NZ Report / Proposal Template - State Services Commission

• the cost of construction in the hospitals and health categories increased by
between 16.9% and 18.5%.
4.16 However, the same advice noted that concrete supply and concrete products
generally increased by only 4% - 8% and timber framing by 4% - 5%.
4.17 In addition to increases in commodity prices, there were also significant increases
in labour costs (which are another component of the CGPI-NRB).
Labour Rates and Location
4.18 Advice received from Peter Waterhouse (an independent construction cost
consultant) provided evidence of increased labour rates:
• rates for carpenters in Auckland region increased by up to 35%;
• rates for concrete workers increased by up to 29%; and
• rates for labourers increased by up to 25%.
4.19 The remoteness of the Spring Hill and Otago sites also contributed to increased
direct costs.
• In the case of Otago, up to a third of the workforce at peak levels has had to be
imported from outside of the coastal Otago region. This increased the level of
travel and accommodation allowances.
• Additional travel costs added the equivalent of approximately one hour per person
per day to labour costs on the Spring Hill project.
• We understand that the normal level of construction activity in the coastal Otago
area is around $90 million per annum. Clearly, therefore, the Otago project
represents a substantial increase over and above this figure. It is not too
surprising, therefore, that the Otago project has put considerable upward pressure
on costs.
4.20 There is scope for some overlap and, hence, double counting across the various
factors. In particular, the escalation factor measures increases in the costs of completing
buildings. Implicit within the escalation is increases in labour rates, margins, overheads,
materials costs and so on. In theory, therefore, the increases attributed to labour rates,
margins and overheads (and possibly on-site construction costs) in the context of Spring
Hill should be over and above the increases captured by the escalation. We are not
convinced that this is strictly the case, but have no way of verifying it because of the lack
of detailed workings.
Margins and Overhead
4.21 In addition to upward pressure on direct costs, there have also been increases in
margins (which leads to a compounding effect when applied to increased direct costs).
CMS reported to the Department 2 that:
2 Assessment of Profit and Overheads margins for CWA Members dated 4 November 2005
Key Drivers and Causes of Cost Escalation 18