1. Federal Highway Administration October, 2010 Ralph Erickson

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

3.  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.  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. ◦ 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.  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.  “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.  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.  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.  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.  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.  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.  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.  FHWA’s discontinued BPI  Index characteristics  Data characteristics  OSI data  Edits to the OSI data  Results

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