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International comparisons of construction costs and prices
0197-3975KHls3 ocl + 0.00 Pergamon Press plc
HABUAATh’TL Vol. 14. No. 2/3, pp. 185-192.1990 Prmted ,n Great Bream.
International Construction
Comparisons of Costs and Prices
JAMES L. MEIKLE Davis Langdon
Consultancy,
London
INTRODUCTION Increasing international investment in property and construction, and, in particular, increasing cross-border and overseas investment in Europe, has led to a demand for internationally comparable data on construction costs and prices. Reliable cost estimates for specific construction projects are difficult enough to obtain within a country and comparable data for different countries are infinitely more so. Nonetheless, a number of attempts have been made which, between them, cover a range of approaches and, of course, present a range of results. The purpose of this paper is to identify the essential factors that need to be considered when making such comparisons, to review work to date and to outline a recommended approach to comparing construction costs between different countries.
MAIN APPROACHES The key elements of any inter-country construction cost comparison are representivity and comparability. Ideally, the construction projects being ^_. __ ___ compared should be representative ot then respective countries and should be comparable, one with the other. In practice, however, it is difficult to achieve the ideal of complete representivity and comparability in a single comparison. Either emphasis is placed on one element rather than the other or a compromise which balances the two elements is attempted. Three main approaches are available when comparing the cost of buildings in one country to those in another. First, the costs for an identical building can be compiled by experts in each country. Secondly, the costs for the same building, but with local modifications, can be compiled by experts in each country. And thirdly, the experts can provide the cost of a typical building of that type in their country. With the first approach the buildings, and therefore the costs, will be comparable, but not necessarily representative. With the second approach the buildings, and the costs, will be more representative but less comparable. And with the third approach the buildings, and the costs, will be representative but not necessarily comparable. All the studies reviewed in this paper use one of these three approaches with the majority choosing to compare the costs for an identical building. However, even with this approach, it is difficult to maintain strict comparability. For example, an office building in Norway will be significantly different in specification to one built in Italy - due, amongst other things, to climatic conditions and local regulations, practices, materials and workmanship. Man185
186
James L
Metkle
datory thermal insulation standards will be higher in Norway than in Italy and the materials and techniques will be readily available to achieve them; conversely, Italian marble may be a luxury item in Norway. but commonplace in its home country. In other words, it may not be possible, or at least economic, to build identical buildings in both countries without some accommodation being made for local conditions. Much depends on the type of building being compared. Some building types are more ‘international’ and some more ‘local’ than others. Simple sheds and industrial buildings tend to the former, housing tends to the latter and commercial buildings - offices, shops, hotels, etc. - tend to fall somewhere between the two. This is not merely a matter of materials and technology but also of space standards and functional provision. For example, a typical house in North America will have a basement in addition to generally more floor space than a typical house in the UK. All the studies covered in this paper price either an industrial building. an office building or both. Of course, for most of these studies. the choice of building types has probably less to do with their comparability across countries and more to do with there being greater commercial interest in their construction internationally. Other cons~de~fftions
Besides representivity and comparability, other factors need to be considered when undertaking international construction cost comparisons. These are discussed briefly below. Pricing. Different authoritative sources on the basis of identical information will more often than not come up with different cost estimates for the same project. There is. in fact. no ‘correct’ price for a construction project - other than the successful contractor’s price accepted by the client. As professional construction cost consultants, the author’s firm aims to provide pre-tender estimates within S-10% of the lowest realistic tender but, particularly in periods of market uncertainty, the actual results can be unpredictable and outside this range. Another aspect of pricing is the extent to which tender prices are related to final building costs. In an environment where claims for increased costs, for whatever reason, can be allowable, tender prices may well be lower because tenderers believe they will obtain further monies during the course of a project. On the other hand, where tender prices are known to be fixed absolutely, tenderers must carry the risk of increased costs, whatever the reason, and may well, therefore, submit higher tender prices. Project content. No matter how clearly written and comprehensive a project description is, there are still opportunities for misunderstanding. These are compounded when respondents do not have a common first (or technical) language. National standards, practices and products vary and it is often impossible to construct (for one reason or another) identical buildings in different countries. There can also be differences in what is considered to be project content - does it include or exclude preliminaries, profit, fees and taxes, for example? Does contruction cost include all finishes, services and equipment, or are some of these to be supplied by the owners or occupiers?
Location. Location is a major factor affecting costs. Dense urban Iocations can incur significantly higher costs than greenfield sites. Similarly, areas with high construction activity will generally be more expensive than areas with little or no
187
International Comparisons of Constructron Costs and Prrces
work. Industrial building near Heathrow airport, for example, tended to be significantly more expensive than other locations around London, mainly due to the volume of work in the area pushing up both resource costs and contractors’ prices. Base date. For cost estimates to be truly comparable, they should be undertaken at the same date. This date defines not only the current exchange rate, but also prevailing market conditions. Attempts to compare estimates in different countries at different base dates must take these factors into account and the different rates of building cost inflation in the countries in question. Project quality. Quality of construction varies both between and within countries. Poor quality can result from skill shortages, poor supervision or low expectations and may or may not result in lower prices. Project duration. There can be a direct relationship between project duration and project price. There will often be a cost penalty for particularly rapid completion of a building project. Similarly, if a low price is sought, it can be difficult to achieve fast project completion. Exchange rates. The date, and therefore the exchange rate, chosen for an international price comparison can crucially affect the result. National exchange rates can vary significantly, as can be seen from Table 1 below. This shows the average month to month and year to year percentage change for the currencies of OECD countries vis-h-vis sterling over the period 1979-1989. From the table it is clear that an international price comparison centred on one month may give quite different results if centred on another. It is also clear that considerable care has to be taken when comparing the results of international price comparisons undertaken in different years. One way of moderating the effect of exchange rate variation is by converting to an international currency unit such as the European Currency Unit or ECU. International currency units are based on ‘baskets’ of currencies and are more stable over time than many national currencies; their disadvantage, however, is that they are not as yet widely used or understood. Another way is to calculate a ‘building exchange rate’, that is the rate of exchange that puts the domestic purchasing power of currencies at parity when spent on construction. This is achieved by taking into account the differences in price levels between countries.
Table 1. Exchange
rate variations m the OECD countries 1979-1989
Country
Month +
Year *
Australia Austria Belgium Canada Denmark Finland France Germany Greece Iceland Ireland Italy
2.26 1.75 1.74 2.08 1.74 1.33 1.74 1.72 1.97 2.84 1.55 1.65
9.40 6.16 6.02 8.96 6.08 3.31 5.19 6.52 13.11 30.10 4.17 6.62
Source:
OECD.
Country
Month +
Year f
Japan Luxembourg Netherlands New Zealand Norway Portugal Spam Sweden Switzerland Turkey United States
1.98 1.74 1.64 2.20 1.42 1.61 1.62 1.38 1.75 3.95 2.25
9.20 6.02 6.39 4.73 2.60 9.77 6.56 4.56 6.84 48.32 10.80
188
James L. Meikle
Review of previous studies
Ten studies have been identified which are either useful in methodological terms or provide data or, more commonly, both. They are described briefly below. Additional summary information, including coverage, is provided in Table 2. (1) Slough Estates Study. In 1976 Slough Estates Ltd, a major international industrial property group, published a case study on factory building in seven countries. The study covered design, documentation, approvals, costs and programme. The factory was a building of 50,000 square feet including 5,000 details varied depending on national square feet of offices; construction requirements and practice. The study was updated and republished in 1979 with a base date for costs of September 1978. to calculate (2) Eurostat Study. As part of a five-yearly programme Purchasing Power Parities (PPPs) for national accounts purposes, the Statistical Office of the European Communities (Eurostat) collects and analyses construction price data annually from its 12 member countries. The Eurostat study is based on 18 bills of quantities: three residential buildings, seven non-residential Table 2. Sources of tnternational construction cost data Study*
(1)
(2)
(3)
Base date
1978
1987
1985
1986
x
x
X
x
Locatton - National - Provincial - Major ctty
1988
1988
1988
1989
1989
x
X
x K X
x
Buildmg speciftcatton - Standard. Identical - Standard, locahsed - Typtcally local Butldmg types - Office - Factory - Other
x
x
x
x
x
Y
Y
X
x
Countries - Australia - Austria - Belgmm - Canada - Denmark - Frnland - France - Germany - Greece - Ireland - Italy -Japan - Luxembourg - Netherlands - New Zealand - Norway - Portugal - Spain - Sweden - Switzerland - Turkey - Unrted Kmgdom - United States - Other *The numbers
1987
x x x
x x x
x x
, x
x x x x x
x x x
x x x x x x x x X
x x
Y
x
x x
x x x
x
X
X
x
x
x
x
9
x
x
x x x x x
x x x
x x
X
x
, x x
x
X
X
x
x
x
x x
X
x x
X
x
x x
X
are those given to each study
x
x
x
x x x x
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x
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x
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x x
X
x
x x
x
x
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m the text.
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International Comparisons of Constructioti Costs and Prices
189
buildings and eight civil engineering projects. The bills specify standardised hybrid constructions that are not representative of any one country, but are representative of all. The complete set of bills is priced by experts from each country every five years, a different subset of the bills is priced by the experts in each of the intervening years. The bills are priced in national currencies using the July prices of the year in question. The pricing is intended to reflect the prices charged to clients by contractors in competition. National prices in national currencies are converted by Eurostat into ECUs and into time series of price indices. (3) OECD Study. Since the early 198Os, the Organisation for Economic Co-operation and Development (OECD) has worked with Eurostat to extend the coverage of the five-yearly PPP programme to include those 12 OECD countries that are not also members of the European Community. The combined programme covered 18 countries in 1980 and 22 countries in 1985. Coverage of all 24 OECD countries is expected by 1990. The OECD work on construction costs uses a similar approach to Eurostat and the data for Community countries is taken from the Eurostat study. Bills of quantities, however, are only priced every five years in the OECD study. Consequently, the latest relative national average construction price levels that are available from the study for residential buildings, non-residential building and civil engineering projects refer to mid1985. (4) Span’s European Study. The European section of Span’s Architects’ and Builders’ Price Book was introduced in 1973 and was progressively developed thereafter. By its final year, 1987, it provided selected coverage of construction procedures and costs for 13 European countries. Also, for nine of those countries, it presented a price breakdown of a standard reinforced concrete framed four storey office block with a total floor area of 2,400 square metres and a car park of 500 square metres forming part of the ground floor. Base date for the latest data on costs is mid-1986. (5) Spon’s International Study. Spon’s International Construction Costs Handbook effectively superseded the previous publication. Coverage was
increased to over 30 countries and the content and format was thoroughly revised. Cost information was limited to costs for labour and material, and all-in average square metre costs for main building types. No cost breakdowns within building types were provided and the costs related to what the national respondents considered typical of their country. The book was first published in 1988 with a base date for costs of January 1987. (6) CEEC Study. The Construction Economics European Committee (CEEC) is a group of professional bodies representing construction economics. The aim of the committee is to facilitate the exchange of experience and information. From a standard bill of quantities for a reinforced concrete framed four storey office block with a gross floor area of 1,100 square metres, a cost model was established which applied quantity factors to the unit rates of a list of items, from which VAT and preliminaries were excluded. This weighted basket of items gives a price for the office block in local currency; these figures can then be used to produce two series of indices, one a temporal index, which measures how costs rise in the different member nations over time; the other provides a ‘Building Exchange Rate’ between countries, independent of monetary exchange rates. The results for six European countries with a base date of August 1986 were published in the Spon’s International Construction Costs Handbook. Now data are available for nine countries with a base date of August 1988.
H&B 11:2,3-n
190
James L. Mezkie
(7) Hi!iier Parker Study. The 1989 Hillier Parker International Property BuIletin covered 12 countries. It provides a commentary on the property market in. and a series of statistical indicators on, each country. These in&de square metre construction costs for an industrial building, an office building and a shop. No base date is given but it is assumed to be mid-1988.
(8) FEELS ‘92 Study. E~g~~eeri~g News Record Focus ‘92 is a newsletter published by McGraw-Hill every two months starting at the beginning of 1989. The February 1989 issue included a comparison of square foot building costs for a basic manufacturing plant in six EC countries. The exercise was not for identical buildings but rather for buildings intended to be typical of each country. Costs were broken down into 12 ‘elements’ and the base date far costs was probabiy the fourth quarter of 1988. (9) ~~d~srri~~~~~~d~~gStudy. In 1989 Davis Langdon Consultancy undertook for a client a study of the construction cost of an industrial building in X2 European countries, The study was based on a single storey building with a gross floor area of 2,800 square metres of which 200 square metres were office space. Correspondents in each country were required to price identical dossiers. These dossiers provided a description of the project, drawings, specification and a bill. of quantities; it also covered related issues such as taxation, fees, regional variations and procurement method. Ah costs are as at May 1989.
(10) E.C. Harris Sfud~. In their Construction Industry Economics Survey of Ianuary 1990, E.G. Harrts and Partners present approximate construction costs per square metre for a typical office building in seven European cities. The survey states that the figures are based on the firm’s research, but gives no further details. The base date appears to be December 1989.
STUDY RESULTS Tables 3 and 4 summarise the main data available from the 10 studies described above. The studies in these tables have been sorted into those undertaken on the basis of ‘standard’ buildings and those undertaken on the basis of typical local buildings. Two building types are covered in the tables - industrial buildings in Table 3 and office buildings in Table 4; these being ~~rnrnon to most of the studies, although a number of studies covered other buiidi~g types as well. The countries included in the table are those for which a reasonable amount of comparable data exists (that is data inciuded in at least three studies), but data are available for a wider range of countries from the above studies. The data in the tables have been adjusted where necessary to have UK equal to 100 but, otherwise, the results of the studies have not been modified. What is most obvious from the results is the degree of inconsistency among the studies. ft is not possible to perceive any clear pattern either as regards countries or building types.
CONCLUSIONS AND RECOMMENDATIONS The existing approaches to inte~ationa~ construction price comparisons are ail, to a lesser or greater extent, imperfect. There is a need for a wider and better understanding of the problems involved in such work and the best methods to avoid or minimise these.
191
International Comparisons of Construction Costs and Prices Table 3. Industrial buildmg cost comparisons Study Standard building (identical or locahsed) Country Australia Belgium Canada Denmark France Germany Greece Ireland Italy Netherlands Portugal Spain Sweden United Kingdom United States
Typical
(1)
(2)
(3)
(4)
(6)
(7)
(9)
70 122 59 72 155 100 110
-
7 72 67 72 80 73 90 74 80 80 85 78 87 100 77
_ -
_ -
77 61 _ 74 71 72 45 68 52 61 177 100 74
75 _ 92 77 100 52 64 82 55 104 100 -
84 126 100 70 62 82 97 49 74 100 -
(5) 40 64 158 125 143 49 73 101 45 100 107
local buildings (10) (8) 93 111 92 65 100 -
-
Table 4. Office building cost compansons Study Standard building (identical or localised) Country Australia Belgium Canada Denmark France Germany Greece Ireland Italy Netherlands Portugal Spain Sweden United Kingdom United States
Typical
local buildings
(1)
(2)
(3)
(4)
(6)
(7)
(9)
(5)
(8)
(10)
-
-
7 72 67 72 80 73 90 74 80 80 85 78 87 100 77
124 _ 164 111 133 81 100 84 121 100 -
95 _ 123 109 106 92 82 70 100 -
64 46 _ 67 81 45 34 47 133 100 61
_ -
77 94 52 83 104 64 29 59 83 96 27 62 100 57
-
48 86 136 64 57 46 100 -
79 95 109 108 61 89 72 97 51 70 100 -
To ensure that results of international comparisons are as reliable as possible the following general questions should be borne in mind: - is each unit representative of what would be built in its particular location? Does each building, for example, comply not only with local standards and regulations, but also with local practice and fashion? - are the units being compared comparable? Are apples being compared with apples, not with oranges? Is the physical and functional accommodation being provided broadly similar, not just in quantity terms, but also in quality terms? - is the time basis for data the same? International comparisons based on different dates will be distorted both by exchange rates and by differential national inflation rates. - is the project content the same? Does the project include external works and all charges and fees, for example? Is land cost included, or the effects of various investment incentive packages? - are each of the national locations comparable? It is not usually meaningful to compare urban locations, for example, with greenfield sites, or capital cities with national average or provincial locations.
192
James L. Metkle
-
are procurement periods comparable? A project ready to be occupied nine months after initial discussions is clearly more attractive than one which takes two years to complete. There will be tradeoffs between project duration and cost. To achieve reliable comparisons, experts should price not only the representative buildings of their own country. but also the buildings (of the same types) representative of the other countries and to average the relative prices of each type of buildings between countries. With this approach both representativity and comparability are achieved, at least in theory, and it is the approach adopted by statisticians engaged in international comparisons of consumer prices. But in a comparison involving a large number of countries and/or a large number of building types, it would prove to be prohibitively expensive, though costs could be reduced by the use of experimental design techniques. Both Eurostat and the OECD are moving, albeit slowly, towards the adoption of such an approach. Perhaps the best method of addressing the questions listed above is to adopt a dossier approach - as utiiised in study (9), The European Industrial Building Comparison, undertaken by Davis Langdon Consultancy in 1989. The approach allows a full graphic, quantitative and narrative description of the building type under study to be presented. This reduces potential misunderstandings and provides opportunities for amendments or comments to be made where the dossier is, for any reason, difficult to price. Ack~o~~edgemenf
for Economx
- The author gratefuliy acknowledges the assistance of David Roberts of the Organisation Cooperation and Development in the preparation of this paper.
BIBLIOGRAPHY Comparative Cost of Buifdtng, OECD,
1985.
European
Co~truct~on - Focus ‘92. Manufacturing Plant Construction Costs Compared for SIXEC countries, Engineering News Record. McGraw-Hill. I989 European
industrzal Buildmg Cost Comparison Study, Davis Langdon and Everest,
European Section. Spans Archrtecf and Budders Handbook, 1987. Eurostat Consrructzon Pnce Comparison
1989.
Davis Belfield and Everest (Editors). annual to
Study. Statistical Office of the European
Commumties.
Annual.
Industrial Investment, A Case Study rn Factory Buildings. Slough Estates Ltd. 1979 Inrernarional Pr0pert.v BuNerin, Hillier Parker. 1989.
Ofice Building Costs in Europe, E.C. Harris and Partners. December 1989. Spans International ~onstructton Costs Handbook,
Davis Belfield and Everest (Edltors).
Total Cosf of Office Butldmg, Cornit Europ&n des Economistes Spans Internattonal Consfruction Costs Handbook.
de la Construcnon,
1988.
(CEEC), published m
HABUAATh’TL Vol. 14. No. 2/3, pp. 185-192.1990 Prmted ,n Great Bream.
International Construction
Comparisons of Costs and Prices
JAMES L. MEIKLE Davis Langdon
Consultancy,
London
INTRODUCTION Increasing international investment in property and construction, and, in particular, increasing cross-border and overseas investment in Europe, has led to a demand for internationally comparable data on construction costs and prices. Reliable cost estimates for specific construction projects are difficult enough to obtain within a country and comparable data for different countries are infinitely more so. Nonetheless, a number of attempts have been made which, between them, cover a range of approaches and, of course, present a range of results. The purpose of this paper is to identify the essential factors that need to be considered when making such comparisons, to review work to date and to outline a recommended approach to comparing construction costs between different countries.
MAIN APPROACHES The key elements of any inter-country construction cost comparison are representivity and comparability. Ideally, the construction projects being ^_. __ ___ compared should be representative ot then respective countries and should be comparable, one with the other. In practice, however, it is difficult to achieve the ideal of complete representivity and comparability in a single comparison. Either emphasis is placed on one element rather than the other or a compromise which balances the two elements is attempted. Three main approaches are available when comparing the cost of buildings in one country to those in another. First, the costs for an identical building can be compiled by experts in each country. Secondly, the costs for the same building, but with local modifications, can be compiled by experts in each country. And thirdly, the experts can provide the cost of a typical building of that type in their country. With the first approach the buildings, and therefore the costs, will be comparable, but not necessarily representative. With the second approach the buildings, and the costs, will be more representative but less comparable. And with the third approach the buildings, and the costs, will be representative but not necessarily comparable. All the studies reviewed in this paper use one of these three approaches with the majority choosing to compare the costs for an identical building. However, even with this approach, it is difficult to maintain strict comparability. For example, an office building in Norway will be significantly different in specification to one built in Italy - due, amongst other things, to climatic conditions and local regulations, practices, materials and workmanship. Man185
186
James L
Metkle
datory thermal insulation standards will be higher in Norway than in Italy and the materials and techniques will be readily available to achieve them; conversely, Italian marble may be a luxury item in Norway. but commonplace in its home country. In other words, it may not be possible, or at least economic, to build identical buildings in both countries without some accommodation being made for local conditions. Much depends on the type of building being compared. Some building types are more ‘international’ and some more ‘local’ than others. Simple sheds and industrial buildings tend to the former, housing tends to the latter and commercial buildings - offices, shops, hotels, etc. - tend to fall somewhere between the two. This is not merely a matter of materials and technology but also of space standards and functional provision. For example, a typical house in North America will have a basement in addition to generally more floor space than a typical house in the UK. All the studies covered in this paper price either an industrial building. an office building or both. Of course, for most of these studies. the choice of building types has probably less to do with their comparability across countries and more to do with there being greater commercial interest in their construction internationally. Other cons~de~fftions
Besides representivity and comparability, other factors need to be considered when undertaking international construction cost comparisons. These are discussed briefly below. Pricing. Different authoritative sources on the basis of identical information will more often than not come up with different cost estimates for the same project. There is. in fact. no ‘correct’ price for a construction project - other than the successful contractor’s price accepted by the client. As professional construction cost consultants, the author’s firm aims to provide pre-tender estimates within S-10% of the lowest realistic tender but, particularly in periods of market uncertainty, the actual results can be unpredictable and outside this range. Another aspect of pricing is the extent to which tender prices are related to final building costs. In an environment where claims for increased costs, for whatever reason, can be allowable, tender prices may well be lower because tenderers believe they will obtain further monies during the course of a project. On the other hand, where tender prices are known to be fixed absolutely, tenderers must carry the risk of increased costs, whatever the reason, and may well, therefore, submit higher tender prices. Project content. No matter how clearly written and comprehensive a project description is, there are still opportunities for misunderstanding. These are compounded when respondents do not have a common first (or technical) language. National standards, practices and products vary and it is often impossible to construct (for one reason or another) identical buildings in different countries. There can also be differences in what is considered to be project content - does it include or exclude preliminaries, profit, fees and taxes, for example? Does contruction cost include all finishes, services and equipment, or are some of these to be supplied by the owners or occupiers?
Location. Location is a major factor affecting costs. Dense urban Iocations can incur significantly higher costs than greenfield sites. Similarly, areas with high construction activity will generally be more expensive than areas with little or no
187
International Comparisons of Constructron Costs and Prrces
work. Industrial building near Heathrow airport, for example, tended to be significantly more expensive than other locations around London, mainly due to the volume of work in the area pushing up both resource costs and contractors’ prices. Base date. For cost estimates to be truly comparable, they should be undertaken at the same date. This date defines not only the current exchange rate, but also prevailing market conditions. Attempts to compare estimates in different countries at different base dates must take these factors into account and the different rates of building cost inflation in the countries in question. Project quality. Quality of construction varies both between and within countries. Poor quality can result from skill shortages, poor supervision or low expectations and may or may not result in lower prices. Project duration. There can be a direct relationship between project duration and project price. There will often be a cost penalty for particularly rapid completion of a building project. Similarly, if a low price is sought, it can be difficult to achieve fast project completion. Exchange rates. The date, and therefore the exchange rate, chosen for an international price comparison can crucially affect the result. National exchange rates can vary significantly, as can be seen from Table 1 below. This shows the average month to month and year to year percentage change for the currencies of OECD countries vis-h-vis sterling over the period 1979-1989. From the table it is clear that an international price comparison centred on one month may give quite different results if centred on another. It is also clear that considerable care has to be taken when comparing the results of international price comparisons undertaken in different years. One way of moderating the effect of exchange rate variation is by converting to an international currency unit such as the European Currency Unit or ECU. International currency units are based on ‘baskets’ of currencies and are more stable over time than many national currencies; their disadvantage, however, is that they are not as yet widely used or understood. Another way is to calculate a ‘building exchange rate’, that is the rate of exchange that puts the domestic purchasing power of currencies at parity when spent on construction. This is achieved by taking into account the differences in price levels between countries.
Table 1. Exchange
rate variations m the OECD countries 1979-1989
Country
Month +
Year *
Australia Austria Belgium Canada Denmark Finland France Germany Greece Iceland Ireland Italy
2.26 1.75 1.74 2.08 1.74 1.33 1.74 1.72 1.97 2.84 1.55 1.65
9.40 6.16 6.02 8.96 6.08 3.31 5.19 6.52 13.11 30.10 4.17 6.62
Source:
OECD.
Country
Month +
Year f
Japan Luxembourg Netherlands New Zealand Norway Portugal Spam Sweden Switzerland Turkey United States
1.98 1.74 1.64 2.20 1.42 1.61 1.62 1.38 1.75 3.95 2.25
9.20 6.02 6.39 4.73 2.60 9.77 6.56 4.56 6.84 48.32 10.80
188
James L. Meikle
Review of previous studies
Ten studies have been identified which are either useful in methodological terms or provide data or, more commonly, both. They are described briefly below. Additional summary information, including coverage, is provided in Table 2. (1) Slough Estates Study. In 1976 Slough Estates Ltd, a major international industrial property group, published a case study on factory building in seven countries. The study covered design, documentation, approvals, costs and programme. The factory was a building of 50,000 square feet including 5,000 details varied depending on national square feet of offices; construction requirements and practice. The study was updated and republished in 1979 with a base date for costs of September 1978. to calculate (2) Eurostat Study. As part of a five-yearly programme Purchasing Power Parities (PPPs) for national accounts purposes, the Statistical Office of the European Communities (Eurostat) collects and analyses construction price data annually from its 12 member countries. The Eurostat study is based on 18 bills of quantities: three residential buildings, seven non-residential Table 2. Sources of tnternational construction cost data Study*
(1)
(2)
(3)
Base date
1978
1987
1985
1986
x
x
X
x
Locatton - National - Provincial - Major ctty
1988
1988
1988
1989
1989
x
X
x K X
x
Buildmg speciftcatton - Standard. Identical - Standard, locahsed - Typtcally local Butldmg types - Office - Factory - Other
x
x
x
x
x
Y
Y
X
x
Countries - Australia - Austria - Belgmm - Canada - Denmark - Frnland - France - Germany - Greece - Ireland - Italy -Japan - Luxembourg - Netherlands - New Zealand - Norway - Portugal - Spain - Sweden - Switzerland - Turkey - Unrted Kmgdom - United States - Other *The numbers
1987
x x x
x x x
x x
, x
x x x x x
x x x
x x x x x x x x X
x x
Y
x
x x
x x x
x
X
X
x
x
x
x
9
x
x
x x x x x
x x x
x x
X
x
, x x
x
X
X
x
x
x
x x
X
x x
X
x
x x
X
are those given to each study
x
x
x
x x x x
x x x
x
x
X
x x
x
x
x
X
x x
X
x
x x
x
x
x
x
x x
m the text.
X
x
X
x
x
x x
x x x
X
x x
x
x X
X
x
x
International Comparisons of Constructioti Costs and Prices
189
buildings and eight civil engineering projects. The bills specify standardised hybrid constructions that are not representative of any one country, but are representative of all. The complete set of bills is priced by experts from each country every five years, a different subset of the bills is priced by the experts in each of the intervening years. The bills are priced in national currencies using the July prices of the year in question. The pricing is intended to reflect the prices charged to clients by contractors in competition. National prices in national currencies are converted by Eurostat into ECUs and into time series of price indices. (3) OECD Study. Since the early 198Os, the Organisation for Economic Co-operation and Development (OECD) has worked with Eurostat to extend the coverage of the five-yearly PPP programme to include those 12 OECD countries that are not also members of the European Community. The combined programme covered 18 countries in 1980 and 22 countries in 1985. Coverage of all 24 OECD countries is expected by 1990. The OECD work on construction costs uses a similar approach to Eurostat and the data for Community countries is taken from the Eurostat study. Bills of quantities, however, are only priced every five years in the OECD study. Consequently, the latest relative national average construction price levels that are available from the study for residential buildings, non-residential building and civil engineering projects refer to mid1985. (4) Span’s European Study. The European section of Span’s Architects’ and Builders’ Price Book was introduced in 1973 and was progressively developed thereafter. By its final year, 1987, it provided selected coverage of construction procedures and costs for 13 European countries. Also, for nine of those countries, it presented a price breakdown of a standard reinforced concrete framed four storey office block with a total floor area of 2,400 square metres and a car park of 500 square metres forming part of the ground floor. Base date for the latest data on costs is mid-1986. (5) Spon’s International Study. Spon’s International Construction Costs Handbook effectively superseded the previous publication. Coverage was
increased to over 30 countries and the content and format was thoroughly revised. Cost information was limited to costs for labour and material, and all-in average square metre costs for main building types. No cost breakdowns within building types were provided and the costs related to what the national respondents considered typical of their country. The book was first published in 1988 with a base date for costs of January 1987. (6) CEEC Study. The Construction Economics European Committee (CEEC) is a group of professional bodies representing construction economics. The aim of the committee is to facilitate the exchange of experience and information. From a standard bill of quantities for a reinforced concrete framed four storey office block with a gross floor area of 1,100 square metres, a cost model was established which applied quantity factors to the unit rates of a list of items, from which VAT and preliminaries were excluded. This weighted basket of items gives a price for the office block in local currency; these figures can then be used to produce two series of indices, one a temporal index, which measures how costs rise in the different member nations over time; the other provides a ‘Building Exchange Rate’ between countries, independent of monetary exchange rates. The results for six European countries with a base date of August 1986 were published in the Spon’s International Construction Costs Handbook. Now data are available for nine countries with a base date of August 1988.
H&B 11:2,3-n
190
James L. Mezkie
(7) Hi!iier Parker Study. The 1989 Hillier Parker International Property BuIletin covered 12 countries. It provides a commentary on the property market in. and a series of statistical indicators on, each country. These in&de square metre construction costs for an industrial building, an office building and a shop. No base date is given but it is assumed to be mid-1988.
(8) FEELS ‘92 Study. E~g~~eeri~g News Record Focus ‘92 is a newsletter published by McGraw-Hill every two months starting at the beginning of 1989. The February 1989 issue included a comparison of square foot building costs for a basic manufacturing plant in six EC countries. The exercise was not for identical buildings but rather for buildings intended to be typical of each country. Costs were broken down into 12 ‘elements’ and the base date far costs was probabiy the fourth quarter of 1988. (9) ~~d~srri~~~~~~d~~gStudy. In 1989 Davis Langdon Consultancy undertook for a client a study of the construction cost of an industrial building in X2 European countries, The study was based on a single storey building with a gross floor area of 2,800 square metres of which 200 square metres were office space. Correspondents in each country were required to price identical dossiers. These dossiers provided a description of the project, drawings, specification and a bill. of quantities; it also covered related issues such as taxation, fees, regional variations and procurement method. Ah costs are as at May 1989.
(10) E.C. Harris Sfud~. In their Construction Industry Economics Survey of Ianuary 1990, E.G. Harrts and Partners present approximate construction costs per square metre for a typical office building in seven European cities. The survey states that the figures are based on the firm’s research, but gives no further details. The base date appears to be December 1989.
STUDY RESULTS Tables 3 and 4 summarise the main data available from the 10 studies described above. The studies in these tables have been sorted into those undertaken on the basis of ‘standard’ buildings and those undertaken on the basis of typical local buildings. Two building types are covered in the tables - industrial buildings in Table 3 and office buildings in Table 4; these being ~~rnrnon to most of the studies, although a number of studies covered other buiidi~g types as well. The countries included in the table are those for which a reasonable amount of comparable data exists (that is data inciuded in at least three studies), but data are available for a wider range of countries from the above studies. The data in the tables have been adjusted where necessary to have UK equal to 100 but, otherwise, the results of the studies have not been modified. What is most obvious from the results is the degree of inconsistency among the studies. ft is not possible to perceive any clear pattern either as regards countries or building types.
CONCLUSIONS AND RECOMMENDATIONS The existing approaches to inte~ationa~ construction price comparisons are ail, to a lesser or greater extent, imperfect. There is a need for a wider and better understanding of the problems involved in such work and the best methods to avoid or minimise these.
191
International Comparisons of Construction Costs and Prices Table 3. Industrial buildmg cost comparisons Study Standard building (identical or locahsed) Country Australia Belgium Canada Denmark France Germany Greece Ireland Italy Netherlands Portugal Spain Sweden United Kingdom United States
Typical
(1)
(2)
(3)
(4)
(6)
(7)
(9)
70 122 59 72 155 100 110
-
7 72 67 72 80 73 90 74 80 80 85 78 87 100 77
_ -
_ -
77 61 _ 74 71 72 45 68 52 61 177 100 74
75 _ 92 77 100 52 64 82 55 104 100 -
84 126 100 70 62 82 97 49 74 100 -
(5) 40 64 158 125 143 49 73 101 45 100 107
local buildings (10) (8) 93 111 92 65 100 -
-
Table 4. Office building cost compansons Study Standard building (identical or localised) Country Australia Belgium Canada Denmark France Germany Greece Ireland Italy Netherlands Portugal Spain Sweden United Kingdom United States
Typical
local buildings
(1)
(2)
(3)
(4)
(6)
(7)
(9)
(5)
(8)
(10)
-
-
7 72 67 72 80 73 90 74 80 80 85 78 87 100 77
124 _ 164 111 133 81 100 84 121 100 -
95 _ 123 109 106 92 82 70 100 -
64 46 _ 67 81 45 34 47 133 100 61
_ -
77 94 52 83 104 64 29 59 83 96 27 62 100 57
-
48 86 136 64 57 46 100 -
79 95 109 108 61 89 72 97 51 70 100 -
To ensure that results of international comparisons are as reliable as possible the following general questions should be borne in mind: - is each unit representative of what would be built in its particular location? Does each building, for example, comply not only with local standards and regulations, but also with local practice and fashion? - are the units being compared comparable? Are apples being compared with apples, not with oranges? Is the physical and functional accommodation being provided broadly similar, not just in quantity terms, but also in quality terms? - is the time basis for data the same? International comparisons based on different dates will be distorted both by exchange rates and by differential national inflation rates. - is the project content the same? Does the project include external works and all charges and fees, for example? Is land cost included, or the effects of various investment incentive packages? - are each of the national locations comparable? It is not usually meaningful to compare urban locations, for example, with greenfield sites, or capital cities with national average or provincial locations.
192
James L. Metkle
-
are procurement periods comparable? A project ready to be occupied nine months after initial discussions is clearly more attractive than one which takes two years to complete. There will be tradeoffs between project duration and cost. To achieve reliable comparisons, experts should price not only the representative buildings of their own country. but also the buildings (of the same types) representative of the other countries and to average the relative prices of each type of buildings between countries. With this approach both representativity and comparability are achieved, at least in theory, and it is the approach adopted by statisticians engaged in international comparisons of consumer prices. But in a comparison involving a large number of countries and/or a large number of building types, it would prove to be prohibitively expensive, though costs could be reduced by the use of experimental design techniques. Both Eurostat and the OECD are moving, albeit slowly, towards the adoption of such an approach. Perhaps the best method of addressing the questions listed above is to adopt a dossier approach - as utiiised in study (9), The European Industrial Building Comparison, undertaken by Davis Langdon Consultancy in 1989. The approach allows a full graphic, quantitative and narrative description of the building type under study to be presented. This reduces potential misunderstandings and provides opportunities for amendments or comments to be made where the dossier is, for any reason, difficult to price. Ack~o~~edgemenf
for Economx
- The author gratefuliy acknowledges the assistance of David Roberts of the Organisation Cooperation and Development in the preparation of this paper.
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1985.
European
Co~truct~on - Focus ‘92. Manufacturing Plant Construction Costs Compared for SIXEC countries, Engineering News Record. McGraw-Hill. I989 European
industrzal Buildmg Cost Comparison Study, Davis Langdon and Everest,
European Section. Spans Archrtecf and Budders Handbook, 1987. Eurostat Consrructzon Pnce Comparison
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Davis Belfield and Everest (Editors). annual to
Study. Statistical Office of the European
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Annual.
Industrial Investment, A Case Study rn Factory Buildings. Slough Estates Ltd. 1979 Inrernarional Pr0pert.v BuNerin, Hillier Parker. 1989.
Ofice Building Costs in Europe, E.C. Harris and Partners. December 1989. Spans International ~onstructton Costs Handbook,
Davis Belfield and Everest (Edltors).
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de la Construcnon,
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(CEEC), published m