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

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Presentation on theme: "National Highway Construction Cost Index Federal Highway Administration October, 2010 Ralph Erickson."— Presentation transcript:

1 National Highway Construction 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 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 –


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