The National Minimum Wage comes into effect on the 1 May 2018. This will have a major impact on the Building Industry especially in rural areas. The reason for this is that general workers in rural areas were earning way below the new minimum wage.
This article discusses the impact of the minimum wage on future contracts and the provision contractors must make in their tenders. We will look at projects that are subject to CPAP and contracts that have a fixed price.
Future Projects Subject to CPAP
On these projects the majority of contractors may feel that they will be covered by the increased indices for the different Work Groups. This may not be the case however, for the following reasons:
The Haylett Formula already prejudices you as the contractor by the 15 % factor.
Tendering conditions may become more competitive and the indices won’t show any increase for the greater labour cost.
The increase in the minimum wage will cause all labour rates in the industry to rise as your employees will all compare their specific rate to the new minimum wage.
Future Fixed Price Projects
In order that you do not place your business at risk in the future the following must be taken into account.
You must make provision for all future projects for increased labour and material costs.
Skilled tradesmen will also want commensurate increases.
The client employed quantity surveyor will not entertain any arguments that you as the contractor did not know about the minimum wage.
You will not be compensated for labour cost increases.
For long term contracts the full legislation must be read in order to ascertain the impact in year two and year three from the 1 May 2018.
The submission of any Bid involves risk however it is the management of the risk that makes a building contractor successful.