Readers of ENR often ask questions about the magazine’s cost indexes and how to apply them accurately to construction projects. To help clarify the nature and use of the cost indexes, below is a compilation of answers to several frequently asked questions, as well as suggestions on how to avoid costly mistakes when using the indexes.
- What is the difference between ENR’s Construction Cost Index (CCI) and the Building Cost Index (BCI)?
The difference between the two indexes is in their respective labor components. The CCI calculation uses 200 hours of common labor, multiplied by the 20-city average rate for wages and fringe benefits. The BCI derives its calculation from a baseline of 68.38 hours of skilled labor, multiplied by the 20-city wage-fringe average for three trades: bricklayers, carpenters and structural ironworkers. For their materials components, both indexes use 25 cwt of standard fabricated structural steel at the 20-city average price, 1.128 tons of locally priced bulk portland cement and 1,088 board-ft of 2x4 lumber, which also is priced locally. The ENR indexes measure how much it costs to purchase this hypothetical package of goods compared with the price in the base year.
- What kinds of construction are represented in the ENR indexes?
The two indexes apply to general construction costs. The CCI can be used when labor costs are a high proportion of total costs. The BCI is more applicable for structures.
- Where does ENR get its data?
ENR’s price reporters check local prices in 20 U.S. cities. The prices are quoted from the same suppliers each month. ENR computes its latest indexes from these figures as well as local union wage rates.
- Are price materials averaged?
No. ENR reporters collect spot prices from a single source for all materials tracked, including those in the index. The reporters survey the same suppliers each month for materials that affect the index. Actual prices within a city may vary, depending on the competitiveness of the market and local discounting practices. This method allows for a quick indicator of price movement, which is the primary objective of both indexes.
- Do the indexes measure cost differences between cities?
No. This is a common error in the application of ENR’s indexes, which measure trends only in each individual city and in the U.S. as a whole. Differentials between cities may reflect differences in labor productivity and building codes. Moreover, price quotations for lumber and cement vary from one city to the next. One city may report list prices, while another city may include discounts in its reported price for the same material.
- Are the cost indexes seasonally adjusted?
No. This is an important point for index users to keep in mind. Wages, the most important component, usually affect the indexes once or twice a year. Cement prices tend to be more active in the spring, while pricing for fabricated structural steel tends to have monthly adjustments.
Lumber prices, which are more dependent on local pricing and producing conditions, are the most volatile and can change appreciably from month to month. Declines in the indexes are most often the result of falling lumber and steel prices.
The study of an index movement for a period of less than 12 months can sometimes miss these important developments. Users of an index for individual cities should take note of the timing of wage settlements as well. Stalled labor negotiations may keep the old wage rate in effect longer than a 12-month period, giving the appearance of a low inflation rate.
- Is it more accurate to use an index that is closest to my home city?
No. The 20-city average index is generally more appropriate; because it has more elements, it has a smoother trend. Indexes for individual cities are more susceptible to price spikes.
- Are the annual averages weighted?
No. They are straight mathematical averages.
- Are the indexes verifiable?
Yes. In ENR’s Construction Economics section, the national indexes are updated in the first week of each month, while the indexes for individual cities appear in the second issue of each month.
Prices for the indexes’ materials components can be found in the preceding month’s Construction Economics pages: Cement prices appear in the first issue, pipe in the second issue, lumber prices in the third and steel in the fourth. Wages for all 20 cities are published in the Third Quarterly Cost Report. Readers can compute ENR’s indexes by multiplying the published prices and wages by the appropriate weights (shown in the tables below) and tallying the results.
- Does ENR forecast its indexes?
Yes. Once a year. ENR projects its BCI and CCI for the next 12 months in the Fourth Quarterly Cost Report in December. To reach its forecast, ENR incorporates the new wage rates called for in multiyear, collective-bargaining agreements and estimates for cities in which new contract terms will be negotiated. Further, ENR estimates the materials component by studying consumption forecasts as well as price trends.
- Does ENR change the weighting of the index components?
No. The components are always multiplied by the same factors. However, a component’s share of an index’s total will shift with its relative escalation rate.
- Has ENR ever changed the makeup of the indexes’ components?
Only once. In 1996, ENR switched from the mill price for structural steel to the 20-city average fabricated price for channel beams, I-beams and wide flanges after ENR’s two sources for mill prices left the structural market.
- Does ENR revise the indexes?
On some occasions, ENR must revise the indexes. Its March 2004, indexes were revised shortly after their initial publication to reflect huge surcharges being placed on structural steel. Any revisions to the national indexes for individual cities are published in the cost report at enr.com.
- Is ENR’s cost data online?
Yes. All of ENR’s cost indexes, wage rates, material prices and cost-issue articles can be found at enr.com.