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Materials and labour input costs are rising year-on-year, with expectations of further increases over the second half of 2018. Anxiety around industry resources eased a little in Q2, but this proved shortlived after recent indicators showed significant concerns on labour availability remain. 

Supply chain cost and capacity will continue to dominate price drivers for contractors in the near term. Supply chain prices are expected to continue to rise year-on-year as constrained capacity dictates the price to secure staff. Extended lead times also highlight the pressure on resources and demonstrate constrained market capacity. 

Wage growth offers a reliable indicator of supply and demand dynamics given its historical correlation with industry output. Wage growth has held up over the year at 3% overall, despite a dip in the second quarter because of adverse weather. While there are differences in trends among site disciplines, nominal wage levels continue to be sound. Some downward adjustment is expected as output falls. However, current labour market dynamics appear to be moving outside previous frames of reference, and acute labour shortages will provide support to wage growth for some trades.

Materials prices have experienced a short-term boost. Along with underlying strong demand from industry, anecdotal evidence suggests there may be some stockpiling of key components by the supply chain in preparation for possible customs changes. Materials cost inflation is expected to maintain an upward trajectory for the remainder of 2018. 

Rising input costs have provided ongoing impetus to tender prices, which rose over the year by 1.9% at Q2 2018. The rate of price inflation has slowed and has now levelled out after a number of years at above-average rates of change. Selling prices are unable to keep pace with the rate of input cost inflation, creating commercial pressures. Although there has been some pass-through into output prices, there will remain an inability to recover all the input cost pressures, particularly as competition increases with a weaker overall outlook for future work. Clearly, this assumes a continuation of current input cost trends. 

Enquiries throughout the supply chain have stayed relatively high but there now appears to be a lower rate of conversion into orders for a growing number of firms. Data for new orders at Q2 2018 supports this, with both yearly and quarterly changes negative at -7.5% and -6.6% respectively. Quarter-on-quarter movements in new orders saw a mixed picture across the larger construction sectors with private housing decreasing by 20.8%, commercial increasing by 2.1% and infrastructure posting an increase of 28%. For these sectors, movements on a yearly basis all recorded negative changes. 

Tender price inflation, Aecom Tender Price Index, 2015 = 100

					Forecast
Quarter	2015	2016	2017	2018	2019	2020	2021
1	96.3	104.6	111.2	114.1	116.8	119.5	123.2
2	99.0	106.6	112.2	114.9	117.3	120.3	123.9
3	101.4	108.8	112.9	115.6	118.1	121.2	124.7
4	103.4	110.2	113.9	116.4	118.8	122.0	126.4

In contrast, headline sentiment surveys for the industry set out a generally confident mood. Underlying momentum in present workload offers support to these views. More signs of construction industry confidence were revealed in ICAEW鈥檚 UK Business Confidence Monitor for Q2 2018. Construction saw its survey confidence measure rise to the highest level in 12 months, but as the survey notes, construction鈥檚 rise only takes it to a moderate overall level compared with other economic sectors. One area of concern highlighted was the very high level of staff turnover and difficulty securing non鈥憁anagement skills. These measures were the highest among all the surveyed sectors.

Despite the talk of a Q2 rebound, a different view arises after smoothing the output data. On a year-on-year basis, output for construction has been above zero since mid-2013. Looking at the smoothed year-on-year data for new work output in May 2018, the industry saw zero growth. A crossover from positive to negative growth in the smoothed data would be significant and signals a contraction.

Further monthly volatility in upcoming output data can be expected. While monthly data might make headlines, it is the trends that usually reveal the story. Short-term cyclicality should not be overlooked as a reason for the improved data in recent quarters. Restocking cycles after a period of destocking, better weather and consumer expenditure are likely to have given the economy a boost. 

Many activity indicators show industry sentiment and confidence holding up, despite some reversals in recent months. Future scenarios for activity, employment prospects and broad outlook are also generally positive for both SMEs and larger firms.

Figure 3: Indicative cost ranges based on gross internal floor area

Type	Base index 100 (拢/m2)	Notes
Frames
Steel frame to low-rise building	98-119	Steelwork design based on 55kg/m2
Steel frame to high-rise building	166-188	Steelwork design based on 90kg/m2
Complex steel frame	188-221	Steelwork design based on 110kg/m2
Floors
Composite floors, metal decking and lightweight concrete topping	61-92	Two-way spanning deck, typical 3m span, with concrete topping up to 150mm
Precast concrete composite floor with concrete topping	98-139	Hollowcore precast concrete planks with structural concrete topping spanning between primary steel beams
Fire protection
Fire protection to steel columns and beams (60 minutes鈥� resistance)	14-20	Factory-applied intumescent coating
Fire protection to steel columns and beams (90 minutes鈥� resistance)	16-29	Factory-applied intumescent coating
Portal frames
Large-span single-storey building with low eaves (6-8m)	74-96	Steelwork design based on 35kg/m2
Large-span single-storey building with high eaves (10-13m)	84-115	Steelwork design based on 45kg/m2

Figure 4: BCIS location factors, as at Q3 2018 (*Aecom Index)

Location	BCIS Index	Location	BCIS Index
Central London	126	Nottingham	111
Manchester	101	Glasgow	90
Birmingham	98	Newcastle	96
Liverpool	96	Cardiff	84
Leeds	89	Dublin	92*

Cost drivers - framing materials

Key cost drivers to be considered when selecting framing materials, how structural steel provides key benefits and the improved options that choosing to use steel in preference to other framing materials can provide on a project

Market influences 

External factors such as currency exchange rates, buoyancy of the market, labour availability and commodity prices all influence market dynamics and as such should be considered at the time of developing the estimate/cost plan. It is advisable always to include exchange rates in the basis and assumptions of the cost document. This is a difficult risk to mitigate. However, early engagement with the supply chain and utilising the selected steelwork contractor鈥檚 knowledge to complete the design can reduce risk and improve certainty.

Offsite manufacture 

Offsite manufacture results in a reduction of on鈥憇ite labour, which as a consequence reduces health and safety risks. As is well known, components for the steel frame are manufactured offsite. This well-established offsite construction process mitigates programme risks too, as materials can be fabricated earlier for incorporation into the building. The reduced erection time on site is a clear benefit and can facilitate earlier hand over of areas for fit-out. This allows a certainty of overall timescales, which has time, cost and flexibility benefits. The client should be aware this may require earlier engagement with the supply chain and early completion of the design.

Programme

Steel frame installation and its ability to be pre鈥憁anufactured offers programme advantages due to certainty of delivery and speed of installation. Speed of erection is a key consideration: the tendency is to adopt methods which allow for a quick turnaround on site. It is important to ensure certainty of programme, particularly when planning projects that have advantageous or critical completion dates. Typical dates/events to which this would apply include: retail projects, whose major window for sales is the Christmas period including the pre- and post鈥憇ales events in November and January; sporting events such as the World Cup and Olympic Games which have dates that cannot be moved; and finally the start of school term/year. Due to the criticality of certain dates, offsite manufacturing or other methods of construction should be considered to ensure the milestone programme dates are met.

Programme certainty

The criticality of opening dates makes time the priority on a large number of projects. While the steel frame erection can be carried out in a reduced period, the project could have sustained delays during earlier activities. Should delays be incurred, then there needs to be a review of what mitigation measures can be undertaken. Steel erection being a dry activity involving the assembly of components means that there are no curing periods; therefore it readily allows acceleration measures to be taken into consideration. This could be achieved by introducing a back shift or other out-of-hours works to erect components that have been fabricated ready for incorporation.

Site constraints

Steel-framed solutions allow sites to be considered for development that otherwise might not be eligible, such as rail infrastructure over-site developments. This is prevalent with mixed-use developments, where links with public transport and increased footfall have particular benefits to retail uses. Retail uses in isolation might not be sufficient to warrant the expense incurred in building over a station, and therefore other uses need to be factored in. It would be difficult to realise these development opportunities without the use of steelwork.

Erection time

Due to the extent of prefabrication in structural steel assembly, the on-site erection time is significantly reduced. This speed of construction is particularly important when working on projects that have restricted timescales, for example extensions to schools during non-school periods. The main continuous non-school period is during the summer shutdown, which restricts the available time to carry out the works. The adoption of a steel frame works well with the restrictive periods available and allows for the outer shell to be in place, leaving only internal works which can be better accommodated during the school term time as required.

Lightweight

The reduced weight of a steel-framed building has a beneficial effect on the foundation design. It allows the building to be constructed over restricted load areas such as railway station boxes and transfer structures. As a framing solution this allows for transfers to be introduced without compromising the building as a whole. This allows the building to bridge over buried infrastructure and the like, which assists in being able to increase the massing of buildings and can make all the difference to whether a building is viable for development or not. 

Adaptability and future flexibility

Tenant alterations are considerably less complex with steel-framed buildings, particularly major alterations such as the introduction of internal accommodation stairs or double-height spaces. When designing buildings it is important to realise that the building鈥檚 day-one requirements are likely to change over time. There is a continual need for end-users, particularly retailers, and their buildings to remain relevant, with a need to be able to respond faster to the changing requirements of the customer. 

While other frame solutions can offer a level of flexibility that is usually incorporated in the base build to suit changes that will occur at a later stage, a steel frame can offer more flexibility and is also more readily adaptable than other framing solutions; in particular, it can easily accommodate late unforeseen changes that are not unusual with commercial tenants, allowing for tenant changes in retail or office buildings. 

Structural zone

There is an optimum structural zone where beams work efficiently; however, with the introduction of services and the desire to increase floor-to-ceiling heights this zone can become compromised. The reduced structural zone may make the frame less efficient and increase steel member weights. This further reinforces the need for coordinated design and modelling of the building, particularly in 3D, to allow the optimum massing to be achieved.

Structural alignment / repetition

As with all framing solutions, it is more efficient and cost-effective to have alignment through the structure, thereby removing the need for transfers. Consistency of floorplate is desirable and the stacking of cores/floorplates allows the mechanical, electrical and plumbing services to be routed efficiently throughout the building. These are requirements that can be readily achieved with a steel frame.

Service integration

Service integration is easily accommodated with a steel frame through the use of cellular beams. This integration of services leads to economies in the construction by reducing the floor-to-floor height, which has the double benefit of reducing the external cladding required and reducing heat loss through the envelope. 

In multi-storey buildings, service integration can allow extra floors to be provided within the same overall building height. When penetrations are required within the beam depth to allow services to distribute throughout the floorplates, the size and positioning of these can have an impact on the performance of the beam. 

Ductwork distribution can result in oversized penetrations; should this occur, there will be a requirement to stiffen the holes in order to maintain the integrity of the beam. This involves the welding of additional plates and angles to the beam. 

The effect of improved service integration in terms of reduced overall building height should also be considered. This is linked to the structural zone and the required design coordination on a project.  

Cost comparison updates 

This quarter鈥檚 Costing Steelwork provides an update of the five previously featured cost comparisons covering: offices, education, industrial, retail and mixed-use

These five projects were originally part of the Target Zero study conducted by a consortium of organisations including Tata Steel, Aecom, SCI, Cyril Sweett and the BCSA in 2010 to provide guidance on the design and construction of sustainable, low- and zero-carbon buildings in the UK. The cost models for these five projects have been reviewed and updated as part of the Costing Steelwork series. The latest cost models as of Q3 2018 are presented here. 

Costing steelwork: offices update 

Below is an update to the offices cost comparison originally published in the Costing Steelwork Offices feature in 好色先生TV magazine in April 2017.

One Kingdom Street, London, key features

• 10 storeys, with two levels of basement
• Typical clear spans of 12m x 10.5m 
• Three cores 鈥� one main core with open atrium, scenic atrium bridges and lifts
• Plant at roof level

Cost comparison 

Two structural options for the office building were assessed (as shown in figure 5): 

• Base case 鈥� a steel frame, comprising fabricated cellular steel beams supporting a lightweight concrete slab on a profiled steel deck
• Option 1 鈥� 350mm-thick post-tensioned concrete flat slab with a 650mm x 1,050mm perimeter beam.

The full building cost plans for each structural option have been reviewed and updated to provide current costs at Q3 2018. There has been no real cost movement from Q2 to Q3. The costs, which include preliminaries, overheads, profit and a contingency, are summarised in figure 5. 

The cost of the steel composite solution is 8% lower than that for the post-tensioned concrete flat slab alternative for the frame and upper floors, and 5% lower on a total-building basis.

Figure 5: Key costs 拢/m² (GIFA), for City of London office building

Elements	Steel composite	Post-tensioned concrete flat slab
Substructure	87	92
Frame and upper floors	428	462
Total building	2,573	2,712

Costing steelwork: industrial update

Below is an update to the industrial cost comparison originally published in the Costing Steelwork Industrial feature in 好色先生TV magazine in October 2017.

Distribution warehouse in ProLogis Park, Stoke-on-Trent, key features

• Warehouse: four-span, steel portal frame, with a net internal floor area of 34,000m²
• Office: 1,400m², two-storey office wing with a braced steel frame with columns

Cost comparison 

Three frame options were considered:

• Base option 鈥� a steel portal frame with a simple roof solution
• Option 1 鈥� a hybrid option: precast concrete column and glulam beams with timber rafters
• Option 2 鈥� a steel portal frame with a northlight roof solution.

The full building cost plans for each option have been updated to provide costs at Q3 2018. The steel portal frame provides optimum build value at 拢670/m²; glulam is least cost-efficient. This is primarily due to the cost premium for the structural members necessary to provide the required spans, which are otherwise efficiently catered for in the steelwork solution. With a hybrid, the elements are from different suppliers, which raises the cost. The northlights option is directly comparable with the portal frame in relation to the warehouse and office frame. The variance is in the roof framing as the northlights need more. Other additional costs relate to the glazing of the northlights.

Figure 7: Key costs 拢/m² (GIFA), for Stoke-on-Trent distribution warehouse

Elements	Steel portal frame	Glulam beams + purlins + concrete columns	Steel portal frame + north-lights
Warehouse	70	139	81
Office	126	167	126
Total frame	72	140	84
Total building	670	750	719

Costing steelwork: mixed-use update

Below is an update to the mixed-use cost comparison originally published in the Costing Steelwork mixed-use focus feature in 好色先生TV magazine in April 2018.

Holiday Inn tower, MediaCityUK, Manchester

• 17-storey tower 
• 7,153m² of open-plan office space on five floors (floors two to six)
• 9,265m² of hotel space on eight floors (floors eight to 15)

The gross internal floor area of the building is 18,625m². The 67m-high building is rectilinear with approximate dimensions of 74m x 15.3m.

Cost comparison 

Three frame options were considered to establish the optimum solution for the building:

• Base option 鈥� steel frame with Slimdek floors
• Option 1 鈥� concrete flat slab
• Option 2 鈥� composite deck on cellular beams (offices) and UCs used as beams (hotel).

The full building cost plans for each option have been updated to provide costs at Q3 2018. The steel frame with composite deck continues to provide the optimum build value with the overall building cost at 拢2,520/m².

Options 1 and 2 are arguably more typical for this building type. The base case structure is an unusual solution due to a decision to change the residential accommodation to office floors at a very late stage; time constraints precluded redesign of the tower block and hence the original Slimdek design was constructed.

Figure 9: Key costs 拢/m² (GIFA), for hotel/office building in Manchester

Elements	Slimdek	Concrete flat slab	Composite deck on cellular beams (offices) and UCs used as beams (hotel)
Structural unit cost	502	420	344
Total building unit cost	2,723	2,622	2,520