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
• Bid-Tabs data provided by Oman
Systems, Inc.
• Possible extensions
– State level indexes
– Component indexes
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
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
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
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
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
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
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
Suspect categories
• Categories of work such as start-up costs,
incentives, etc.
– Mobilization
– Alternates/Bonuses/Time
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
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
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
Summary
•
•
•
•
•
The new FHWA cost index
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
2003 = 1.00
NHCCI Results
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
Resources
• Ralph Erickson
– 202-366-9235
– ralph.erickson@dot.gov
http://www.fhwa.dot.gov/ohim/nhcci/