Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES ISIC Rev /Rev Architectural and Engineering Services and Related Technical Consultancy 2008 MEETING OF VOORBURG GROUP

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 2 Architecture and Engineering Activities – a well-known sector to the Voorburg Group Architecture: Asaaf (2006), Israel. Krüger Enge (2000), Norway. Far more for Engineering Services. Most important: Rosenbaum (2002), USA, containing papers from several countries. Many contributions since 1991 concerning this sector

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 3 Survey for the revisited paper A survey was conducted to get information from the Voorburg countries about… methods for measuring SPPI and turnover in the sector getting hints for major challenges which classification systems are used what kind of data is available  18 countries replied. All survey turnover data. 15 have SPPI data or are in the development phase.

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 4 Classification (1) General distinction Architectural Services Aesthetical and functional design of buildings, cities and landscapes Engineering Services Technical design of buildings and other products and services, often involving technical consultancy.

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 5 Classification (2) Industry classification: ISIC, NACE, ANZSIC & Co. ISIC (4): no sub-classes to 711 „architectural and engineering activities and related technical consultancy“ The more regional the classifications are, the more detail is offered. Regional classifications show the proximity of the sector to others and the treatment of this proximity Especially to „technical testing and analysis“ (forms one category with A/E in NAICS (USA/Canada) but is separated in NACE. Construction companies – even when offering engineering services – are always excluded. Provision of Personnel – seen as engineering services e.g. in Germany – is always excluded.

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 6 Classification (3) Product classification: CPC, NAPCS, CPA & Co. Turnover statistics usually use industry classifications; price statistics – as a result of the service – use their own, market-related classifications => product classifications seem to be less relevant for service statistics (in our scope). => Who are the users? Product classifications usually are very detailed => using them needs large sample sizes for getting robust figures The „hybrid classification“: NAPCS: mixture between product and industry classification Shows for an industry also products that are only a secondary activity and normally related to other sectors. Good starting point for identifying all services offered by an industry.

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 7 Turnover statistics (1) Checking the companies‘ sector assignment Wrong assignment in the business register and just asking for turnover figures => wrong result More likely for product turnover: Companies may offer secondary activities from other sectors (provision of personnel, facility management) => detailed breakdown of turnover necessary (especially when publishing detailed data) Procedures for checking the companies‘ assignment are used in all countries doing a census or a survey Harder task when using administrative data; methods for checking: Combination of different administrative data sources Improving of register data with surveys and personal visits (when classification changes) Combination of sample and administrative data

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 8 Turnover statistics (2) Use of administrative data – advantages and challenges Pro: Data at hand – no survey necessary No respondent burden Automization possible Comparable cheap Con: Different definition of turnover Sales inside of corporate groups may be not counted (tax data) Turnover for which no tax is paid may be counted, but in doubtful quality Bad quality of business registers, probably with systematic errors

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 9 Turnover statistics (3) Options for development CategoryData SourceLevel of Detail Collected FrequencyCostComments BestSurvey/CensusIndustry turnover and product turnover detail; Sub-annual collection (monthly or quarterly) - Most expensive - Largest response burden - Allows greatest flexibility to identify specific revenue streams, residential and non- residential allocations can be collected directly. - Timely data GoodSurvey/CensusIndustry detail onlySub-annual - Expensive - High response burden - Industry detail may not be sufficient to delineate sources of revenue or important residential/non-residential components using ISIC. - Timely data GoodCombination of census (large companies) and administrative data Industry detail onlySub-annual - Less expensive - low response burden - Industry detail may not be sufficient. - Timeliness questioned - Different definitions for turnover in administrative data files may cause (justifiable) bias MinimumAdministrative (tax data, industry association data etc.,) Industry detail onlyAnnual - Least expensive - Little or no respondent burden - Income and production definitions can differ adding imprecision to estimates using tax data in place of actual revenue received for services - Least timely

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 10 Turnover statistics (4) Major challenges identified by the survey Misclassification of companies in business registers Sub-contracting/offshoring: double-counting in line with turnover definition; however, turnover inside corporate groups may not be counted Low accuracy of data due to ill-defined classification => need for ServCom Change from CPA 2002 to CPA 2008 Poor data quality in business registers Assuring the continuity of long-time series despite changes in methodology and classification

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 11 Turnover statistics (5) Other remarks Collection of turnover data provides the opportunity to collect other company information (employment levels, payroll data etc.) Communication with consumers of turnover statistics (not only National Accountants) necessary to secure the success

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 12 SPPI (1) Who is asked? – Registers and Sampling Sources of addresses: Business registers, often combined with sector information (e.g. address lists kept by the Chambers of Architects and Engineers) Most popular method of determining the respondents: PPS-Sampling (Probability Proportional to Size) Often combined with a cut-off limit (small companies are completely excluded) and a total sample stratum (large companies are all in) Criterion for sampling subject to discussion: turnover vs. number of employees

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 13 SPPI (2) Governmental regulations Laws to assure minimum standards for architectural and engineering designs (e.g. safety). Some services imposed by legislation (e.g. safety and health coordination on construction sites in the European Union) In some countries, price setting is actively regulated by the government Germany: official scale of fees for certain services France: special regulations for public contracts

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 14 SPPI (3) Architectural Services (1): Characteristics Uniqueness: almost no repeated services Three groups of customer: private households, private enterprises, public institutions => different pricing mechanisms and service requirements Breakdown of arch. services by activities possible Rather small companies with few employees. On average, companies are smaller than those in the engineering sector => poor record-keeping (and therefore problems with charge-out rates) are standard

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 15 SPPI (4) Architectural Services (2): Which services to tackle? A large variety of services is offered Constraints in costs and human ressources for the NSOs  NSOs tend to track only the most important services (accounting for the major part of the turnover) and „hope“ for correlation with other services  Pragmatic approach!

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 16 SPPI (5) Architectural Services (3): Pricing methods Two are dominating: Pricing based on working time Model pricing Pricing based on working time  Distinguished by position of staff, type of service, type of customer  Probably problems with bad record-keeping (small companies)  Productivity bias Other approaches in use: percentage fee, contract pricing, component pricing based on repeated services Model pricing  No productivity bias  High response burden, poor response rate  Just estimation  Some NSOs even switched back to Pricing based on working time

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 17 SPPI (6) Engineering Services (1): Definition and Distinction Major distinction of engineering services: Services related to construction (of buildings, infrastructure etc.) Non-construction related services => often not covered, hard to tackle, large variety. Definition of engineering services (NAICS 1997) „The assignments undertaken by these [engineering] establishments may involve any of the following activities: provision of advice, preparation of feasibility studies, preparation of preliminary and final plans and designs, provision of technical services during the construction or installation phase, inspection and evaluation of engineering projects, and related services.”

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 18 SPPI (7) Engineering Services (2): Why a global classification fails provision of advice inspection and evaluation of engineering projects technical services during construction or installation plans and designs feasibility studiesrelated services horizontal automotive chemical industrial electrical Etc. automotive chemical industrial electrical Etc. automotive chemical industrial electrical Etc. automotive chemical industrial electrical Etc. automotive chemical industrial electrical Etc. automotive chemical industrial electrical Etc. Provision of personnel Classical engineering service vertical „software engineering“ „financial engineering“ => National classification approaches are necessary, concentrating on the most important services on the national market

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 19 SPPI (8) Engineering Services (3): pricing mechanism …identified by Aurél Kennessey, 2002: One time a year: calculation of standard hourly rates covering internal costs => standard (list) prices Bidding for a project: estimating working hours needed => calculation of a standard price. Final price: subject to negotiation and market conditions. Appearance of the price: fixed fees; for smaller projects, hourly rates are common Other pricing mechanisms (more „exotic“) include percentage fees, pricing dependent on the success of the project, governmental regulated prices and internal prices for captive units.

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 20 SPPI (9) Engineering Services (4): pricing methods – model pricing …the usual pros: Comparability over time Avoiding of productivity bias, no quality adjustment „precise“ estimation according to exact definition of the service …and some interesting cons: Quickly outdated models Influence of negotiations on price => subjective estimation Different results when different project leaders estimate the same project Unwillingness to estimate among the respondents, but large sample size needed => Many projects for model pricing failed; today 7 out of 15 countries of the survey use model pricing, none of them as the only method, only three as principal method, the others as alternative.

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 21 SPPI (10) Engineering Services (5): pricing method – pricing based on working time …is, at the moment, the standard method for engineering services. Hourly charge-out rates by personnel category and activity Easiest way to get valid price quotations Data type depends on willingness and ability of the respondent: realised hourly rates are preferred 11 out of 15 respondents use pricing based on working time, 9 of them as preferred method. Other pricing methods are used as well, especially for smaller parts of the market.

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 22 SPPI (11) Engineering Services (6): pricing method – alternative methods …out of the focus of the „usual“ methods. Netherlands, 2002 (theoretical approach, could not be introduced successfully): realised contract pricing (my own wording, not in the thesaurus!) Quotation of standard hourly rates every year Each quarter, several completed contracts with their worked hours and the total price are quoted Realisation rate = billed price/standard price Basis for index calculation: standard rates, updated by realisation rate Canada, since (at least) 1998: estimated output pricing (or: proxy estimation method). Price is calculated by multiplying hourly rates, worked hours and a mark up (similar to the Dutch approach). Price index = wage rate index * hours of labour index * net multiplier index Net multiplier index represents the mark-up and is itself represented by the labour productivity (value added/salaries and benefits). Successful SPPI production in Canada with this approach since (at least) 1998.

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 23 SPPI (12) Other considerations Measuring productivity progress and quality adjustment are major tasks; however, no reports about successful approaches for that until now Communication is the key for developing an SPPI of high reputation. Convincing the respondents of the necessity and advantages of an SPPI are one of the major tasks of the NSOs. New types of services are created over time: e.g. „design-build contracts“: bundled packages of services including architectural, engineering, and construction services in a single contract. Rather a part of the construction sector, not included in SPPIs.

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Slide 24 Summary and further suggestions Variety of services challenges turnover and price statisticians Classification should be comparable internationally on higher level aggregates, but account for national markets on lower levels to provide information as useful as possible to the public, our customers. Turnover statistics has to find answers to the treatment of outdated business registers and data failures of administrative data. Methods for calculating the SPPI are subject to national market conditions. However, pricing based on working time is somehow a standards NSOs should try to design statistics that reflect the needs of their customers as good as possible – and these customers are not just National Accounts, but also enterprises, politics, science, central banks… keep it in mind!

Federal Statistical Office of Germany FSO Germany – Bernhard Goldhammer - Division Prices – 2008 MEETING OF VOORBURG GROUP, AGUASCALIENTES Discussion ?! Roemer Peter, Destatis Germany Telefone: ++49 (0)