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National Highway Construction Cost Index

National Highway Construction Cost Index. Federal Highway Administration October, 2010 Ralph Erickson. National Highway Construction Cost Index (NHCCI). Replaces the FHWA Bid-Price Index Uses Fisher Index to produce a quarterly index at the National level

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National Highway Construction Cost Index

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  1. National HighwayConstruction Cost Index Federal Highway Administration October, 2010 Ralph Erickson

  2. National Highway Construction Cost Index (NHCCI) • Replaces the FHWA Bid-Price Index • Uses Fisher Index to produce a quarterly index at the National level • Bid-Tabs data provided by Oman Systems, Inc. • Possible extensions • State level indexes • Component indexes

  3. Fisher Ideal Index • “Ideal” refers to the Fisher Index addressing changing ratios of inputs • Captures the effects of changes in the relative importance of different cost items in highway construction over time • Minimize substitution biases

  4. Index Data Requirements • Product requirements for isolating cost changes • Specific • Consistent over time • Continuity of time series for individual products (pay-items) • Sufficiently representative (and large) set of observations for statistical confidence

  5. Oman Systems, Inc. (OSI) Data • Captures State web-posted bids awarded on highway construction contracts • Partial data back to 1993 • Covers all contiguous States since 2007 • Composed of State-defined pay-items

  6. What State Bid-Items Measure • Cost of • Material • Installation (capital and labor) • Overhead • Profit • Not a measure of pure price changes • Such as the BLS Producer Price Index • PPI (for H&S) now discontinued

  7. OSI Data • With judicious editing, OSI data can meet the above data requirements for indexes: • Remove pay-item records: • Non-standard • Unit of measure (lump sum) issues • Suspect categories

  8. Non-standard • Same pay item number but have different pay item descriptions (or units of measure) between projects • Cannot be included due to the differing types of work from project to project

  9. Unit of measure issues • There are some pay items where the unit of measure makes it difficult to track price changes • Example: • Landscaping • Lump sum =1 • The prices bid on these items are not related to price trends

  10. Suspect categories • Categories of work such as start-up costs, incentives, etc. • Mobilization • Alternates/Bonuses/Time

  11. Further Data Edits • Eliminate records where pay-items: • Lack eight quarters of consistent data • Eliminate records where pay-items fail established variance tests • Rationale is to reduce data entry errors

  12. Edit Example • Eliminate records for pay-items : • Maximum observed price is more than 16 times the minimum price • Coefficient of variation is greater the 42 when evaluating the log of change in price times 100 • The “16” and “42” above vary by run

  13. Effect of the Edits • Overall effect of the edits (although large in number) still leaves a useful dataset for constructing the NHCCI • Remaining value is representative of all bid tabs expenditures with almost 40% of the original observations still available • The distribution of the expenditure categories which determine the weights in the NHCCI are largely unaffected by the edits

  14. Summary • The new FHWA cost index • Data characteristics • OSI data • Edits to the OSI data • Results

  15. NHCCI Results

  16. Resources • Ralph Erickson • 202-366-9235 • ralph.erickson@dot.gov http://www.fhwa.dot.gov/ohim/nhcci/

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