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RPI. . . RIP


I am surprised that anyone is using the Retail Price Index (RPI) to assess inflation in building projects (NCE last week - 'Contractors call for budget reality check').

The RPI is calculated on a basket of goods used in domestic households and would only be relevant to construction work in the salary element of a project.

During my career this represented only about 10-20% of the total figure. The remaining costs were governed by the price of plant and materials in very different proportions to those relevant for domestic use.

The RPI also makes no allowance for the profit margin, which forms part of the project cost and often works counter to the state of the economy.

When economic conditions are good, usually when inflation is low, the market is encouraged to invest in new projects and the industry becomes saturated, pushing up prices. In poor economic conditions the reverse occurs and tenders are offered at very low margins.

J T Fulton (FICE), 3 Martello Park, Poole BH13 7BA

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