Rising costs hit States building projects

RISING construction costs – caused in part by Brexit – are causing the budgets of States building projects to increase by millions, the Infrastructure Minister has said.

The projected costs of a number of States building projects have soared recently including for the new Les Quennevais School, ongoing work at Grainville School and the extension of the Jersey Archive building.

A ministerial decision signed off by Infrastructure Minister Eddie Noel revealed that the expected cost of the Archive project has increased by £360,000 – more than ten per cent of the project’s initial £3.5 million budget.

And in November, States Members voted to increase the budget for the construction of the new Les Quennevais School by £5.6m to £45.6m, and for work at Grainville School by £5.3m to £15.5m.

Deputy Noel said that he believed the rising costs were due to the fall in the value of Sterling, which was caused by Brexit, and the current high demand for construction work, which means firms are charging higher prices.

‘One factor is the falling exchange rate which has caused the cost of importing raw materials to increase,’ he said.

‘The other thing is there is a lot of construction projects ongoing which means that quotes are increasing. But we cannot delay projects – we can’t be governed by what is going on in the construction industry.

‘The new facilities and the services provided by them are needed by the public of Jersey.’

Despite the potential rise in building costs caused by Brexit, the States did net a £300 million windfall after the value of its cash reserves soared following the Brexit vote.

This was because the collapse in Sterling caused the value of foreign held investments to rocket.

Deputy Noel said that economic cycles do tend to cause construction costs to fluctuate. He added, however, that this is factored into the cost assessments for very long-term projects, such as Jersey’s new hospital.

‘The problem with States projects is that you have to have funding in place before the tender process, so by the time it comes around costs can increase,’ he said.

‘It depends on the economic cycle – sometimes it works in your favour and sometimes it works against. With the archive there had been additional cost of around ten per cent.

‘With Les Quennevais we increased the budget to £45 million on the recommendation of the quantity surveyor. Material costs contributed to the cost increase.

‘But what we have done for the hospital project is include the inflationary costs in the £466 million budget because it is a long-term project.’

Martin Holmes, chairman of the Jersey Construction Council, said that the industry was ‘always keen’ to engage the government to help manage costs.

‘We have seen an increase in costs in the industry, accentuated by external factors such as the exchange rate increasing the cost of materials, but as far the industry is concerned we have to meet these challenges,’ he said.

‘We have to be clever about it. We are positive in the industry because there is so much work in the pipeline over the next five years, which will give firms the confidence to invest in training homegrown staff to meet the demand for work.’

Harvey Mitchell, the managing director of Mitchell Building Contractors, said that there were a variety of reasons for rising costs in the industry – not just high demand for work.

‘I wouldn’t say it is any one thing, such as an increase in demand. There’s a multitude of factors,’ he said.

‘The cost of steelwork is very volatile at the moment, for example, and the costs of insulation have increased. Increased regulations are also a factor, but it is right that they are introduced so there is better management on site.’