The BER Building Cost Index is compiled from information collected quarterly by means of a standard questionnaire from the same group of quantity surveyors. These quantity surveyors supply information on the scope of the project, some amounts and the tariffs (rates) of a number of items from the bills of quantities of accepted tenders.

The index is compiled by analysing current price movements of 22 representative cost components that are common to all buildings relative to the prevailing base prices. Brook started with a single story house, but the ultimate selection and weights of the items still in use today, were motivated by the practical needs that he faced when he was at the Quantity Surveying Division of the Department of Public Works. Data for items from most of the categories of the Standard System of Measuring Building Work are collected. A weight is accorded to each item based on considerations such as basic design criteria. In order to ensure comparability, certain adjustments in the calculation process are made.

The index is compiled on a national as well as a regional basis and the quarterly database covers the period starting in 1962.

The BER Building Cost Index is a weighted Laspeyres (or base-weighted) index. The index is the sum of the current tariffs of the items multiplied by the base-period quantity divided by the sum of the base period tariff times the base period quantity. The bill of quantities of the base period is thus re-priced at current tariffs. This new tender amount is then divided by the tender amount in the base period.

Although the index is primarily based on non-residential building projects, it could still be used for residential projects. This is because a cubic metre of concrete poured in a residential building would, for instance, be no different to a cubic metre of concrete poured in a non-residential project.

For more details on the calculation method, click here.

The index has, on several occasions, been subjected to scrutiny by statisticians working in conjunction with leading members of the QS profession, inter alia, Mr Philip Haylett, Dr Tiger de Leeuw, Dr Gerhard Brümmer and Prof Hendrik Marx. It was found to be a reliable and scientifically-based index of the movement of building costs.

The BER Building Cost Index is comparable to the one that the Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors (RICS) produces in the UK.

During the early 1980s, Statistics South Africa started to publish an index that was also based on an analysis of accepted tenders. However, this index (called the “Builders’ Contract Price Index”) was terminated in the late 1990s due to public sector budget cuts. Therefore, the BER Building Cost Index is one-of-a-kind in South Africa. Stats SA continues to publish data for the Contract Price Adjustment Provisions Work Group Indices (CPAP).

The BER Building Cost Index is a unique index, as it is based on an analysis of accepted tender prices (i.e. the ex-ante output prices of building contractors). This implies that the index reflects market conditions, because it includes the profit margins of building contractors in addition to builders’ input costs (labour, materials, plant and fuel) and allowances for contingencies. By contrast, the CPAP indices (published by Stats SA) reflect only builders’ input costs and exclude the profit margins of building contractors.

Research shows that this index of tender prices is sensitive to movements in business cycles. This happens because the degree of competition in tendering intensifies during economic recessions – building contractors are obliged to trim their profit margins in times of slack building demand, and vice versa in growth phases (highlighted yellow in the chart below) in the economy.

In 1984, Medium-Term Forecasting Associates (MFA) was approached by the SA Treasury to develop a method of forecasting the CPAP (Haylett) Indices to assist the planning procedures of public capital projects. Prof Wilsey Kilian and Dr Johan Snyman, then co-directors of MFA, developed a forecasting model based on time-series analysis of the business cycle. They combined forecasts of these two indices in a single report and subsequently started to make this service available to professional quantity surveying firms.

In January 2005, the BER and Medium-Term Forecasting Associates (MFA) formed a Joint Venture to promote this index amongst members of the profession. The responsibility of the BER is to liaise with quantity surveyors and to compile the index. Dr Johan Snyman, Director of MFA, is responsible for forecasting this index.

10 year anniversary of the BER/MFA Joint Venture

MFA’s forecasting service combines information on builders’ input costs (CPAP) and trends in tender prices. Subscribers benefit from being able to use the forecasts of these key indices to provide better estimates of project costs (Click here for an example of MFA’s forecast report). The historical is also useful to property valuers and assurance companies that insure property portfolios.

• For more information and how to subscribe to MFA’s forecast Report on Building Cost, click here.
• The most recent building cost data is covered in the BER’s Building and Construction report.

The BER Building Cost Index is widely accepted by the quantity surveying profession as an indicator of trends in tender prices. However, not only members of the quantity surveying profession find the building cost data useful, but also building contractors, lawyers and arbitrators, property valuers, insurance brokers and insurance companies and, of late, asset management companies.

For more information on the use of the index, click here.

It is not possible to use the BER Building Cost Index to obtain information on the building cost in rand per square meter for a specific building or type of building. For such information it is best to consult a registered quantity surveyor. However, if a rough estimate would suffice, consult the sources below:

• BER Trends (See an example)
• http://www.hilldubois.co.za/html/technical_information.html
• http://www.aecom.com/deployedfiles/Internet/Geographies/Australia-New%20Zealand/Documents/Blue-Book-2014-I.pdf
• www.waltersandsimpson.com
• www.billcost.co.za
• www.qsplus.co.za