Gérard Vittek Head of section “index of the cost of construction and rent” 25 th May of 2015 Producer cost index for construction Methodological guideline

25 th May of 2015 Methodological guideline of producer cost index for construction Price index and cost index in construction Input : BT-TP Output : PRLN-ICC Sales

25 th May of 2015 Methodological guideline of producer cost index for construction Objectives The producer cost indices for construction are primarily used for national accounts, macroeconomic analysis and international comparisons.

25 th May of 2015 Methodological guideline of producer cost index for construction Legal basis The Council Regulation (EC) No 1165/98 of 19 May 1998 concerning short- term statistics, amended by the regulation No 1158/2005, asks in its annex “B – construction” to provide the variables No 320, 321 and 322, which correspond to “construction costs”, with a decomposition between “material costs” and “labour costs”. Those variables, which are to be provided as indices, must correspond to the construction of new residential buildings.Council Regulation (EC) No 1165/98 of 19 May 1998 More broadly, deflators are needed for national accounts and macroeconomic analysis. However, the construction sector is only partially covered by the producer price indices (see construction of new residential buildings PPI and maintenance and improvement of existing dwellings PPI- IPEA). Until now, the building (BT) indices, civil engineering (TP) indices, and various indices for construction (whose responsibility was transferred to INSEE by the Decree No of February 7, 2014 and the circular of May 16, 2014 relative to building indices (BT), civil engineering indices (TP) and various construction indices) were used as deflators, but they cannot be revised and their requirement to be published during the third month following the month under review leads to some temporal gaps (notably for labour costs) which are suboptimal for statistical works. These issues are corrected in the calculation of the producer cost indices for construction, which follow a calculation method similar to the one used for the BT and TP indices.Decree No of February 7, 2014circular of May 16, 2014 relative to building indices (BT), civil engineering indices (TP) and various construction indices)

25 th May of 2015 Methodological guideline of producer cost index for construction Toward STS Package 2017 Before STS package Eurostat wanted monthly 1.Construction costs index (320) 2.Material costs index (321) 3.Wage costs index (322) And optionally, if this as not possible a output price index (310) With the STS Package 2017, Eurostat has changed its requirements on construction index and will ask quarterly for an 1.Output Price index in Construction (OPC) in a few years (2018-sq.) 2.In NACE and not any more in construction categories.

25 th May of 2015 Methodological guideline of producer cost index for construction How to answer now to STS package in construction?. With STS package Eurostat wanted monthly Each Member state must produce quarterly a producer price index for construction. And can still produce monthly Construction costs index (320) Material costs index (321) Wage costs index (322) KLEMS is a methodological approach to study productivity. It can be use to analyze the break down of the costs of construction in K Capital (equipment) L Labour E Energy M Materials S Services (Various services, Transport, pollution control)

25 th May of 2015 Methodological guideline of producer cost index for construction Structural business statistics can be used in order to give a KLEMS break down of the costs in 41.2 and in 43 and its sub decompositions (4 or 5 digits). F CONSTRUCTION 41 Construction of buildings 41.1 Development of building projects 41.2 Construction of residential and non-residential buildings 42 Civil engineering (not relevant for construction cost index) 43 Specialised construction activities How to answer now to STS package in construction?

25 th May of 2015 Methodological guideline of producer cost index for construction 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) With the distribution of representative objects by building and structure types, SSSU has a good view of the level of detail desired and of the materials used. KLEMS can be a good way of verification of the actual structure of representative objects by building and structure types.

25 th May of 2015 Methodological guideline of producer cost index for construction 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 Methodological guideline of producer cost index for construction Producer cost index for construction: Methodology of cost index : KLEMST

25 th May of 2015 Methodological guideline of producer cost index for construction Producer cost index for construction: Methodology of cost index : KLEMST

25 th May of 2015 Methodological guideline of producer cost index for construction Producer cost index for construction: Methodology of cost index : KLEMST The articulation between the items in the indices and the lines in the general accounting plan are as follows, considering that the item “transport” has been given priority over all the other items, subcontracting has been removed from production, the heading “miscellaneous costs” has been capped, and only costs that can be linked to a specific construction site are assumed to be taken into account.

25 th May of 2015 Methodological guideline of producer cost index for construction Weights of the KLEMS posts Structural business survey gives a good idea of the weights of equipment, materials, labour by sub activity NACE 4 or 5 digits. Energy is under estimated in France (SBS) Services are overestimated in France. They include fees of the headquarters which are not linked to the cost of construction. BUT, a firm can have several activities or several type of object. For instance in the same activity you find road construction and road maintenance. The split between Labour and materials are different in road construction and road maintenance.

25 th May of 2015 Methodological guideline of producer cost index for construction Weights of the KLEMS posts The help of specialists of the domain (ministry of construction, professional federations, architects, structural engineers of the main firms, etc.) are very useful. The confrontation of Statistical business survey structure and the structure of others sources can help every one to find the best structure of producer cost index.

25 th May of 2015 Methodological guideline of producer cost index for construction French classification and building index

25 th May of 2015 Methodological guideline of producer cost index for construction French classification and building index

25 th May of 2015 Methodological guideline of producer cost index for construction French classification and civil engineering index

25 th May of 2015 Methodological guideline of producer cost index for construction Weights inside the KLEMS posts The structural business survey will not help you any more at this level of detail. You know a part of the materials used, of the equipments bought or rent, etc. During the meeting with the specialists, you can ask for samples of firm to contact in order to obtain a structure of representative objects by building. When SSSU have the list of items by post, you need to compare with the index available at the SSSU. It is possible to use a producer price index which is published (statistical secret) but which is faithful. SSSU calculate geometrical mean for elementary index in order to prevent from heterogeneous series.

25 th May of 2015 Methodological guideline of producer cost index for construction Statistical sources available SSSU publishes –Statistical business survey –Building permit statistics –Number of employees in construction –Industrial producer price index –Services producer price index –Consumer price index (gas oil, restaurant, accommodation, etc.) –Labour cost index

25 th May of 2015 Methodological guideline of producer cost index for construction Public statistics available SSSU need to compare the level of detail desired for the calculation of producer cost index and the statistics available in order : –To find a equivalent (more aggregated) –To publish a statistic available which was not required before –To develop a new statistic

25 th May of 2015 Methodological guideline of producer cost index for construction Statistical index and legal index 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). Eurostat asks for a producer cost index for construction and adds: –Labour cost index for construction –producer cost index of materials for construction

25 th May of 2015 Methodological guideline of producer cost index for construction Legal index of the SSSU: Distribution of Representative Objects by Building and Structure Types

25 th May of 2015 Methodological guideline of producer cost index for construction Statistical index and legal index The main difference between legal index and statistical index are: –Legal producer cost index can not be revised to assure the security of the contracts. –Statistical producer cost index can be revised and are more aggregated than legal producer cost index.

25 th May of 2015 Methodological guideline of producer cost index for construction Level of detail desired For statistical producer cost index, France publishes:

25 th May of 2015 Methodological guideline of producer cost index for construction Level of detail desired For statistical producer cost index, France publishes: 37 Producer cost indices for construction (contract escalation) - Building (BT) indices Producer cost indices for construction (contract escalation) – Civil engineering (TP) indices Producer cost indices for construction (contract escalation) - Various indices for Construction (EV, FD, FG, FV, ING, PMR, TRBT, TRTP, MABTGO, MABTSO and MATP)

25 th May of 2015 Methodological guideline of producer cost index for construction Aggregation and chain linking

25 th May of 2015 Methodological guideline of producer cost index for construction 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 Producer cost index for construction