127

CHAPTER 6

A STUDY OF THE TRENDS IN PRICES OF MATERIALS

AND COST INDICES IN BUILDING CONSTRUCTION

CONTRACTS IN INDIA

6.1 INTRODUCTION

Medium to large construction projects take over a year for

completion and the cost of materials often increase which leads to major

problems in administration of the contract. Increase in price of materials

during the execution of the contract is the root cause for dispute between the

owner and contract and delay in completion of projects. In this chapter, study

carried out to identify the cost components of major materials contributing to

overall cost of the project through case studies of six building construction

projects. A study on trend in price of major materials (Steel, Cement, Brick,

Sand and Coarse Aggregate) over the period of six years, and cost indices in

India are also presented.

6.2 IDENTIFICATION OF MAJOR COST COMPONENTS OF

BUILDING CONSTRUCTION PROJECT

The major material components contributing to overall cost of the

projects were analysed through case studies of six building construction

projects i.e. Construction of educational building at Chennai, Construction of

office building at Delhi and Construction of hostel building at Chennai. The

128

case study analysis of construction of office building is presented in

Figure 6.1.

14.30%

18.50%

2.60%4.10%

0.60%2.50%

4.70% 6%

2.20%1.80%1.80%0.60%0.07%0.27%

20.50%

13.50%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%Cem

ent Steel

Sand

bricks

Stone agg

regate

Timber

Aluminium works

Flooring

paintin

g work

sanita

ry, pipe

s and f

itting

s

MS grill

& struct

ural w

orks

Hardware

sAc s

heet

Expans

ion joint

Labour

cost

General

expen

ses an

d cost

per c

enta

ge %ge of overall project cost

Figure 6.1 Construction of Office Building at Chennai

From the Figure, it can be inferred that cost components of cement

and steel contributing to about 33% of overall cost of the project. Labour

components was about 20.50% and component of brick, sand, coarse

aggregates and timber contributing about 10% of overall cost of the project.

The case study analysis of construction of educational building-I is

presented in Figure 6.2.

129

17%

22%

4%2% 3%

1%

23%

2%

6% 5%

13%

0%

5%

10%

15%

20%

25%

Cement Stee

lBric

ksan

d

coarse

aggreg

ate

Timber

Labour

cost

Paintin

g

Aluminium

Plumbing an

d san

itary

works

Other exp

enses

Cost in %ge ofoverall cost

t

Figure 6.2 Construction of Educational Building – I at Chennai

From the Figure 6.2, it can be inferred that cost components of

cement is about 17% and steel is about 22% of overall cost of the project. The

Labour components contribute about 20% overall cost of the project.

16%

20.50%

4%2.50% 3% 2%

7%

4%

8%

22%

11%

0%

5%

10%

15%

20%

25%

Cement Stee

l

Brick

sand

Stone

aggreg

ate

Timbe

rA lum

inium

Plumbin

g and s

anita

ry work

s Tiles

Labour

co st Oth er

expens

es

%ge of overall project cost

Figure 6.3 Construction of Educational Building – II at Chennai

130

From the Figure 6.3, it is seen that cost components steel and

cement alone contribute to about 36.5% of overall cost of the project. Labour

components was about 22% and component of brick, sand, coarse aggregates

and timber contribute about 11.5% of overall cost of the project. The cost

components of construction of building in New Delhi is presented in

Figure 6.4.

21.50% 22%

4.00%5.00%

4.00%2%

26.00%

16%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Cement Steel Brick sand Stoneaggregate

T imber Labourcost

Otherexpenses

perc

enta

ge

overall project cost

Figure 6.4 Construction of Building at New Delhi

From the Figure 6.1 to 6.4, it is seen that cost components of

cement, steel, brick, sand, coarse aggregate and timber alone were

contributing to about 50% of overall cost of the project. One of the main

objectives was to analyse the movement of price of major materials (cement,

steel, brick, sand, coarse aggregate and timber) and their impact on cost

escalation in the building construction projects.

131

6.3 STUDY OF PRICE OF MAJOR BUILDING MATERIALS IN INDIA

The six years price data (2003 - 2009) of major materials (cement,

steel, brick, sand and stone aggregate) were collected from Larson and

Toubro Limited and Builders Association of India. The collected data were

analysed in detail, analysis includes month-wise trend in increase in price of

materials and monthly percentage change in price of material over the period

of time.

6.3.1 Trend in Price of Materials over the Period of Time (2003 –

2009)

Cement: Trend in month-wise price of cement (2003-2009) was

analysed. The price of cement had gone up to 127.5% in Chennai region,

107.5% in Delhi region, 98.01% in Kolkatta region, 92% in Mumbai region.

The movement of cement price in India over the period of six years is

presented in Figure 6.5.

0.00

50.00

100.00

150.00

200.00

250.00

300.00

Jan'03

May'03

Sep'03

Jan'04

May

'04Sep

'04Jan

'05May

'05Sep

'05Jan

' 06

May ' 0

6Sep

' 06

Jan ' 0

7May ' 0

7Sep

' 07

Jan '08

May '0

8Sep

'08

Jan '09

Month

Pric

e pe

r 50

kg b

ag

Chennai regionDelhi regionKolkatta regionMumbai region

Figure 6.5 Trend in price of cement (2003-2009) in India

132

Steel: Month-wise movement of price of steel was analysed for six

years (2003-20009). From the analysis, it is found that increase in price of

steel was 281% in Chennai region, 250% in Delhi region, 251% in Bangalore

region, 254% in Kolkatta region, 252% in Mumbai region. The Month-wise

movement of steel price over the period of six years is presented in Figure

6.6.

0

10000

20000

30000

40000

50000

60000

70000

Jan'

03

May

'03

Sep'

03

Jan'

04

May

'04

Sep'

04

Jan'

05

May

'05

Sep'

05

Jan

' 06

May

' 06

Sep'

06

Jan

' 07

May

' 07

Sep

' 07

Jan

'08

May

'08

Sep

'08

Jan

'09

May

'09

Month

Pric

e pe

r MT

Chennai regionDelhi regionBangalore regionKolkatta regionMumbai region

Figure 6.6 Trend in price of steel (2003-2009) in India

Brick, sand and stone aggregate: The month-wise price of brick,

sand and stone aggregate in Chennai region from 2003 to 2008 were analysed.

The average price of brick had gone up to 242%, sand 286% and stone

aggregate 250% within the period of 6 years. The movement of price of brick,

sand and stone aggregate is presented in Figures 6.7, 6.8 and 6.9.

133

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

14000.00

16000.00

Jan'03

Jun'03

Nov'03

Apr'04

Sep'04

Feb'05

Jul'05Dec

'05

May ' 0

6

Oct ' 0

6

Mar ' 0

7

Aug ' 07

Jan '08

Jun '08

Nov '0

8

April ' 0

9

Month

Pric

e pe

r 30

00 N

os

Brick price

Figure 6.7 Trend in price of brick (2003-2009) in Chennai region

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Jan'03

Jul'03Jan

'04Jul'04

Jan'05

Jul'05

Jan ' 0

6

July ' 06

Jan ' 0

7

July '07Jan

'08

Jul '08

Jan '09

Month

Pric

e pe

r C

ft

Sand price

Figure 6.8 Trend in price of sand (2003-2009) in Chennai region

134

0.00

5.00

10.00

15.00

20.00

25.00

30.00

Jan'03

Jun'0

3

Nov'03Apr'0

4Se

p'04Feb

'05Ju

l'05Dec

'05

May ' 0

6

Oct ' 06

Mar

' 07

Aug ' 07

Jan '0

8Ju

n '08

Nov '08

April ' 0

9

Month

Pric

e pe

r Cft

Aggregate price

Figure 6.9 Trend in price of coarse aggregates

6.3.2 Trend in Monthly Percentage Change in Price of Materials

over the Period of Time (2003 – 2009)

Cement: Trend in monthly percentage change in price of cement

and steel (2003-2009) were studied. The monthly average percentage

fluctuation in price of cement in Chennai region was in the maximum range

of between -11% and 18%. In the Delhi region it was between -5% and

+18%, in Kolkatta region it was between -12% and +15% and in the Mumbai

region it was between -12% and +17%. The fluctuation in monthly price of

cement over the period (2003-2009) is presented in Figure 6.10.

135

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

Jan'03

May'03

Sep'03

Jan'04

May'04Sep

'04Jan

'05May'05Sep

'05Jan

' 06

May ' 06

Sep' 0

6Jan

' 07

May ' 07

Sep ' 0

7Jan

'08May

'08Sep

'08

Jan '09

Month-wise

Mon

thly

%ge

cha

nge

Chennai regionDelhi regionKolkatta regionMumbai region

Figure 6.10 Monthly % ge change in price of cement (2003 – 2009) in

India

Steel: The monthly fluctuation in price of steel in Chennai region

was in the range of between -11% and +19%, in the Delhi region it was

between -12% and +16%, in the Bangalore region it was between -19% and

+24%, in the Kolkatta region it was between -12% and +17%, and in the

Mumbai region it was between -13% and +19%. The movement of monthly

fluctuation over the period (2003-2009) is presented in Figure 6.11.

136

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

Jan'03

May'03

Sep'03

Jan'04

May'04

Sep'04

Jan'05

May'05

Sep'05

Jan ' 0

6

May ' 06

Sep' 06

Jan ' 0

7

May ' 07

Sep ' 07

Jan '08

May '08

Sep '08

Jan '09

May'09

Chennai regionDelhi regionBangalore regionKolkatta regionMumbai region

Figure 6.11 Monthly %ge change in price of steel (2003 – 2009) in India

Brick, Sand and Coarse aggregate: Trend in monthly percentage

change in price of brick, sand and coarse aggregate from 2003-2009 data were

analysed to study the price fluctuation. The study, reveals that there was a

fluctuation in prices of brick, sand and stone aggregate throughout the year, it

was also observed that fluctuation in prices are seasonal. The maximum

monthly percentage change in price of brick was between - 23% and +33%.

The movement of price of brick over the period (2003-2009) is presented in

Figure 6.12.

137

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

Jan'

03

Jun'

03

Nov

'03

Apr

'04

Sep'

04

Feb'

05

Jul'0

5

Dec

'05

May

' 06

Oct

' 06

Mar

' 07

Aug

' 07

Jan

'08

Jun

'08

Nov

'08

Apr

il '

Month

Mon

thly

%ge

cha

nge

Brick Price

Figure 6.12 Monthly %ge change in price of brick (2003 – 2009)

The average monthly percentage change in price of sand over the

period of six years (2003-2009) was between -36% and +122% and stone

aggregate between -39% to +46%. The movement of price of sand over the

period (2003-2009) is presented in Figure 6.13.

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Jan'

03

May

'03

Sep'

03

Jan'

04

May

'04

Sep'

04

Jan'

05

May

'05

Sep'

05

Jan

' 06

May

' 06

Sep'

06

Jan

' 07

May

' 07

Sep

' 07

Jan

'08

May

'08

Sep

'08

Jan

'09

May

'09

Month

Mon

thly

%ge

Cha

nge

Sand price - chennai region

Figure 6.13 Average Monthly %ge change in price of sand (2003 – 2009)

138

The average monthly percentage change in price of coarse

aggregate over the period of six years (2003-2009) was between -39% and

+46%. The movement of price of coarse aggregate over the period (2003-

2009) is presented in Figure 6.14.

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

Jan'03

May'03

Sep'03

Jan'04

May'04

Sep'04

Jan'05

May'05

Sep'0

5

Jan ' 0

6

May ' 0

6

Sep' 0

6

Jan ' 0

7

May ' 0

7

Sep ' 0

7

Jan '0

8

May '08

Sep '0

8

Jan '09

May'09

Month-wise

Pric

e in

Rs.

Stone aggregate price

Figure 6.14 Average Monthly %ge change in price of coarse aggregate

(2003 – 2009)

6.4 STUDY OF BUILDING COST INDEX IN INDIA

6.4.1 Construction Cost Index

In the USA, Engineering News Record (ENR)’s cost indices are

commonly used to measure the cost trends in the construction industry

(Touran and Lopez, 2006). Building Cost Information Services (BCIS,

subsidiary of the Royal Institute of Chartered Surveyors), are used to measure

cost trends in construction industry in the United Kingdom (Dawood and

Bates, 2002). In India, The Central Public Works Department (CPWD) is

publishing the building cost index from 1958 onwards and also Construction

139

Industry Development Council (CIDC) has developed and has been

publishing the construction cost indices since 1998 to measure the cost trends

in the construction Industry.

6.4.2 Trend in Building Cost Index (CPWD) in India

The CPWD cost indices for 50 years were analysed in detail to

study the movement of construction cost in India. The trend in building cost

index from 1958- 2008 is presented in Figure 6.15.

0

200

400

600

800

1000

1200

1400

1958

1962

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

Year

Inde

x va

lue

CPWD Cost Index

Figure 6.15 Movement of CPWD Cost Indices (1958-2008) in India

Based on analysis of CPWD’s Building Cost Indices, from 1958 to

2008, it is found that early in the 1960 – 61 and 1971, 1974 – 1975 was a

period of high inflation for the construction industry in India. During 1979 –

1984, cumulative percent of change for the India was 236% with an average

of 39.3% per year. During 1988 – 1991, cumulative percent of change of cost

140

index was 201% with an average of 50.25% per year. The yearly percentage

change in CPWD cost index (1958-2008) is presented in Figure 6.16.

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

1958

1961

1964

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Year

perc

enta

ge c

hang

e

CPWD Cost Index

Figure 6.16 Yearly % ge change in CPWD cost index (1958 - 2008)

The average building construction cost escalation in India from

1958 to 2008 is about 4.22% per year.

6.4.3 Modelling Escalation Factor in Building Construction Project

in India

The CPWD cost indices for 50 year datas were used for modelling

escalation factor for building construction projects in India to measure the

average cost construction escalation in India. The escalation factor is the rate

of change of the Building Cost Index (BCI) from year to year can be

calculated from the following Equation (Touran et al 2006).

%10011

i

ii I

I (6.1)

141

where I = percent of change of period i; Ii = index of period i; and 1iI = index

of the previous period (i-1). A positive value of i is an indication of increase

in cost. In contrast, if the value of i is negative, that is because period i has

experienced a deflation. i is then the escalation factor that we are trying to

model.

The average value of escalation factor for the period of 1958–2008

was computed using the following equation:

%1001/1

n

b

e

IIr (6.2)

where r =average rate of change; Ie and Ib=index values in the ending period;

and the beginning period, respectively; and n=number of periods between e

and b.

From the above formula, the average value of escalation factor for

the period of 1958–2008 was computed as 4.22 % per year.

6.4.4 Forecasting Building Construction Cost Escalation

Forecasting building construction cost escalation using statistical

time series methods, 50 years CPWD building cost indices and 6 years

month-wise price data were considered for the study. Forecasted building

construction cost escalation for five years using the software Forecast X. The

forecasted details are presented in Figure 6.17 and Table 6.1.

142

CPWDCI1955

0

200

400

600

800

10001200

1400

1600

1800

200019

6119

6319

6519

6719

6919

7119

7319

7519

7719

7919

8119

8319

8519

8719

8919

9119

9319

9519

9719

9920

0120

0320

0520

0720

0920

1120

1320

15

CPWDCI1955 Forecast of CPWDCI1955 Fitted Values Upper Low er

Figure 6.17 Forecasting CPWD cost index for 5 years from 2010 to 2015

Table 6.1 Forecasted Building Cost Index (CPWD) from 2010 to 2015

Year Forecast(Holt-Winters) 2010 1,246.73 2011 1,338.60 2012 1,443.76 2013 1,536.78 2014 1,642.18 2015 1,731.99 AIC 443.17 BIC 448.84 Mean Absolute Percentage Error (MAPE) 3.30% R-Square 99.53% Durbin Watson 1.95 Mean 555.69 Median 576.00 Standard Deviation 308.10

143

The R-squared statistic indicates that 99.53% of the variation of the

index is explained by the model. This shows that the model fits the historical

data very well. The mean absolute percentage error is 3.30%.

Based on six years building materials price data, the building

material prices for twelve months has been forecasted using the software

Forecast X. The forecasted details of cement, steel, brick, sand and coarse

aggregates are presented in Figures 6.18 to 6.22.

0

50

100

150

200

250

300

350

Cement

Cement Forecast of Cement Fitted Values Upper Lower

Figure 6.18 Forecasted cement price for 12 months (June’2009 to

May-2010)

144

Steel

0

10000

20000

30000

40000

50000

60000

70000Ja

n-03

Apr-

03

Jul-0

3

Oct

-03

Jan-

04

Apr-

04

Jul-0

4

Oct

-04

Jan-

05

Apr-

05

Jul-0

5

Oct

-05

Jan-

06

Apr-

06

Jul-0

6

Oct

-06

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Steel Forecast of Steel Fitted Values Upper Low er

Figure 6.19 Forecasted steel price for 12 months (June’2009 to May-2010)

Brick

0

2000

4000

6000

8000

10000

12000

14000

16000

Jan-

03

Apr-

03

Jul-0

3

Oct

-03

Jan-

04

Apr-

04

Jul-0

4

Oct

-04

Jan-

05

Apr-

05

Jul-0

5

Oct

-05

Jan-

06

Apr-

06

Jul-0

6

Oct

-06

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Brick Forecast of Brick Fitted Values Upper Low er

Figure 6.20 Forecasted brick price for 12 months (June’2009 to May-2010)

145

Sand

0

5

10

15

20

25

30

35

Jan-

03

Apr-

03

Jul-0

3

Oct

-03

Jan-

04

Apr-

04

Jul-0

4

Oct

-04

Jan-

05

Apr-

05

Jul-0

5

Oct

-05

Jan-

06

Apr-

06

Jul-0

6

Oct

-06

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Sand Forecast of Sand Fitted Values Upper Low er

Figure 6.21 Forecasted sand price for 12 months (June’2009 to May-2010)

Coarse Aggregates

0

5

10

15

20

25

30

35

40

45

Jan-

03

Apr-

03

Jul-0

3

Oct

-03

Jan-

04

Apr-

04

Jul-0

4

Oct

-04

Jan-

05

Apr-

05

Jul-0

5

Oct

-05

Jan-

06

Apr-

06

Jul-0

6

Oct

-06

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Stone Forecast of Stone Fitted Values Upper Low er

Figure 6.22 Forecasted coarse aggregate price for 12 months (June’2009

to May-2010)

146

The forecasted price of cement, steel, brick, sand and coarse

aggregates for twelve months ((June’2009 to May-2010) is presented in

Table 6.2.

Table 6.2 Forecasting of building material cost – for 12 months (1 year)

Dates

Cement – Forecast

(Box Jenkins)

Steel – Forecast

(Box Jenkins)

Brick – Forecast

(Box Jenkins)

Sand – Forecast

(Box Jenkins)

Stone – Forecast

(Holt-Winters)

Jun-09 262.57 39,267.69 11,500.00 20.67 22.88

Jul-09 262.73 39,038.23 11,500.00 21.54 23.53

Aug-09 262.78 38,623.55 11,500.00 21.51 23.70

Sep-09 262.79 38,238.23 11,500.00 21.26 23.64

Oct-09 262.79 38,163.12 11,500.00 21.07 23.46

Nov-09 262.80 38,199.84 11,500.00 21.11 24.13

Dec-09 262.80 38,266.83 11,500.00 21.21 24.29

Jan-10 262.80 38,329.84 11,500.00 21.20 24.23

Feb-10 262.80 38,342.21 11,500.00 21.17 24.04

Mar-10 262.80 38,336.16 11,500.00 21.16 24.72

Apr-10 262.80 38,325.14 11,500.00 21.18 24.89

May-10 262.80 38,314.79 11,500.00 21.19 24.82

AIC 515.45 1,436.02 1,197.89 386.44 270.14

BIC 517.79 1,438.36 1,200.23 395.82 277.17

Mean Absolute Percentage Error

(MAPE) 2.33% 4.57% 3.36% 9.63% 6.12%

R-Square 98.79% 92.35% 96.54% 79.60% 95.66%

Durbin Watson 2.00 1.90 2.08 2.06 1.95

Mean 172.16 31,214.29 8,387.01 16.44 18.94

Median 140.00 30,000.00 7,500.00 14.50 20.00

Standard Deviation

62.05 9,748.68 3,085.32 6.29 6.50

147

6.5 SUMMARY

The major material components contributing to overall cost of the

projects were analysed through case studies of six building construction

projects. From the study, it is found that cost components of key materials i.e.

cement, steel, brick, sand, coarse aggregates and timber were contributing

about 50% of overall cost of the project. In addition it was also identified that

these materials have more impact on cost escalation in building construction

projects.

Based on the analysis of escalation in prices of key materials

(cement, steel, brick, sand and aggregates), the study reveals that major

building material prices have increased drastically. Cement price has gone up

around 108%, steel 250%, brick 240%, sand 286% and stone aggregate 250%.

The trend in monthly percentage change in price of major materials were also

analysed. The study proves that maximum percentage change reported for

cement was between -15% and 18%, steel between -17% and 19%, brick

between -23% and 33%, sand between -36% and 48%, stone aggregate

between -39% and46%.

From the study, it is found that there was a drastic fluctuation in the

prices of key construction materials of cement, steel, brick, sand and coarse

aggregates. Contractors working under these circumstances, find that

estimating, bidding and executing the construction projects are challenges.

Many contractors face significant losses due to fixed price construction

contracts. Hence, it is recommended that escalation may be paid for key

construction materials like cement, steel, brick, sand and coarse aggregates

based on actual procurement prices.

Based on analysis of CPWD’s Building Cost Indices, from 1958 to

2008, it is found that during the period of 1960 – 61 and 1971, 1974 – 1975

148

high inflation was witnessed for the construction industry in India. During

1979 – 1984, cumulative percent of change of building construction cost for

the India was 236% with an average of 39.3% per year. During 1988 – 1991,

cumulative percent of change of cost index was 201% with an average of

50.25% per year. The average building construction cost escalation for the

last 50 years (1958 to 2008) in India was computed as 4.22 % per year. The

building construction cost indices and also the building material prices have

been forecasted for five years and twelve months respectively using the

software “Forecast X”. The lessons from this analysis would be of substantial

use for planning engineer and construction manager working in the

construction industry. They can make use of these findings to minimize the

cost escalation.