The Council House conversion project
Published on Friday, 30th August 2019
The cost of refurbishing the Council House has exceeded our initial expectations.
Most significantly, it has been impacted by national price increases and issues of confidence affecting the construction industry across the whole of the UK.
Industry leaders and bodies such as the Chartered Institute of Purchasing and Supply (CIPS) have reported a general trend of tender price increases. The IHS Index (metrics data across a number of industries, including the construction industry), rose to 50.5 in April 2019, up on 49.7 in March 2019. On 2 May 2019, CIPS published the following statement;
'UK construction input costs rose in April 2019 at the fastest pace in six months, according to the latest PMI. Input price inflation accelerated for the third month running and was the fastest since November 2018. The IHS Market/CIPS UK Construction Purchasing Managers’ Index rose to 50.5 in April, up on 49.7 in March and against the no-change reading of 50.'
Duncan Brock, group director at CIPS, said:
“With the fastest rise in input costs since November 2018, material shortages, and stagnating workloads, the sector is slowly coming to terms with this new landscape of the industry, Brexit stalemate and its impacts with business optimism going through its worst phase since 2013."
CIPS have stated in numerous keynotes that supply chain demands, alongside a rise in material costs, are so strained, buyers should expect sharp increases in pricing to reflect market conditions. Building.co.uk and PBCtoday have both expressed their concerns about Brexit and the impact it will have on the construction industry. They have both stated that labour shortages along with material costs will be heavily impacted, especially when taking into consideration the free movement limitations and higher taxation. Contractors are highly likely to increase their costs to allow for this risk, which in turn increases their bid.
All tender submissions for the Council House conversion came in above the initial estimate, reflecting both the national rising cost trends and the complexity of the project. In general, only medium to large sized organisations have been able to bid for the project - this is because of their confidence to take on the risk involved with such a large scheme, plus their ability to meet our requirements in terms of liquidated damages. As larger companies have higher prelims and also allow for the risk element of the project, this issue has contributed to inflated prices.
In the circumstances, the original estimate for the work falls short of the current cost and extra investment is required. The conversion will reduce the financial cost to the General Fund through the mitigation of subsidy loss which totalled £800k for the year 2018/19 and provide a surplus of £17k per annum.
The conversion of the Council House will utilise an existing asset to provide much needed accommodation for homeless families.
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