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National Highway Construction Cost Index

National Highway Construction Cost Index. Federal Highway Administration October, 2010 Ralph Erickson. Index Purposes. Track changes associated with highway construction costs

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National Highway Construction Cost Index

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

  2. Index Purposes • Track changes associated with highway construction costs • Convert nominal (current) dollar expenditures on highway construction projects to real (constant) dollar expenditures

  3. 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

  4. FHWA’s Bid Price Index (BPI) • Time series from 1922 • Component Indexes: • Cement • Asphalt • Aggregates • Structures • Composite • Projects since 1992 • Greater than $500 K • On the National Highway System (higher level roads)

  5. BPI Limitations • 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

  6. Index Theory • 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 • Measures to isolate these effects

  7. 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

  8. 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

  9. 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: • Goods • Material • Equipment • Service

  10. 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 now discontinued

  11. OSI Data • With judicious editing, OSI data can meet the above data requirements for indexes: • Three step process: first, • Remove pay-item records: • Non-standard • Unit of measure (lump sum) issues • Suspect categories

  12. OSI Data Edits • Second, eliminate records where pay-items: • Lack eight quarters of consistent data • Third, eliminate records for pay-items • Where measure of outlier status exceed some variance tests • Likely data entry errors

  13. Effect of the Edits • 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

  14. Summary • FHWA’s discontinued BPI • Index characteristics • Data characteristics • OSI data • Edits to the OSI data • Results

  15. NHCCI Results

  16. Resources • Ralph Erickson • 202-366-9235 • ralph.erickson@dot.gov http://www.fhwa.dot.gov/ohim/nhcci/

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