- MEMBER LOG-IN
Waka Kotahi professional service index updated
The professional services index has now been updated to reflect current labour and overhead costs when working for Waka Kotahi and local authorities in New Zealand. Find out more about the index and the updates.
Waka Kotahi publishes a range of retrospective cost indexes (not forecast cost estimates) used for tenders and contracts to calculate cost fluctuation amounts. Maintaining these indexes to ensure they're representative of actual costs is a key outcome of the cost fluctuation procedure to mitigate the risk of cost fluctuation to tenderers and promote competitive tendering practices.
If the indexes fail to remain fit for purpose, there is a risk that tenderers will begin to price cost fluctuation into their submissions which tends to increase tender pricing. The result is increasing uncertainty for both Waka Kotahi and tenderers.
The Waka Kotahi Professional Services Cost Fluctuation Index combines a Labour Cost Index and a consumer price index that uses private vehicle travel which is significantly more variable and over the period September 2015 – December 2021 reduced the magnitude of growth in the index.
Senior Transportation Planner at Abley Chris Blackmore says while the index may have initially been fit for purpose, professional service firm costs over the last 31 years have moved away from private vehicle travel to being dominated by labour costs.
''As a result, the index wasn't reflective of the costs experienced by professional service firms and needed to be updated,'' says Chris.
Chris worked with Waka Kotahi as the ACE New Zealand representative to consider a number of alternative labour indexes (LCI) and overhead cost indexes called the producer price index (PPI). The new index is based on a labour index and a producer price index which tracks overhead costs. The two indexes are described by Stats NZ as:
- The LCI - Private Sector and Industry Group (ANZSIC06)(Base: June 2009 qtr (=1000)) (Qrtly-Mar/Jun/Sep/Dec) - Salary and Ordinary Time Wage Rates - Professional, Scientific and Technical Services
- The PPI – Inputs (ANZSIC06) - NZSIOC level 4, Base: Dec. 2010 quarter (=1000) (Qrtly-Mar/Jun/Sep/Dec) - Scientific, Architectural and Engineering Services
Chris says that Stats NZ recommended the ''lower level'' indexes after discussion with ACE about the type of firms in our membership and the nature of professional services commonly employed by Waka Kotahi.
The new index is based on a labour index and a producer price index which tracks overhead costs and was agreed by ACE and Waka Kotahi after testing against our annual remuneration survey of members, independently run by Strategic Pay.
The agreed weights to be applied to these input indexes are 0.75 and 0.25 for the LCI and the PPI respectively.
Weights for Waka Kotahi contract price adjustment indexes are typically based on an analysis of a sample of actual contract estimates. Alternatively, an independent advisor will examine the accounts of a sample of firms that are employed, by Waka Kotahi - employed on the type of activity for which the index is being built. In the case of engineering consultants and the types of work that Waka Kotahi employs them to perform, the split between labour and overheads depends on the firm, in particular the size of the firm. The adoption of a 75/25 split is reasonable, but it's a compromise. The actual split will depend on the firm that is employed on a particular project and to a lesser degree the nature of the project itself. Historically the annual percentage change in the two input indexes has been different so the split does matter.
The adoption of a 75/25 split is a compromise, but one that every professional services firm will be aware of when they tender for a job.
Waka Kotahi infrastructure indexes are published through the Open Data Portal – they are included in two spreadsheets, referred to as:
- Latest values OLD 1991 infrastructure indexes
- Latest values 2012 infrastructure indexes
From May 2023, when updated Professional Services Cost Fluctuation index values are released, they will be included in the ‘Latest values 2012 infrastructure indexes’ file.
If you wish to discuss the index further, please contact Chris Blackmore on [email protected]