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

2. 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

3. 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

4. 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

5. 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

6. 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 (for H&S) now discontinued

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

8. Non-standard
Same pay item number but have different pay item descriptions (or units of measure) between projects
Cannot be included due to the differing types of work from project to project

9. Unit of measure issues
There are some pay items where the unit of measure makes it difficult to track price changes
Example:
Landscaping
Lump sum =1
The prices bid on these items are not related to price trends

10. Suspect categories
Categories of work such as start-up costs, incentives, etc.
Mobilization
Alternates/Bonuses/Time

11. Further Data Edits Eliminate records where pay-items:
Lack eight quarters of consistent data
Eliminate records where pay-items fail established variance tests
Rationale is to reduce data entry errors

12. Edit Example Eliminate records for pay-items :
Maximum observed price is more than 16 times the minimum price
Coefficient of variation is greater the 42 when evaluating the log of change in price times 100
The “16” and “42” above vary by run

13. Effect of the Edits
Overall effect of the edits (although large in number) 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 The new FHWA cost index Data characteristics OSI data
Edits to the OSI data
Results

15. NHCCI Results

16. Resources Ralph Erickson 202-366-9235 ralph.erickson@dot.gov