Federal Highway Administration October, 2010 Ralph Erickson

 Track changes associated with highway construction costs  Convert nominal (current) dollar expenditures on highway construction projects to real (constant) dollar expenditures

 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

 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)

◦ 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

 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

 “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

 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

 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

 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

 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

 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

 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

 FHWA’s discontinued BPI  Index characteristics  Data characteristics  OSI data  Edits to the OSI data  Results

 Ralph Erickson ◦ ◦