Federal Highway Administration
October, 2010
Ralph Erickson
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Track changes associated with highway
construction costs
Convert nominal (current) dollar expenditures
on highway construction projects to real
(constant) dollar expenditures
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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
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Time series from 1922
Component Indexes:
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Cement
Asphalt
Aggregates
Structures
Composite
Projects since 1992
◦ Greater than $500 K
◦ On the National Highway System (higher level
roads)
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Uneven data quality
Fewer States reporting in recent years
Survey of users indicated little support
FHWA stopped further efforts in 2006
FHWA decided to develop another index
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Want to measure pure cost changes
Confounding factors:
◦ Price change component
◦ Productivity change component
◦ Substitution effect - changing ratio of inputs due to
price change among inputs over time
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Measures to isolate these effects
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“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
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Product requirements for isolating cost
changes
◦ Specific
◦ Consistent over time
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Continuity of time series for individual
products (pay-items)
Sufficiently representative (and large) set of
observations for statistical confidence
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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:
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Goods
Material
Equipment
Service
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Cost of
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Material
Installation (capital and labor)
Overhead
Profit
Not a measure of pure price changes
◦ Such as the BLS Producer Price Index
◦ PPI now discontinued
With judicious editing, OSI data can meet
the above data requirements for indexes:
Three step process: first,
Remove pay-item records:
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Non-standard
Unit of measure (lump sum) issues
Suspect categories
Second, eliminate records where pay-items:
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Lack eight quarters of consistent data
Third, eliminate records for pay-items
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Where measure of outlier status exceed some
variance tests
Likely data entry errors
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Overall effect of the edits (although large in
quantity) 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
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FHWA’s discontinued BPI
Index characteristics
Data characteristics
OSI data
Edits to the OSI data
Results
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
Jun-05
Mar-05
Dec-04
Sep-04
Jun-04
Mar-04
Dec-03
Sep-03
Jun-03
Mar-03
Base Year 2003 = 100
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
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Ralph Erickson
◦ 202-366-9235
◦ ralph.erickson@dot.gov
http://www.fhwa.dot.gov/ohim/nhcci/