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FHWA Home / Policy & Governmental Affairs / Transportation Policy Studies / Description of Component Contributions

Description of Component Contributions to Changes in the National Highway Construction Cost Index (NHCCI)

This document describes the concepts and methodology for computing component contributions to the overall changes in NHCCI.

Discussion of Concepts

The National Highway Construction Cost Index (NHCCI) is an average cost index of a basket of components or goods and services for highway construction contracts across the United States. The basket consists of winning bids for state DOTs highway construction projects. Components, also called pay items, are construction inputs used to complete highway construction projects. A pay item is a unit of work, construction material, labor, or service for which price and quantity is provided in the contract. Examples of pay items are asphalt, concrete, sand and gravel, steel, electricity, construction labor, etc. The prices of pay items consists of the purchasing price, transportation and installation, and some component of overhead costs and profit margin.

FHWA reports changes in the NHCCI, which is caused by changes in individual components. Component contributions measure the impacts or contributions of price changes of individual or groups of components to the changes in the cost index. A total of 29 major components are utilized in the computation of the NHCCI. The list of those components is provided in the following table.

Components/Pay Items
Grading and Excavation
Bridge
Asphalt
Base Stone
Drainage-Pipe
Drainage-Inlets/Catch Basins
Concrete-Culverts
Concrete-Miscellaneous
Traffic Control
Guard Rail
Fencing
Grassing
Clearing
Erosion Control
Retaining Wall
Signalization
Signs-Permanent
Striping/Pavement Marking
Painting Structures
Utility-Water
Utility-Gas
Utility-Sewer
Lighting
Buildings/ Miscellaneous Structures
Concrete Pavement
Miscellaneous Stone/Riprap
Roadway Lighting/Electrical
Underdrain
Equipment/Labor

The contributions to changes in NHCCI can be expressed either in percentage points or percentage shares. If expressed in percentage points, the sum of contributions across all components equals to the overall percentage change in the NHCCI. If expressed in shares, the contributions from all components will sum up to 100%. The contribution of a component can be either positive (upward) or negative (downward).

Methodology

The FHWA's procedure for computing contributions of components is adapted from the same concept used in calculating component contributions of the Consumer Price Index (CPI) by the Bureau of Labor Statistics (BLS). The procedure involves the computation of cost indexes and relative importance (weight) for each component. Chained Fisher Ideal Index formula is used for obtaining component cost indexes. The weight is the share of a component in the overall cost of highway construction and weights of all components add up to 100%.

The contribution of component m in percentage points (Pmt) and percentage shares (Smt) to a change in NHCCI from quarter t-1 to quarter t can be calculated using the following formulas:

Contribution of a component to the overall change in the NHCCI (in percentage points) is equal to the change in the relative importance of the component divided by the sum of the changes in the relative importance for all components, and then multiply the result by the change in the NHCCI and one hundred. The change in the relative importance of the component is a multiplication of the component's share in the overall cost for the preceding period and the change in the component's cost index.

Contribution of a component to the overall quarterly change in the NHCCI (in percentage shares) is equal to the change in the relative importance of the component divided by the sum of the change in the relative importance for all components, and then multiply the result by one hundred. The change in the relative importance of the component is a multiplication of the component's share in the overall cost for the preceding period and the change in the component's cost index.

Where: Total construction cost for period t = Ct

NHCCI for period t = Ict

Cost for component m and period t = Mt

Cost index for component m and period t = Imt

Weight for component m and period t = Mt ÷ Ct

The contribution of a component to the overall change in NHCCI depends up on its price change, and cost share (weight) in the overall cost of highway construction. The greater the weight of the component, the larger the contribution. The higher the change in the price of a component, the higher the contribution to the overall inflation. It is noteworthy that the price of a given component can decline for a given quarter and still contribute to increasing the overall inflation, if its price decline for the quarter is less than the decline in the previous quarter. Therefore, it is important to analyze the contribution of a given component for consecutive time periods (or for multiple time periods) to have a clear understanding of impact of the component on the overall inflation.

The procedure is developed to compute contributions for all 29 individual components, and by combining the 29 components in to smaller groups. FHWA currently publishes contributions for three groupings (25 groups, 13 groups, and 9 groups) based on similarity in component characteristics. The following table presents a crosswalk of the three grouping with the 29 NHCCI components.

9 Groups 13 Groups 25 Groups NHCCI Components
Grading/Excavation Grading/Excavation Grading/Excavation Grading and Excavation
Bridge Bridge Bridge Bridge
Asphalt Asphalt Asphalt Asphalt
Concrete Concrete Concrete Pavement Concrete Pavement
Concrete Concrete Concrete-Miscellaneous Concrete-Miscellaneous
Concrete Concrete Concrete-Culvers Concrete-Culverts
Base Stone Base Stone Base Stone Base Stone
Drainage Drainage Drainage-Pipe Drainage-Pipe
Drainage Drainage Drainage-Inlets/Catch Basins Drainage-Inlets/Catch Basins
Drainage Drainage Underdrain Underdrain
Traffic Control Traffic Control Traffic Control Traffic Control
Traffic Control Traffic Control Guard Rail Guard Rail
Traffic Control Traffic Control Fencing Fencing
Traffic Control Traffic Control Signs-Permanent Signs-Permanent
Traffic Control Traffic Control Striping/Pavement Marking Striping/Pavement Marking
Electrical Electrical Electrical Signalization
Electrical Electrical Electrical Lighting
Electrical Electrical Electrical Roadway Lighting/Electrical
Utilities, erosion control, clearing, painting and equipment Erosion Control Grassing Grassing
Utilities, erosion control, clearing, painting and equipment Erosion Control Erosion Control Erosion Control
Utilities, erosion control, clearing, painting and equipment Erosion Control Retaining Wall Retaining Wall
Utilities, erosion control, clearing, painting and equipment Erosion Control Miscellaneous Stone/Riprap Miscellaneous Stone/Riprap
Utilities, erosion control, clearing, painting and equipment Clearing Clearing Clearing
Utilities, erosion control, clearing, painting and equipment Structures Painting Structures Painting Structures
Utilities, erosion control, clearing, painting and equipment Structures Buildings/ Miscellaneous Structures Buildings/ Miscellaneous Structures
Utilities, erosion control, clearing, painting and equipment Utility Utility Utility-Water
Utilities, erosion control, clearing, painting and equipment Utility Utility Utility-Gas
Utilities, erosion control, clearing, painting and equipment Utility Utility Utility-Sewer
Utilities, erosion control, clearing, painting and equipment Equipment/Labor Equipment/Labor Equipment/Labor

Interpretation of Contribution Estimates

Contribution estimates are measures of the contribution of different components to the overall inflation (deflation) in highway construction in the United States. Component contributions quantify the role of each or groups of components to the overall changes in the NHCCI. The estimates are useful for determining and monitoring the underlying drivers of changes in construction costs at the national level.

For example, as displayed in the following table and chart, NHCCI grew by 1.54% from the third quarter to the fourth quarter of 2018. During this period, asphalt, and grading/excavation were found to be the leading drivers of the growth in highway construction costs. They contributed 0.57 and 0.49 percentage points, respectively, to the 1.54% growth in the NHCCI. The largest downward contribution to this growth was made by clearing. Clearing contributed negative 0.33 percentage points.

Example of Contributions for a 1.54% growth in NHCCI from the 3rd Quarter to the 4th Quarter of 2018

Component Percentage Points Percentage Shares
Grading/Excavation 0.49 31.8
Bridge 0.39 25.4
Asphalt 0.57 36.9
Concrete 0.15 9.9
Base Stone 0.19 12.1
Drainage -0.17 -11.2
Traffic Control 0.00 -0.1
Erosion Control 0.22 14.0
Clearing -0.33 -21.7
Electrical 0.08 5.2
Structures -0.04 -2.9
Utility 0.01 0.9
Equipment -0.01 -0.5
Total 1.54 100

 

Example of Contributions for a 1.54% growth in NHCCI from 2018 Q3 to 2018 Q4

A bar chart displaying an example of contributions in percentage points of 13 components to the 1.54% growth in NHCCI from the 3rd Quarter to the 4th Quarter of 2018. The components are grading and excavation, bridge, asphalt, concrete, base stone, drainage, traffic control, erosion control, cleaning, electrical, structures and utilities. During this period, asphalt was the leading cost driver, contributing 0.57 percentage points, followed by grading and excavation (0.49 percentage points), and bridge (0.39 percentage points). The largest downward contribution came from clearing that accounted for negative 33 percentage points.

Please direct all questions and comments to PolicyStudiesFeedback@dot.gov.

Page last modified on March 25, 2021
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