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**National Highway Construction Cost Index**

Federal Highway Administration October, 2010 Ralph Erickson

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**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

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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

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**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

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**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

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**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

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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

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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

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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

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

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**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

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**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

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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

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**Summary The new FHWA cost index Data characteristics OSI data**

Edits to the OSI data Results

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NHCCI Results

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**Resources Ralph Erickson 202-366-9235 ralph.erickson@dot.gov**

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