Gérard Vittek Head of section “index of the cost of construction and rent” 25 th May of 2015 The construction cost index for legal escalation Construction cost index

25 th May of 2015 The construction cost index for legal escalation Plan Cost of production index in construction Finalities of these indices KLEMS analyse Indices by item Statistical sources Macroeconomics' database

25 th May of 2015 The construction cost index for legal escalation Price index and cost index in construction Input : BT-TP Output : PRLN-ICC Sales

25 th May of 2015 The construction cost index for legal escalation Background and purpose of buildings and civil engineering indices Buildings and civil engineering indices replaced in 1974 et 1975 respectively regional indices of Before they were computed by INSEE and published by the ministry of Ecology with the help professional federation of building and of civil engineering (FFB et FNTP). The goal is to guarantee the price of a contract of construction until the end of the achievement of the works, and to reflect the change in price of the inputs of the firms.. Since February 2014, INSEE is in charge of the calculation and the publication of these indices. INSEE ought to manage the quality of these series

25 th May of 2015 The construction cost index for legal escalation Cost of construction index : Legal finality A contract of construction is a deal between a buyer and a producer in order to build a construction or a road. When the contract is signed no one is able to know the change of the prices of the inputs until the end of the contract.

25 th May of 2015 The construction cost index for legal escalation Cost of construction index : Legal finality In general, states defined by the law a possibility contract escalation (during the process of production) or of revision of the prices (before the beginning of the production)

25 th May of 2015 The construction cost index for legal escalation Finalities of cost of construction indices Cost of Production Indices are Producer cost indices of an activity in a price indexing logic of contract costs. These indexes are composed of six items (themselves composed of elementary indices), which should summarize the function of cost in a price relationship and average cost or price and marginal cost (or even "direct costs" with margin to cover indirect costs). This relationship is necessarily established in an accounting framework, national, general and cost accounting. The definition of the boundaries between the six items can be subtle and depends on conventions, including an order in determining these six items. The resulting weights associated, with the adequacy of the accounting sources with defined concepts.

25 th May of 2015 The construction cost index for legal escalation KLEMS analyse Economists present an analyse of productivity named KLMES 1.K Capital (equipment) 2.L Labour 3.E Energy 4.M Materials 5.S Services During the study with professional federations we have split services in Services, T Transport et D (pollution control)

25 th May of 2015 The construction cost index for legal escalation Producer cost index for construction: Methodology of cost index : KLEMST

25 th May of 2015 The construction cost index for legal escalation Producer cost index for construction: Methodology of cost index : KLEMST

25 th May of 2015 The construction cost index for legal escalation Example of Building index - BT01 - All trades works BT01 index is mainly composed of Labour (44.9%), materials (36.5%) and of services (9.3%).

25 th May of 2015 The construction cost index for legal escalation K Capital (equipment) Capital is composed of: : IPPI CPF Machinery for mining, quarrying and construction - Base (FM0D289200) : IPOI CPF Commercial vehicles - Base (M00D291000) Example of Building index - BT01 - All trades works

25 th May of 2015 The construction cost index for legal escalation The available data In French macroeconomics database are available: Monthly Industrial producer price index (NACE 4 and some 5 or 6) Consumer price index (COICOP) Quarterly Services producer price index (NACE 2, 3 and some 4) Labour cost index (NACE Section) Hourly labour cost index (it a monthly index published quarterly)

25 th May of 2015 The construction cost index for legal escalation Capital

25 th May of 2015 The construction cost index for legal escalation L Labour The “Labour” item is made of the hourly labour cost index in the construction sector, produced by INSEE, with a lag of 3 months.: : ICHT in Construction (NAF révision 2 poste F) - (Base 100 in dec. 2008) Example of Building index - BT01 - All trades works

25 th May of 2015 The construction cost index for legal escalation Labour

25 th May of 2015 The construction cost index for legal escalation Energy E Energy Energy items is composed of consumer price index : IPC - Gasoil

25 th May of 2015 The construction cost index for legal escalation Energy

25 th May of 2015 The construction cost index for legal escalation Materials

25 th May of 2015 The construction cost index for legal escalation Services

25 th May of 2015 The construction cost index for legal escalation Example of BT01 all trades works T Transport The post transport is composed of: : Monthly index of revised hourly labour cost - Wages and payroll taxes - In the sector: Transportation and storage (NAF rev. 2, item H) - Base 100 in December : Total supply of industrial products price index - CPF Motor vehicles : Consumer price index - Diesel oil : Total supply of industrial products price index - CPF New and retreated tires- (M00D221101)

25 th May of 2015 The construction cost index for legal escalation Transport

25 th May of 2015 The construction cost index for legal escalation Producer cost index : statistical sources The weight of each KLMEST item are given by the annual structural survey and the data from business tax returns. The breakdown of each item is achieved by a comparison of the analyse of some contracts by professional organizations and the analyse of the result of the annual structural survey and the data from business tax returns. The idea is to realise a survey in order to obtain the breakdown of each item.

25 th May of 2015 The construction cost index for legal escalation Producer cost index : statistical sources These indices are in INSEE Macro-economic database 1.Producer cost indices for construction (contract escalation) - Building (BT) indices Producer cost indices for construction (contract escalation) – Civil engineering (TP) Producer cost indices for construction (contract escalation) - Various indices for Construction (EV, FD, FG, FV, ING, PMR, TRBT, TRTP, MABTGO, MABTSO and MATP) Index for updating material assets in construction (IM)

25 th May of 2015 The construction cost index for legal escalation How to estimate these six items? From the index to the activities and vice versa From the French activity nomenclature 2008 and the list of indexes, INSEE has developed a conversion table between the index and the official nomenclature. This table identifies correspondences, but also potential gaps and needs of the profession at a fine level (with and without providing coating for example).

25 th May of 2015 The construction cost index for legal escalation From activities to index

25 th May of 2015 The construction cost index for legal escalation From activities to index

25 th May of 2015 The construction cost index for legal escalation The existing indexes for Cost construction index In order to represent the evolution of different items must be selected indices of prices or of labour cost opposable to third parties. Since INSEE manages these indexes, they are calculated only from PPI (industry, services, transport), CPI (energy and miscellaneous) and Hourly labour cost index.

25 th May of 2015 The construction cost index for legal escalation Material for Earthworks

25 th May of 2015 The construction cost index for legal escalation Material for Masonry

25 th May of 2015 The construction cost index for legal escalation Material for Framework, reinforced concrete structures (BT06)

25 th May of 2015 The construction cost index for legal escalation Material for Framework and metal frames (BT07)

25 th May of 2015 The construction cost index for legal escalation Material for Plaster and prefabricated plaster (BT08)

25 th May of 2015 The construction cost index for legal escalation Material for Ceramic coatings and tiles (BT09)

25 th May of 2015 The construction cost index for legal escalation Material for Synthetic textile coatings (BT11)

25 th May of 2015 The construction cost index for legal escalation Material for Interior joinery (BT18a)

25 th May of 2015 The construction cost index for legal escalation Material for Exterior joinery (BT19b)

25 th May of 2015 The construction cost index for legal escalation Material for Plastic bay closing works including PVC window (BT26)

25 th May of 2015 The construction cost index for legal escalation Material for Central heating (excluding electrical heating) (BT40)

25 th May of 2015 The construction cost index for legal escalation Material for Ventilation and air conditioning (BT41)

25 th May of 2015 The construction cost index for legal escalation Material for Joinery of steel and locksmiths (BT42)

25 th May of 2015 The construction cost index for legal escalation Material for Glazing works - Mirror works (BT45)

25 th May of 2015 The construction cost index for legal escalation Material for Painting, wall hanging, wall coverings (BT46)

25 th May of 2015 The construction cost index for legal escalation Material for Electricity (BT47)

25 th May of 2015 The construction cost index for legal escalation Material for Elevators (BT48)

25 th May of 2015 The construction cost index for legal escalation Material for Ribbed sheet steel roofing and cladding with waterproofing membrane (BT49)

25 th May of 2015 The construction cost index for legal escalation Material for PVC joinery (BT51)

25 th May of 2015 The construction cost index for legal escalation Material for Exterior waterproofing coatings (BT52)

25 th May of 2015 The construction cost index for legal escalation Material for Waterproofing works (BT53)

25 th May of 2015 The construction cost index for legal escalation Material for Wood framework (BT54)

25 th May of 2015 The construction cost index for legal escalation BT01 and its components

25 th May of 2015 The construction cost index for legal escalation The contribution of professional associations, convergence We sought consensus on positions concepts. The KLEMST approach seems most interesting to INSEE, but for now that everything related to real estate is not followed in the "capital (equipment)," but in "miscellaneous fees and services ". We want to match an approach "top-down" conducted by INSEE, with business structural survey source, comprehensive, formal approach... with a "bottom-up" of prices of the detail of some sites, with a sample reduced. For this it is necessary to identify the accounting items, more or less fine, but roughly ~ 3 digits.

25 th May of 2015 The construction cost index for legal escalation From indices to activities In some cases, professional associations can even access cost accounting that distinguishes two or more activities by index within the same company. By providing INSEE list of the sample investigated and possibly a wider list of companies assumed to exert a "pure" activity within the meaning of a given index, INSEE could exploit its near-exhaustive basis for business determine a "framing" of the aggregate structure (calculated on an entire industry; calculated on a broad list of single companies active for a given index, calculated on the sample investigated by professional federations).

25 th May of 2015 The construction cost index for legal escalation e.g. "double" Index Building index are often « double » BT30 - Schist slates roofing BT32 - Baked clay tiles roofing BT33 - Concrete tiles roofing BT34 - Zinc and metal roofing (except copper) BT35 - Asphalt shingles roofing BT49 - Ribbed sheet steel roofing and cladding with waterproofing membrane The calculation of the weights should be done at one time on all indexes associated with the same set of activities or on all indexes at a time.

25 th May of 2015 The construction cost index for legal escalation The finalities of the reform of the indices Currently the overhaul of index has made a first step: Stop using price collection of professional federations in the calculation of indices Using the price indices for production or consumption Using the hourly labour cost index Currently the overhaul of index has made a final step: Based on faithful and updatable weights Based on the nomenclature of French activities (possibly a subdivision) nearly done Perform Laspeyres indices

25 th May of 2015 The construction cost index for legal escalation Balance sheet of building indices

25 th May of 2015 The construction cost index for legal escalation Bilan sur les index Travaux Publics

25 th May of 2015 The construction cost index for legal escalation Bilan sur les index Travaux Publics

25 th May of 2015 The construction cost index for legal escalation Balance sheet of Cost indices In January 2015, the all new cost index have been published since January 2010 (year 2010=100) In March 2015, macroeconomics cost indices in construction have been published since January 1998 (year 2010=100) Both are publish monthly the first for contract escalation and the second for macroeconomics analyze and for national accounts.

25 th May of 2015 The construction cost index for legal escalation Publication

Thank you for your attention! Contact M. Gérard Vittek Tél. : Insee 18 bd Adolphe-Pinard Paris Cedex 14 Informations statistiques : / Contacter l’Insee (coût d’un appel local) du lundi au vendredi de 9h00 à 17h00 The construction cost index for legal escalation