publish ~~quarterly~~ construction price and cost indices which are used for estimating, cost checking and fee negotiations on public sector construction projects.	+	The Department for Business, Energy & Industrial Strategy publish construction price and cost indices which are used for estimating, cost checking and fee negotiations on public sector construction projects.

	Private sector organisations such as the Building Cost Information Service (BCIS) also provide cost and price information to the construction industry to help estimate the likely cost of construction works.		Private sector organisations such as the Building Cost Information Service (BCIS) also provide cost and price information to the construction industry to help estimate the likely cost of construction works.

Designing Buildings at 08:43, 11 October 2022

2022-10-11T08:43:17Z

← Older revision		Revision as of 08:43, 11 October 2022
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−	= ~~Introduction~~ =	+	[[File:Graph-163509 640.jpg]]
		+
		+	= What is inflation? =

	Inflation is the rate at which the price of goods and services rises, and as a result, the purchasing power of currency decreases. In order to maintain the stable functioning of the economy, the government aims to limit the rate of inflation and avoid deflation (negative inflation).		Inflation is the rate at which the price of goods and services rises, and as a result, the purchasing power of currency decreases. In order to maintain the stable functioning of the economy, the government aims to limit the rate of inflation and avoid deflation (negative inflation).
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	The inflation rate is reported as the annual percentage growth of a broad index of prices representative of the economy as a whole.		The inflation rate is reported as the annual percentage growth of a broad index of prices representative of the economy as a whole.

−	= ~~Consumer price index~~ =	+	= How is inflation measured for consumers? =

	In the UK, the predominant measure of inflation is the Consumer Price Index (CPI). This is the rate at which the prices of goods and services purchased by households rise or fall. The Consumer Price Index was first published in 1996 as the Harmonised Index of Consumer Prices.		In the UK, the predominant measure of inflation is the Consumer Price Index (CPI). This is the rate at which the prices of goods and services purchased by households rise or fall. The Consumer Price Index was first published in 1996 as the Harmonised Index of Consumer Prices.
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	Each month, the figures are published on the [http://www.ons.gov.uk/ons/index.html Office for National Statistics] website.		Each month, the figures are published on the [http://www.ons.gov.uk/ons/index.html Office for National Statistics] website.
−
−	~~= Other measures of consumer price inflation =~~

	There are a number of other measures of consumer price inflation including:		There are a number of other measures of consumer price inflation including:
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	* RPIJ. A variant of RPI which is calculated using a geometric (Jevons) formulae, adopted following the National Statistician's decision that the RPI does not meet international standards.		* RPIJ. A variant of RPI which is calculated using a geometric (Jevons) formulae, adopted following the National Statistician's decision that the RPI does not meet international standards.

−	= ~~Construction price and cost indices~~ =	+	= How is inflation measured in the construction industry? =

	The Department for Business, Innovation and Skills publish quarterly construction price and cost indices which are used for estimating, cost checking and fee negotiations on public sector construction projects.		The Department for Business, Innovation and Skills publish quarterly construction price and cost indices which are used for estimating, cost checking and fee negotiations on public sector construction projects.
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	For more information see: Construction price and cost indices.		For more information see: Construction price and cost indices.

−	= ~~Inflation and~~ construction contracts =	+	= How do construction contracts allow for inflation? =

	Inflation can be a serious issue on construction contracts, as they they can last for several years, and so prices may change significantly between the contract sum being agreed and the works being completed.		Inflation can be a serious issue on construction contracts, as they they can last for several years, and so prices may change significantly between the contract sum being agreed and the works being completed.
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	However, on the larger projects, the contractor may be asked to tender based on current prices (prices at an agreed base date) and then the a fluctuations clause within the contract makes provisions for the contractor to be reimbursed for price changes to specified items over the duration of the project. This is referred to as a fluctuating price.		However, on the larger projects, the contractor may be asked to tender based on current prices (prices at an agreed base date) and then the a fluctuations clause within the contract makes provisions for the contractor to be reimbursed for price changes to specified items over the duration of the project. This is referred to as a fluctuating price.
		+
		+	Contracts may offer a number for alternatives for how fluctuations are calculated and what is included. JCT option C for example is based on the Price Adjustment Formula Indices (PAFI), and are maintained by BCIS, and the specification of a base month against which changes are to be calcuated.

	See Fluctuations for more information.		See Fluctuations for more information.

Designing Buildings: moved Inflation to Inflation in the construction industry

2022-10-11T08:31:14Z

moved Inflation to Inflation in the construction industry

← Older revision

Revision as of 08:31, 11 October 2022

Designing Buildings at 08:30, 11 October 2022

2022-10-11T08:30:37Z

← Older revision		Revision as of 08:30, 11 October 2022
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	Inflation is the rate at which the price of goods and services rises, and as a result, the purchasing power of currency decreases. In order to maintain the stable functioning of the economy, the government aims to limit the rate of inflation and avoid deflation (negative inflation).		Inflation is the rate at which the price of goods and services rises, and as a result, the purchasing power of currency decreases. In order to maintain the stable functioning of the economy, the government aims to limit the rate of inflation and avoid deflation (negative inflation).

−	The inflation rate is reported as the annual percentage growth of a broad index of prices representative of the economy as a whole~~. Inflation rates vary from year to year and from currency to currency.~~	+	The inflation rate is reported as the annual percentage growth of a broad index of prices representative of the economy as a whole.
−		+
−	~~The inflation indices used in the UK typically measure a range of prices across a variety of consumer products~~.	+

	= Consumer price index =		= Consumer price index =

	In the UK, the predominant measure of inflation is the Consumer Price Index (CPI). This is the rate at which the prices of goods and services purchased by households rise or fall. The Consumer Price Index was first published in 1996 as the Harmonised Index of Consumer Prices.		In the UK, the predominant measure of inflation is the Consumer Price Index (CPI). This is the rate at which the prices of goods and services purchased by households rise or fall. The Consumer Price Index was first published in 1996 as the Harmonised Index of Consumer Prices.
		+
		+	The Consumer price index includes a wide variety of household spending across approximately 700 representative items.
		+
		+	The index must be representative and up-to-date and therefore the goods and services included are reviewed each year. The information used to determine the contents includes surveys of household spending, external market research and feedback from price collectors.
		+
		+	As more is spent on certain items than others, the components of the index are ‘weighted’ to reflect the importance of different items and the amount spent in different regions and in different types of shops.
		+
		+	Once the price information has been checked and processed, the price indicators are combined. The changes in the prices of services and goods are measured by undertaking a comparison of their levels in the preceding year. They are then weighted to produce an overall annual price change. The annual rate of inflation is the percentage change in the latest index, compared with the value recorded the year before.
		+
		+	Each month, the figures are published on the [http://www.ons.gov.uk/ons/index.html Office for National Statistics] website.

	= Other measures of consumer price inflation =		= Other measures of consumer price inflation =
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	* RPIJ. A variant of RPI which is calculated using a geometric (Jevons) formulae, adopted following the National Statistician's decision that the RPI does not meet international standards.		* RPIJ. A variant of RPI which is calculated using a geometric (Jevons) formulae, adopted following the National Statistician's decision that the RPI does not meet international standards.

−	= ~~Consumer~~ price ~~index calculation~~ =	+	= Construction price and cost indices =

−	The ~~Consumer~~ price ~~index includes a wide variety of household spending across approximately 700 representative items. The main divisions of products~~ are:	+	The Department for Business, Innovation and Skills publish quarterly construction price and cost indices which are used for estimating, cost checking and fee negotiations on public sector construction projects.

−	* Alcoholic beverages and ~~tobacco.~~	+	Private sector organisations such as the Building Cost Information Service (BCIS) also provide cost and price information to the construction industry to help estimate the likely cost of construction works.
−	* Clothing and footwear.	+
−	* Communications.	+
−	* Education.	+
−	* Food and non-alcoholic beverages.	+
−	* Furniture, household equipment and maintenance.	+
−	* Health.	+
−	* Housing, water, electricity, gas and other fuels.	+
−	* Miscellaneous goods and services.	+
−	* Recreation and culture.	+
−	* Restaurants and hotels.	+
−	* Transport.	+

−	~~The index must be representative and up-to-date and therefore the goods and services included are reviewed each year. The~~ information ~~used to determine the contents includes surveys of household spending, external market research~~ and ~~feedback from price collectors~~.	+	For more information see: Construction price and cost indices.

−	~~As more is spent on certain items than others, the components of the index are ‘weighted’ to reflect the importance of different items~~ and ~~the amount spent in different regions and in different types of shops.~~	+	= Inflation and construction contracts =

−	~~Once the price information has been checked~~ and ~~processed, the price indicators are combined. The changes in the~~ prices ~~of services and goods are measured by undertaking a comparison of their levels in the preceding year. They are then weighted to produce an overall annual price~~ change~~. The annual rate of inflation is~~ the ~~percentage change in the latest index, compared with the value recorded~~ the ~~year before~~.	+	Inflation can be a serious issue on construction contracts, as they they can last for several years, and so prices may change significantly between the contract sum being agreed and the works being completed.

−	~~Each month~~, the ~~figures are published on the [http://www.ons.gov.uk/ons/index.html Office for National Statistics] website~~.	+	On smaller projects, the contractor will generally be considered to have taken into account inflation when calculating their price (a firm price).

−	~~= Fluctuations =~~	+	However, on the larger projects, the contractor may be asked to tender based on current prices (prices at an agreed base date) and then the a fluctuations clause within the contract makes provisions for the contractor to be reimbursed for price changes to specified items over the duration of the project. This is referred to as a fluctuating price.
−		+
−	Fluctuations are a way of dealing with inflation on large construction projects that may last for several years. On smaller projects, the contractor will be considered to have taken into account inflation when calculating their price (a firm price). However, on the larger projects, the contractor may be asked to tender based on current prices (prices at an agreed base date) and then the contract makes provisions for the contractor to be reimbursed for price changes to specified items over the duration of the project (a fluctuating price).	+

	See Fluctuations for more information.		See Fluctuations for more information.

−	= NRM =	+	Other provisions in construction contracts that might be used to account for inflation include:
		+
		+	* A provisional sum is an allowance (or best guess), usually estimated by a cost consultant, that is inserted into tender documents for a specific element of the works that is not yet defined in enough detail for tenderers to accurately price. Provisional sums are replaced by valuations of the work actually done as the project progresses.This is not intended to be a provision for inflation, but there will be an inflationary element if prices have increased since the contract was agreed.
		+	* A cost reimbursable contract (sometimes called a cost plus contract) is one in which the contractor is reimbursed the actual costs they incur in carrying out the works, plus an additional fee.
		+	* Bespoke contracts or clauses to deal with specific circumstances. This is generally not recommended as the clauses will not have been tested in the courts and so the exact meaning may be open to interpretation.
		+	* Performance bonds, parent company guarantees and vesting certificates, making provisions for the possibility of suppliers becoming insolvent.
		+
		+	= NRM definitions of inflation =

	The New Rules of Measurement (NRM) are published by the Royal Institute of Chartered Surveyors (RICS). They provide a standard set of measurement rules for estimating, cost planning, procurement and whole-life costing for construction projects. According to NRM1: Order of cost estimating and cost planning for capital building work, the term ‘inflation’ refers to:		The New Rules of Measurement (NRM) are published by the Royal Institute of Chartered Surveyors (RICS). They provide a standard set of measurement rules for estimating, cost planning, procurement and whole-life costing for construction projects. According to NRM1: Order of cost estimating and cost planning for capital building work, the term ‘inflation’ refers to:
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	* CLC plans to ease impact of construction inflation.		* CLC plans to ease impact of construction inflation.
	* Construction inflation.		* Construction inflation.
		+	* Construction price and cost indices.
	* Contract conditions.		* Contract conditions.
	* Contract sum.		* Contract sum.

Designing Buildings at 08:46, 27 May 2022

2022-05-27T08:46:49Z

← Older revision		Revision as of 08:46, 27 May 2022
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	'...an allowance included in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment, and materials during the period from the date of tender return to the mid-point of the construction period.'		'...an allowance included in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment, and materials during the period from the date of tender return to the mid-point of the construction period.'

−	~~= Find out more =~~	+	= Related articles on Designing Buildings =
−		+
−	=== Related articles on Designing Buildings ~~Wiki. ==~~=	+

	* Base date.		* Base date.
	* Budget.		* Budget.
	* Cash flow estimate.		* Cash flow estimate.
		+	* CLC plans to ease impact of construction inflation.
	* Construction inflation.		* Construction inflation.
	* Contract conditions.		* Contract conditions.
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	* Tender.		* Tender.
	* Tender inflation.		* Tender inflation.
−
−	~~=== External references ===~~
−
−	* [http://www.ons.gov.uk/ons/index.html Office for National Statistics].

	[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Standards_/_measurements]] [[Category:Cost_/_business_planning]]		[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Standards_/_measurements]] [[Category:Cost_/_business_planning]]

Designing Buildings at 12:41, 6 October 2020

2020-10-06T12:41:48Z

← Older revision		Revision as of 12:41, 6 October 2020
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	* [http://www.ons.gov.uk/ons/index.html Office for National Statistics].		* [http://www.ons.gov.uk/ons/index.html Office for National Statistics].

−	[[Category:~~Standards_/_measurements~~]] [[Category:~~DCN_Standard~~]] [[Category:Cost_/_business_planning]]	+	[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Standards_/_measurements]] [[Category:Cost_/_business_planning]]

Designing Buildings at 07:26, 22 May 2018

2018-05-22T07:26:47Z

← Older revision		Revision as of 07:26, 22 May 2018
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	…an upward movement in the average level of prices and or costs (i.e. the opposite of deflation). It is included as an allowance in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment and materials.		…an upward movement in the average level of prices and or costs (i.e. the opposite of deflation). It is included as an allowance in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment and materials.

−	NRM1 also offers definitions for tender inflation and construction inflation.	+	NRM1 also offers definitions for tender inflation:
		+
		+	'...an allowance included in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment, and materials during the period from the estimate base date to the date of tender return.'
		+
		+	And construction inflation:
		+
		+	'...an allowance included in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment, and materials during the period from the date of tender return to the mid-point of the construction period.'

	= Find out more =		= Find out more =
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	* [http://www.ons.gov.uk/ons/index.html Office for National Statistics].		* [http://www.ons.gov.uk/ons/index.html Office for National Statistics].

−	[[Category:Standards_/_measurements]] [[Category:Cost_/_business_planning]]	+	[[Category:Standards_/_measurements]] [[Category:DCN_Standard]] [[Category:Cost_/_business_planning]]

Designing Buildings at 11:16, 30 March 2018

2018-03-30T11:16:19Z

← Older revision		Revision as of 11:16, 30 March 2018
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	See Fluctuations for more information.		See Fluctuations for more information.
		+
		+	= NRM =
		+
		+	The New Rules of Measurement (NRM) are published by the Royal Institute of Chartered Surveyors (RICS). They provide a standard set of measurement rules for estimating, cost planning, procurement and whole-life costing for construction projects. According to NRM1: Order of cost estimating and cost planning for capital building work, the term ‘inflation’ refers to:
		+
		+	…an upward movement in the average level of prices and or costs (i.e. the opposite of deflation). It is included as an allowance in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment and materials.
		+
		+	NRM1 also offers definitions for tender inflation and construction inflation.

	= Find out more =		= Find out more =
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	* Budget.		* Budget.
	* Cash flow estimate.		* Cash flow estimate.
		+	* Construction inflation.
	* Contract conditions.		* Contract conditions.
	* Contract sum.		* Contract sum.
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	* Procurement route.		* Procurement route.
	* Tender.		* Tender.
		+	* Tender inflation.

	=== External references ===		=== External references ===

Designing Buildings at 11:22, 13 January 2017

2017-01-13T11:22:25Z

← Older revision		Revision as of 11:22, 13 January 2017
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−
	= Introduction =		= Introduction =

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	There are a number of other measures of consumer price inflation including:		There are a number of other measures of consumer price inflation including:
−	*CPIH. A relatively new measure of UK consumer price inflation that includes owner occupiers’ housing costs.	+
−	*Retail Prices Index (RPI). A measure of UK inflation that has historically been used for a wide range of purposes, such as the indexation of pensions and rents and index-linked gilts.	+	* CPIH. A relatively new measure of UK consumer price inflation that includes owner occupiers’ housing costs.
−	*RPIJ. A variant of RPI which is calculated using a geometric (Jevons) formulae, adopted following the National Statistician's decision that the RPI does not meet international standards.	+	* Retail Prices Index (RPI). A measure of UK inflation that has historically been used for a wide range of purposes, such as the indexation of pensions and rents and index-linked gilts.
		+	* RPIJ. A variant of RPI which is calculated using a geometric (Jevons) formulae, adopted following the National Statistician's decision that the RPI does not meet international standards.

	= Consumer price index calculation =		= Consumer price index calculation =

	The Consumer price index includes a wide variety of household spending across approximately 700 representative items. The main divisions of products are:		The Consumer price index includes a wide variety of household spending across approximately 700 representative items. The main divisions of products are:
−	*Alcoholic beverages and tobacco.	+
−	*Clothing and footwear.	+	* Alcoholic beverages and tobacco.
−	*Communications.	+	* Clothing and footwear.
−	*Education.	+	* Communications.
−	*Food and non-alcoholic beverages.	+	* Education.
−	*Furniture, household equipment and maintenance.	+	* Food and non-alcoholic beverages.
−	*Health.	+	* Furniture, household equipment and maintenance.
−	*Housing, water, electricity, gas and other fuels.	+	* Health.
−	*Miscellaneous goods and services.	+	* Housing, water, electricity, gas and other fuels.
−	*Recreation and culture.	+	* Miscellaneous goods and services.
−	*Restaurants and hotels.	+	* Recreation and culture.
−	*Transport.	+	* Restaurants and hotels.
		+	* Transport.

	The index must be representative and up-to-date and therefore the goods and services included are reviewed each year. The information used to determine the contents includes surveys of household spending, external market research and feedback from price collectors.		The index must be representative and up-to-date and therefore the goods and services included are reviewed each year. The information used to determine the contents includes surveys of household spending, external market research and feedback from price collectors.
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	=== Related articles on Designing Buildings Wiki. ===		=== Related articles on Designing Buildings Wiki. ===
−	*Base date.	+
−	*Budget.	+	* Base date.
−	*Cash flow estimate.	+	* Budget.
−	*Contract conditions.	+	* Cash flow estimate.
−	*Contract sum.	+	* Contract conditions.
−	*Fluctuations.	+	* Contract sum.
−	*Procurement route.	+	* Escalation.
−	*Tender.	+	* Fluctuations.
		+	* Procurement route.
		+	* Tender.

	=== External references ===		=== External references ===
−	*[http://www.ons.gov.uk/ons/index.html Office for National Statistics].

−	[[Category:Standards_/_measurements]]	+	* [http://www.ons.gov.uk/ons/index.html Office for National Statistics].
−	[[Category:Cost_/_business_planning]]	+
		+	[[Category:Standards_/_measurements]] [[Category:Cost_/_business_planning]]

Designing Buildings at 08:10, 22 November 2015

2015-11-22T08:10:19Z

← Older revision		Revision as of 08:10, 22 November 2015
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−

	= Introduction =		= Introduction =

−	Inflation is the rate at which the price of goods and services ~~is rising~~, and as a result, the purchasing power of currency ~~is decreasing~~. In order to maintain the stable functioning of the economy, ~~banks aim~~ to limit the rate of inflation and avoid deflation (negative inflation).	+	Inflation is the rate at which the price of goods and services rises, and as a result, the purchasing power of currency decreases. In order to maintain the stable functioning of the economy, the government aims to limit the rate of inflation and avoid deflation (negative inflation).

−	The inflation rate is reported as the annual percentage growth of a broad index of prices representative of the economy as a whole. Inflation rates vary from year to year and from currency to currency.	+	The inflation rate is reported as the annual percentage growth of a broad index of prices representative of the economy as a whole. Inflation rates vary from year to year and from currency to currency.

−	The inflation indices used in the UK measure a range of prices across a variety of consumer products~~. Typical prices of a selection of products are recorded each month across a sample of shops and other outlets~~.	+	The inflation indices used in the UK typically measure a range of prices across a variety of consumer products.

	= Consumer price index =		= Consumer price index =

−	In the UK, the predominant measure of inflation is the Consumer Price Index (CPI). This is the ~~speed~~ at which the prices of goods and services purchased by households rise or fall. The Consumer Price Index ~~is produced to international standards and in line with European regulations. It~~ was first published in 1996 as the Harmonised Index of Consumer Prices.	+	In the UK, the predominant measure of inflation is the Consumer Price Index (CPI). This is the rate at which the prices of goods and services purchased by households rise or fall. The Consumer Price Index was first published in 1996 as the Harmonised Index of Consumer Prices.

	= Other measures of consumer price inflation =		= Other measures of consumer price inflation =
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	The index must be representative and up-to-date and therefore the goods and services included are reviewed each year. The information used to determine the contents includes surveys of household spending, external market research and feedback from price collectors.		The index must be representative and up-to-date and therefore the goods and services included are reviewed each year. The information used to determine the contents includes surveys of household spending, external market research and feedback from price collectors.

−	As more is spent on certain items than others, the components of the index are ‘weighted’ to reflect the importance of different items, and the amount spent in different regions and in different types of shops.	+	As more is spent on certain items than others, the components of the index are ‘weighted’ to reflect the importance of different items and the amount spent in different regions and in different types of shops.

−	Once the price information has been checked and processed, the price indicators are combined. The changes in prices of ~~the~~ services and goods are measured by undertaking a comparison of their levels in the preceding ~~January~~. They are then weighted ~~using the weights from the current year~~ to produce an overall annual price change. The annual rate of inflation is the percentage change in the latest index, compared with the value recorded the year before.	+	Once the price information has been checked and processed, the price indicators are combined. The changes in the prices of services and goods are measured by undertaking a comparison of their levels in the preceding year. They are then weighted to produce an overall annual price change. The annual rate of inflation is the percentage change in the latest index, compared with the value recorded the year before.

	Each month, the figures are published on the [http://www.ons.gov.uk/ons/index.html Office for National Statistics] website.		Each month, the figures are published on the [http://www.ons.gov.uk/ons/index.html Office for National Statistics] website.
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	= Find out more =		= Find out more =

−	Related articles on Designing Buildings Wiki.	+	=== Related articles on Designing Buildings Wiki. ===
	*Base date.		*Base date.
	*Budget.		*Budget.
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	*Tender.		*Tender.

−	External references	+	=== External references ===
	*[http://www.ons.gov.uk/ons/index.html Office for National Statistics].		*[http://www.ons.gov.uk/ons/index.html Office for National Statistics].

	[[Category:Standards_/_measurements]]		[[Category:Standards_/_measurements]]
	[[Category:Cost_/_business_planning]]		[[Category:Cost_/_business_planning]]