An index for every occasion
We recently ran a seminar on indices, (the use and abuse thereof).
Talking to people about this subject brought home to me how all pervasive indices are, either as contractual mechanisms for uplifting prices or as a mechanism for bringing prices to a consistent base, a fact that has been reinforced by a couple of discussions in the past week or so.
We have been working with ONS and BIS to rationalise the indices that are used as construction output deflators. ONS are no longer collecting output from direct labour organisations so we wont need the DLO indices then will we? How wrong we were, a brief search showed that they are enshrined in the legislation for 'Right to Buy' as a mechanism for charging for maintenance, so they will continue.
I was discussing with a group of highways maintenance contractors, the impact on their tenders for long term maintenance contracts if the index chosen for variation of price does reflect their costs, eg if it is the Retail Prices Index rather than an appropriate mix of Price Adjustment Formulae Indices. In these circumstances, there is a significant risk that their cost will move differently from their cost recovery. As items such as blacktop are extremely volatile, contractors will have to price this risk. This will affect prices throughout the contract period. Not necessarily value for money to the client.
Our advice, when asked, is to choose, for index linking, an index that represents the costs in the contract.
We have been working with ONS and BIS to rationalise the indices that are used as construction output deflators. ONS are no longer collecting output from direct labour organisations so we wont need the DLO indices then will we? How wrong we were, a brief search showed that they are enshrined in the legislation for 'Right to Buy' as a mechanism for charging for maintenance, so they will continue.
I was discussing with a group of highways maintenance contractors, the impact on their tenders for long term maintenance contracts if the index chosen for variation of price does reflect their costs, eg if it is the Retail Prices Index rather than an appropriate mix of Price Adjustment Formulae Indices. In these circumstances, there is a significant risk that their cost will move differently from their cost recovery. As items such as blacktop are extremely volatile, contractors will have to price this risk. This will affect prices throughout the contract period. Not necessarily value for money to the client.
Our advice, when asked, is to choose, for index linking, an index that represents the costs in the contract.
For the seminar we compiled a list of all the construction cost and price indices available.
We think it is comprehensive but would welcome your input if you know better.
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26-Jul-2010
Joe,
Seeing your lengthy list of indeces available to the industry in the UK prompted me to ask if BCIS could come over to the UAE, particularly Dubai and Abu Dhabi and introduce at least one index here. I have been dreaming this might happen for years but we have never managed to make it happen. We have buy-in to the idea from major stakeholders such as E C Harris, Currie and Brown, Davis Langdon, Faithful and Gould, D G Jones, etc., so what do we need to do to get BCIS sufficiently interested to get actively involved with this proposal?
Regards,
Daniel Alcon, MRICS, founder and immediate past chairman of the RICS UAE Group, Chairman of the MENEA QS & Construction World Regional Professional Group Board, Chairman of the RICS UAE Construction Committee, +971 50 446 7405 - alconsworld@gmail.com