A leading infrastructure body has called on local authorities to adopt indexation clauses which adjust for changing fuel prices in future long-term highways maintenance contracts, following rising costs in the industry this year.
The Civil Engineering Contractors Association’s (CECA) claims a dramatic rise in fuel costs is putting companies delivering essential improvements to the UK’s transport and utility networks ‘at risk’, and damaging a ‘fledgling recovery’ in the sector.
According to CECA’s 12th annual costs trend survey, released on 24 May, its members - which carry out an estimated 80% of all the UK’s civil engineering activity - suffered average cost rises for diesel and gas oil of 8.5% and 8.4% respectively, over the last year.
Alasdair Reisner, CECA’s director of external affairs, told Surveyor: ‘I am absolutely sure councils can save money from this [fuel indexation] at the moment. If you don’t have indexation on your contract every supplier is going to front load their bid on the basis of what might happen, so councils may be paying more.’
Mr Reisner pointed out councils could benefit from falling fuel prices and it would help shield them from companies defaulting on their responsibilities due to rising costs thus leaving the local authority with difficult and potentially costly transitional arrangements.
Although some councils do take fuel costs into account in transport using indices such as the Building Cost Information Services’ (BCIS) index, David Yeoell, the new president of the Local Government Technical Advisers Group (TAG) advised local authorities to ‘select the indexation indices that reflect the type of work you are going to procure’.
He added this could be the Retail Price Index or the BCIS index or in some cases a combination of different indices, he added.
Councils usually have inflation costs factored into their corporate envelope based on average price rises across local authority services.
Surveyor sources say while inflation usually runs higher in transport departments because of rising oil prices it is unlikely the overall council budget could be flexible enough to reflect those changes – leaving transport departments struggling.
CECA officials pointed out their 2011 survey revealed fuel rises in excess of 10% for the year, although this year’s figures are still ‘far in excess of general inflation in the economy’ and had led to ‘a continued squeeze’ on contractors profits at a time when tender prices were beginning to rise.
A spokesman for the Chartered Institution of Highways and Transportation (CIHT) also told Surveyor: ‘CIHT members have highlighted the impact that rising fuel prices are having on our industry. In connection to this, many members’ organisations are reporting that the increasing costs of bitumen are having an impact on their ability to deliver cost-effective maintenance contracts.’
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