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.

25.00%
20.50%
20.00% 18.50% %ge of overall project cost
per centage

14.30% 13.50%
15.00%

10.00%
6%
4.10% 4.70%
5.00% 2.60% 2.50% 2.20%1.80%1.80%
0.60% 0.60%0.07%0.27%
0.00%
nd
l

r es
e a ic k s

tin ng
ium er

ks
a te
t

et

st
ee

n d or k

st
en

rk

nt
gs
Sa

co
he
b

or

co
i

wa
St

oi
wo

or
reg
m

u m Ti m

tin
gw
r

cs
lw
b

nj

r
Ce

nd
rd

ou
f it
gg

Fl

io
ra

Ha

sa
l e Lab
ns
tu
in

se
in

uc

pa
sa
on

pa

en
Ex
str
pe
St

xp
Al

pi

&
y,

ill

ra
ta r

gr

ne
ni

Ge
S
sa

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

25% 23%
22%

20% Cost in %ge of

17% overall cost

15% 13%

10%
6%
5%
5% 4%
3%
2% 2%
1%t
0%
t l k d te r st g
en ee ic n be tin iu
m ks se
s
m St Br sa ga m co
in in or en
Ce g re Ti ur a m w p
ag bo P lu r y e x
se La A ta er
ar ni th
co sa O
d
an
ng
bi
l um
P

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.

25%
22%
20.50%
20% %ge of overall project cost
16%
15%
11%
10% 8%
7%
4% 4%
5% 2.50% 3%
2%

0%
el

d
ck

es
nt

b er

ium

st
te
sa n

s
S te

T il
Br i
me

nse
r co
a

ork
T im
re g

m in
Ce

xp e
bo u
yw
a gg

A lu

er e
La
ita r
ne

O th
sa n
S to

an d
ing
mb
P lu

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.

30.00%
26.00%

25.00%
21.50% 22% overall project cost

20.00%
percentage

16%
15.00%

10.00%

5.00%
4.00% 4.00%
5.00%
2%

0.00%
Cement Steel Brick sand Stone T imber Labour Other
aggregat e cost expenses

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.

300.00

250.00
Price per 50kg bag

200.00

150.00
Chennai region
Delhi region
100.00 Kolkatta region
Mumbai region

50.00

0.00
'0 8
Ja 6

07
M 06

7
3

Ja 5

7
Se 6

M 8

Se 8
3
'0 3

'0 4

'09
4

5
'0 5
p '0

p '0

'0

0
n' 0

p '0
n' 0

0
'0
n' 0

'0
n'
p'
p'
'

n'
ay

ay

ay

n
ay

p
Se

Se

Se

n
ay
Ja

Ja

Ja

ay

Ja

Ja
Se
M

Month

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.

70000

Chennai region
60000 Delhi region
Bangalore region
50000 Kolkatta region
Mumbai region
Price per MT

40000

30000

20000

10000

0
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

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

16000.00

14000.00

Brick price
12000.00
Price per 3000 Nos
10000.00

8000.00

6000.00

4000.00

2000.00

0.00
03 n'03 v' 03 r' 04 p'04 b'05 l' 05 c '05 ' 06 ' 06 ' 07 ' 07 '08 ' 08 '08 ' 09
n' Ju De ay t r g Jan Jun ov ril
Ja Ju No Ap Se Fe Oc Ma Au N Ap
M
Month

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

35.00

30.00
Sand price
25.00
Price per Cft

20.00

15.00

10.00

5.00

0.00
3 03 4 04 5 05 06 06 07 07 08 08 09
n' 0 Jul' an' 0 Jul' an' 0 Jul' n ' ly ' n ' ly ' an ' l ' an '
Ja J J Ja Ju Ja Ju J Ju J

Month

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

 134

30.00
Aggregate price
25.00

20.00

Price per Cft

15.00

10.00

5.00

0.00
3 03 03 04 04 05 05 05 06 06 07 7 08 08 08 09
n'0 un' ov' p r' ep' eb' Ju l' ec' y ' ct ' ar ' g ' 0 an ' u n ' ov ' ril '
Ja J S F a O M
N A D
M Au J J N Ap
Month

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

25.00

Chennai region
Delhi region
20.00
Kolkatta region
Mumbai region
15.00

10.00
M o nth ly % g e c ha ng e

5.00

0.00

07

Ja n 8
Jan 6
M 06

7
3

Jan 5
' 03

' 04

' 05

Se 8
M 8

'09
'0 3

6
'0 4

'0 5

0
p '0

p '0

p '0

'0
'0

'0
'0
'0

'0
p'
p'
'
Ja n

Ja n
Jan
ay

ay

ay

Ja n

ay

p
Se
Se

Se

ay
ay
Se

Se
M

M
-5.00

-10.00

-15.00

Month-wise

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

50.00

Chennai region
40.00 Delhi region
Bangalore region
Kolkatta region
Mumbai region
30.00

20.00

10.00

0.00
3 3 03 4 4 04 5 5 05 06 6 06 07 7 07 08 8 08 09 9
n'0 y'0 p' an'0 ay'0 ep' an'0 ay'0 ep' n ' y ' 0 ep' n ' y ' 0 p ' an ' y '0 p ' an ' ay'0
J a M a Se J M S J M S J a a S J a a Se J Ma S e J M
-10.00 M M

-20.00

-30.00

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

40.00
Brick Price
30.00

20.00
Monthly %ge change
10.00

0.00

Jul'05

Mar ' 07
Jan'03
Jun'03
Nov'03

Sep'04
Feb'05

Dec'05
May ' 06
Oct ' 06

Jan '08

Jun '08
Nov '08
April '
Apr'04

Aug ' 07
-10.00

-20.00

-30.00
Month

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.

140.00
Sand price - chennai region
120.00

100.00

80.00
Monthly %ge Change

60.00

40.00

20.00

0.00
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

Jan '08
May '08

Jan '09
May'09
Sep ' 07

Sep '08

-20.00

-40.00

-60.00
Month

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.

4.00
Stone aggregate price
3.00

2.00

1.00
Price in Rs.

0.00
3 3 03 ' 04 '0 4 '04 ' 05 '0 5 '05 0 6 06 0 6 0 7 07 07 '08 '08 '08 '09 '0 9
n' 0 y'0 p ' n y p n y p ' ' p' ' ' ' y
Ja Ma Se Ja Ma
-1.00 Se Ja Ma Se Jan ay Se Jan ay Sep Jan May Sep Jan Ma
M M
-2.00

-3.00

-4.00

-5.00
Month-wise

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.

1400

CPWD Cost Index

1200

1000
Index value

800

600

400

200

58 96 2 96 8 972 976 980 984 988 99 2 996 000 004 008

19 1 1 1 1 1 1 1 1 1 2 2 2
Year

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.

100.00
CPWD Cost Index

80.00

60.00
percentage change

40.00

20.00

0.00
5 8 6 1 64 69 72 7 5 7 8 8 1 8 4 87 90 9 3 9 6 9 9 0 2 0 5
19 19 19 19 1 9 1 9 1 9 1 9 19 19 19 1 9 1 9 1 9 2 0 20
-20.00
Year

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).

 I  
 i   i   1  100 % (6.1)
 I i1  
 141

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

1/ n
 I  
r   e   1  100% (6.2)
 I b  

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

2000
1800
1600
1400
1200
1000
800
600
400
200
0
61
63
65
67
69
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
11
13
15
19

19

19

19

19

19

19

20

20

20

20
19
19
19
19
19
19

19

19

19

19

19

19

19

20

20

20

20
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.

Cement
350

300

250

200

150

100

50

Cement Forecast of Cement Fitted Values Upper Lower

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

May-2010)
 0
2000
4000
6000
8000
10000
12000
14000
16000
0
10000
20000
30000
40000
50000
60000
Jan-03 Jan-03 70000
Apr-03 Apr-03
Jul-03 Jul-03
Oct-03 Oct-03
Jan-04 Jan-04
Apr-04 Apr-04
Jul-04 Jul-04
Oct-04 Oct-04

Brick
Steel
Jan-05 Jan-05
Apr-05 Apr-05
Jul-05 Jul-05
Oct-05 Oct-05
Jan-06 Jan-06
Apr-06 Apr-06
Forecast of Steel

Forecast of Brick
Jul-06 Jul-06
Steel

Brick
Oct-06 Oct-06
Jan-07 Jan-07
Apr-07 Apr-07
Fitted Values

Fitted Values
Jul-07 Jul-07
Oct-07 Oct-07
Jan-08 Jan-08
Upper

Upper
Apr-08 Apr-08
Jul-08 Jul-08
Oct-08 Oct-08
Low er

Low er
Jan-09 Jan-09
Apr-09 Apr-09
Jul-09 Jul-09

Oct-09 Oct-09
Jan-10 Jan-10

Apr-10 Apr-10
Figure 6.19 Forecasted steel price for 12 months (June’2009 to May-2010)

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

144
 0
5
10
15
20
25
30
35

0
5
10
15
20
25
30
35
40
45
Jan-03
Jan-03 Apr-03
Apr-03
Jul-03
Jul-03
Oct-03
Oct-03
Jan-04
Jan-04
Apr-04
Apr-04
Jul-04
Jul-04
Oct-04
Oct-04

Sand
Jan-05

Stone
Jan-05
Apr-05

to May-2010)
Apr-05
Jul-05
Jul-05
Oct-05
Oct-05
Jan-06
Jan-06
Apr-06

Forecast of Sand
Apr-06

Forecast of Stone
Jul-06
Sand

Jul-06
Oct-06
Oct-06
Jan-07
Jan-07
Apr-07

Coarse Aggregates
Apr-07
Fitted Values

Jul-07

Fitted Values
Jul-07
Oct-07
Oct-07
Jan-08
Jan-08
Upper

Upper
Apr-08
Apr-08
Jul-08
Jul-08
Oct-08
Oct-08
Low er

Low er
Jan-09 Jan-09

Apr-09 Apr-09

Jul-09 Jul-09

Oct-09 Oct-09

Jan-10 Jan-10

Apr-10 Apr-10
Figure 6.21 Forecasted sand price for 12 months (June’2009 to May-2010)

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

145
 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)

Cement – Steel – Brick – Sand – Stone –

Forecast Forecast Forecast Forecast Forecast
Dates
(Box (Box (Box (Box (Holt-
Jenkins) Jenkins) Jenkins) Jenkins) 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 2.33% 4.57% 3.36% 9.63% 6.12%
(MAPE)
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
62.05 9,748.68 3,085.32 6.29 6.50
Deviation
 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.