Monitoring site labour costs in the construction industry: the Hays/BCIS Site Wage Cost Indices

Costing labour is an integral part of any construction project, yet data to inform this has not typically been as reliable as it is for other project elements such as materials. Typically, labour cost rates and indices have been calculated and produced using figures published in working rule agreements. From these, it has been difficult to establish whether the rates stipulated in the agreement are representative of those actually being paid in the labour market.

While the rates of wage inflation will keep pace with construction industry costs over the longer term, changes in the actual cost to industry of labour have been hard to discern because calculated wage rates are not responsive to short-term changes in the market. The indices have not been showing a true picture of market demand.

To rectify this, BCIS has partnered with Hays Construction & Property to produce the Hays/BCIS Site Wage Cost Indices measuring site labour costs in the construction industry, addressing some of these issues by comparing actual market rates and determining their true movement. Having a direct measurement of rates gives a much more accurate picture of the market, and highlights changes in demand for different grades of workers - particularly relevant in todays economic climate.

Index calculations have to be repeatable over long periods of time in order to give a true picture. Real-world data is often full of quirks that can cause inconsistency, and wage-rate data is no exception. The index aims to address these problems by building on a series of historical values dating back to the start of 2011, using data from all over the UK, allowing users to see market movements over a long duration. Data is analysed at the end of each quarter, enabling quick publication of the index values after data collection for each period is complete.

The six separate index series that have been calculated by BCIS from labour categories identified by Hays are: building trades, skilled; improvers and semi-skilled; mechanical and electrical (M&E) trades, skilled; plant operators; unskilled and semi-skilled labour; and all-in. The all-in series is calculated from the aggregate of the other five separate indices.

Comparing the three categories with the largest samples – building trades, skilled; M&E trades skilled; and unskilled and semi-skilled labour – reveals that the older index series reflects regular percentage increases in labour costs as agreed by the trade bodies. Hays/BCIS indices display the relative dynamics in much more detail than the indices based on working rule agreements, and short-term changes and labour market volatility are more evident when viewing the quarterly movement.

For instance, working rule agreement rates have shown steady rises from 2015 to the present and all grades have risen by a similar amount over the period. Hays/BCIS indices values also show that skilled trades have done relatively better than unskilled workers and that the traditional trades – building trades, skilled – have increased at a faster rate than M&E. Better visibility of short-term movements in rates will give customers a more realistic market view.

The benefits of a more effective process for labour costing will have an impact not only on a project-to-project basis but also the construction industry as a whole. As Hays Construction director Duncan Bullimore says 'Encouragingly, we know from our own experience and data that employers are adopting a forward-looking, adaptable and flexible approach to resourcing for projects amid ongoing skills shortages and uncertainty.

Employers are struggling to recruit construction talent and we hope that our data will prove useful at this time and beyond. Providing credible data on traditional construction roles UK-wide will help employers with effective procurement by contributing to cost and margin control.'

Paul Burrows is a solutions architect at RICS pburrows@rics.org

Further information: The new index series is available on BCIS Online at rics.org/bcis