Construction Price Research Articles

Multidimensional Model for Construction Prices Analysis

The paper focuses on the advantages of Decision Support Systems (DSS) and also on the opportunity and the need of designing such a system for Romanian construction domain. The DSS which best fits the requirements is data driven. First part presents specific problems to be solved in an informational system supporting construction processes nowadays and the importance of the construction price indexes in decision-making process in construction. In the end a multidimensional model is designed for the construction price analysis. Finally a possible direction to improve the SSD with a statistical model is highlighted.

A Comparison of Construction Contract Prices for Traditionally Procured Roads and Public–Private Partnerships

Theoretical literature suggests higher asset construction costs in a public-private partnership (PPP) than in traditional public procurement, due to the bundling of construction and operation and the transfer of construction risk, among other factors. Data on ex ante road construction prices in Europe suggest a PPP road to be 24% more expensive than a traditionally procured road, ceteris paribus. This estimate resembles reported ex post cost overruns in traditionally procured roads. Thus, the public sector seems to pay a premium on ex ante PPP construction contract prices mostly to cover construction risk transfer. Other reported sources of higher PPP road construction costs, including bundling, seem on average of lesser importance.

Un modèle de dépenses provinciales

The paper develops a formal theoretical model of expenditures for a typical Canadian provincial government. The model is kept simple but useful by restricting the endogenous variables to four important budgetary categories: highway spending, hospital care expenditures, spending on schools and universities, and "all other" spending. Tax rates are also endogenous to the system. The choice of these four expenditure categories is linked to the original motivation for the model, which was to assist in explaining provincial construction spending. The theory has three elements: first, a utility function, which depends positively on the amounts provided of government services of various kinds, as well as on the income left to the public after taxes and borrowing; second, a budget constraint linking expenditures and revenues; and finally, a set of equations which show how much spending is required in order to provide the quantities of services entering as arguments into the utility function. The reduced form model developed from the theory is then fitted to expenditures data for each of the ten provinces over the 1952-1970 period. Fits are generally good. Tax equations, though not presented here, also fitted well. Provincial income levels, beginning year stocks of structures, rates of matching grants, construction prices and the closeness of elections are the main exogenous variables that prove important in explaining per capita expenditures within each of the four budgetary categories.

Housing Market Characteristics and Estimation of Housing Wealth in Turkey

Home ownership is one of the most preferred forms of wealth accumulation for households in Turkey. Given the important functions performed by the housing asset, this paper provides a comprehensive look at the housing market characteristics during 1987-2006 period in Turkey. On the basis of these characteristics, the paper develops an estimation of quarterly housing wealth series using primary sources on housing stock, residential construction and average floor area prices obtained from building census, construction and occupancy permit statistics. Unlike the previous literature using the total number of households in the population, the housing wealth is estimated using urban dwellings with occupancy permits in order to capture the collateral channel, through which home owners can borrow from the financial institutions using their legally documented homes as collateral. Since there is a substantial undocumented and unauthorized dwelling stock in Turkey, using this methodology to measure the housing wealth will avoid the potential problems associated with identifying the extent of illegal housing. The movements of the estimated housing wealth series are consistent with the developments in the construction sector, and therefore it can be successfully used in econometric models analyzing the relationship between the housing wealth and consumption behaviour of households in Turkey.

A General-Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output

This paper addresses the proper measurement of financial service output that is not priced explicitly. It shows how to impute nominal service output from financial intermediaries' interest income, and how to construct price indices for those financial services. We model financial intermediaries as providers of financial services which resolve asymmetric information between borrowers and lenders. We embed these intermediaries in a dynamic, stochastic, general-equilibrium model where assets are priced competitively according to their systematic risk, as in the standard consumption-based capital-asset-pricing model. In this environment, we show that it is critical to take risk into account in order to measure financial output accurately. We also show that even using a risk-adjusted rate does not solve all the problems associated with measuring nominal financial service output. Our model allows us to address important outstanding questions in output and productivity measurement for financial firms, such as: (1) What are the correct reference to use in calculating bank output? In particular, should they take account of risk? (2) If rates need to be risk-adjusted, should they be ex ante or ex post rates of return? (3) What is the right price deflator for the output of financial firms? Is it just the general price index? (4) When--if ever--should we count capital gains of financial firms as part of financial service output?

The Real Estate Cycle and Real Business Cycle: Evidence from Thailand

This paper estimates the real estate cycle in Thailand. From the estimated results, we find that duration of the expansion period in the real estate cycle in Thailand was approximately 25.25 months while the contraction period lasted much longer (44.00 months). The duration of the trough-to-trough cycle is estimated to be approximately 69.25 months. The significant leading indicators for the real estate cycle are construction price index, money supply (M2), property stock index and post-credit finance. Compared to Thailand's economic cycle, the real estate cycle leads the trough and the peak in the business/economic cycle by approximately 14.3 months and 20.3 months respectively. In expansion periods, the real estate cycle is always found to lead the business/economic cycle. However, it is not clear that in contraction periods the real estate cycle leads the business cycle. This finding differs from that of previous studies. We found that real estate crises led to economic crises in the early 1980s and in 1997, while in other contraction periods it was an economic recession that led to a contraction in the real estate sector.

The compilation methods of building price indices in Britain: a critical review

The major message that I will be trying to convey is that we often misinterpret the available data because of inadequate attention to how they are produced … (Griliches, 1994, p. 2) The importance of accurate measurement and pertinent modelling of the general level of construction prices cannot be overemphasized. Uses range from macroeconomic statistics such as real value of investment to micro‐level budgeting like construction project price forecasts. Numerous research studies posit that the measured productivity growth rates of the construction sector are distorted and that an inaccurate general construction price index is a main villain of the piece. The academic research published in this arena has primarily focused on models to forecast or predict changes in the general construction price level, whereas this research scrutinizes the compilation methods of the general construction price index in Britain and finds that the indices measure the price movement of more traditional building trades but almost completely ignore the mechanical and electrical services. The existing indices also do not gauge the tender price movements of new building work that is not procured through the conventional lump sum BQs route, such as many projects in private housing and PFI markets. These make out a case for allowing resources to the project of developing alternative methodologies: (1) a revised version of the present method; and (2) hedonic price index.

The Economic Approach to Cities

The economic approach to cities relies on a spatial equilibrium for workers, employers and builders. The worker’s equilibrium implies that positive attributes in one location, like access to downtown or high wages, are offset by negative attributes, like high housing prices. The employer’s equilibrium requires that high wages be offset by a high level of productivity, perhaps due to easy access to customers or suppliers. The search for the sources of productivity differences that can justify high wages is the basis for the study of agglomeration economies which has been a significant branch of urban economics in the past 20 years. The builder’s equilibrium condition pushes us to understand the causes of supply differences across space that can explain why some places have abundant construction and low prices while others have little construction and high prices. Since the economic theory of cities emphasizes a search for exogenous causes of endogenous outcomes like local wages, housing prices and city growth, it is unsurprising that the economic empirics on cities have increasingly focused on the quest for exogenous sources of variation. The economic approach to urban policy emphasizes the need to focus on people, rather than places, as the ultimate objects of policy concern and the need for policy to anticipate the mobility of people and firms.

Explorations in specifying construction price forecast loss functions

Typical measures of goodness of construction price forecasts are the mean and standard deviation, coefficient of variation and root mean square of the deviations between forecasted and actual values. This can only be valid, however, if the pain, or loss, incurred as a result of such deviations is directly proportional to the square of their value. Two approaches are used to test this. The first of these analyses 10 sets of data collected from around the world, while the second explores the use of a postal questionnaire survey to elicit construction industry client disutilities. The results of the first analysis mitigate against any general view that projects tend to be overestimated but do clearly suggest asymmetric under/overestimates for the measures used. The second analysis results in an approximated loss function although in ordinal terms only. This also suggests that the functional form varies between building types, with Commercial and Residential being the most asymmetric and Schools and Industrial being less asymmetric. The work to date indicates that, for construction price forecasting, the loss functions involved are asymmetric, with the degree of asymmetry increasing according to the level of commercial financial viability at stake.

Building Egypt 1 – a general indicator cost index for the Egyptian construction industry

PurposeThe aim of this article is to develop a cost index to serve as a price indicator for the Egyptian construction industry.Design/methodology/approachThe model (Egypt 1 indices) developed for building the indices in this paper has been derived based on the “Engineering News Record” (ENR) indices model with modifications to better suit the Egyptian market. Egypt 1 indices are comprised of three indices, which serve as a general construction price indicator for the construction industry price movement in Egypt. The period analyzed in this research is 11 years (1988 through 1998).FindingsValidation of Egypt 1 indices numbers produced in this paper showed that each index does indeed represent the respective type of building for which it was computed. Further, the analysis of Egypt 1 indices compared to the ENR indices revealed that both indices exhibited trends that are generally similar from the year 1992 up to 1998 (the last year included in this study).Originality/valueThis research has the potential to introduce the use of construction cost indices and to put these into practice. This should help aid contractors and other construction parties operating in Egypt with an adequate tool for pricing and estimation of projects.

Construction price formation: full‐cost pricing or neoclassical microeconomic theory?

Neo‐classical microeconomic theory has been suggested to offer (1) an appropriate analytical tool for construction price determination while, at the same time, (2) full‐cost pricing is most commonly accepted pricing policy of construction firms. Paradoxically, however, both are mutually exclusive theories. Only one, if any, can be correct. This paper examines both (1) and (2) by analysis of the evidence available in literature and concludes in favour of (1). It is only in disequilibrium, however, that the differences in behaviour can be clearly observed. In equilibrium, the difference between the two theories from a practical point of view is not very substantial. In addition, the endemic nature of uncertainty in the industry in general makes the task of estimating costs and prices difficult in practice. Therefore, although neoclassical microeconomic theory provides a useful means of analysis, it offers little for the practice of pricing, which is much more closely related to the marketing discipline than economics.

Improving inter‐spatial comparison of construction costs

PurposeThe purpose of this paper is to compare construction costs between nations, which is an important part of international economic statistics. Methods employed for these comparisons to date have yielded questionable results. The paper presents a summary of the problem and the results of proof‐of‐concept testing for a new method.Design/methodology/approachPrices were estimated for a simple basket of two construction components using cost‐estimating guides for several nations. Both developed and developing nations were included. The prices were obtained for the components installed in the field, including labor, equipment, and materials. Purchasing power parities (PPPs) were calculated from the baskets.FindingsThe results indicate that the basket of construction components approach provides construction sector results much more in keeping with the overall consumption PPPs for the countries tested. This result suggests that the values obtained from this method provide a reasonable measure of construction price differentials. The method also requires substantially fewer resources than previous project‐based approaches.Originality/valueBecause the construction sector represents a significant fraction of global economic activity, it is important to incorporate this sector into the overall process accurately. The construction sector is difficult to compare, but ironically is often a large share of economic activity in developing countries, where comparison is most important. This paper presents a potential solution to a vexing problem in construction econometrics.

Cost modelling of office buildings in Hong Kong: an exploratory study

PurposeThis paper presents a set of step‐wise regression models which can incorporate multiple factors in modelling the costs of office buildings. The models appeared to be more accurate than the traditional method.Design/methodology/approachThe data were collected from historical office building projects, which were then, adjusted using the construction price index. The step‐wise regression was conducted to produce the linear cost models.FindingsSeven RC office buildings and 11 steel office buildings in Hong Kong completed in different years were selected randomly to verify the accuracy of the regression models developed. The data of these buildings were not used in the development of the cost models. The result shows that the variability of percentage difference is ranging from −4.11 per cent (4.11 per cent underestimate) to +2.74 per cent (2.74 per cent overestimate) for RC office buildings. For steel office buildings, it ranges from −6.65 per cent (6.65 per cent underestimate) to +2.78 per cent (2.78 per cent overestimate).Research limitations/implicationsThis study presents a methodology that can be used in cost estimation of office buildings in Hong Kong at early stage of construction project. The regression cost models developed above are based on, in total, historical data of 30 completed office buildings in Hong Kong. The reliability of the cost models can be further improved by including more office buildings to develop the cost models. Furthermore, the application of cost modelling by regression analysis is not limited to office buildings. The same approach can be applied to residential and other non‐residential buildings as well. Regression cost modelling, with sufficient updating for new cost data available, can provide economic, quick and accurate cost estimation at early stage of construction projects. It will become rational guide supplementing judgmental forecast of cost advisors in near future.Originality/valueStep‐wise regression procedure was applied to develop the cost models. Jackknife re‐sampling was carried out and both of the models show stability. Cross‐validation shows that the developed regression models performed satisfactorily. The paper considers that it can provide economic, quick and accurate cost estimation at the early stage of construction project. In addition, the approach of this study can be adopted to develop cost models of other types of buildings in other locations.

Detecting motor bearing faults

Three-phase induction motors are the workhorses of industry because of their widespread use. They are used extensively for heating, cooling, refrigeration, pumping, conveyors, and similar applications. They offer users simple, rugged construction, easy maintenance, and cost-effective pricing. These factors have promoted standardization and development of a manufacturing infrastructure that has led to a vast installed base of motors; more than 90% of all motors used in industry worldwide are ac induction motors. Causes of motor failures are bearing faults, insulation faults, and rotor faults. Early detection of bearing faults allows replacement of the bearings, rather than replacement of the motor. The same type of bearing defects that plague such larger machines as 100 hp are mirrored in lower hp machines which has the same type of bearings. Even though the replacement of defective bearings is the cheapest fix among the three causes of failure, it is the most difficult one to detect. Motors that are in continuous use cannot be stopped for analysis. We have developed a circuit monitor for these motors. Incipient bearing failures are detectable by the presence of characteristic machine vibration frequencies associated with the various modes of bearing failure. We will show that circuit monitors that we developed can detect these frequencies using wavelet packet decomposition and a radial basis neural network. This device monitors an induction motor's current and defines a bearing failure.

On Mechanisms of Realization of the Public Procurement of Construction Works (The Case of Road Const ruction)

The most important measures stimulating the increase of efficiency and effectiveness of budget expenditures on road construction are the improvement of pricing mechanisms and increasing efficiency of the procedures of government purchases of goods, works and services. The paper includes the analysis of main problems that arise in the process of government purchases and construction pricing with the reference to budget expenditure on road construction. It includes the review and analysis of international experience and possible measures of increasing the efficiency and effectiveness of government purchases and (road) construction pricing in Russia.

Off Track: The Railroading of Antebellum Southern Economic History*

Sometimes it is possible to learn a great deal by examining familiar things whether physical objects, social conventions, or received ideas from radically different angles and perspectives. Artists and writers have long known this, and over time have often succeeded in challenging, complicating, and opening up experience, perception, and interpretation by changing focus and refraction. In art, for example, one thinks immediately of Henri Rousseau's landscapes and intentional distortions associated with German Expressionists. Similarly, in literature one can point to Jean Rhys' s Wide Sargasso Sea a reworking of Charlotte Bronte's Jane Eyre from perspective of the mad woman in attic and Tom Stopparďs Rosencrantz and Guildenstern are Dead , which reinterprets Hamlet from point of view of two minor characters, both brilliantly successful cases of creative repositioning. In their article, Railroad Construction and Antebellum Slave Prices, three economists Mark A. Yanochik, Mark Thornton, and Bradley T. Ewing (Y-T-E) adopt, wittingly or not, much same strategy. In this case an attempt is made to challenge or at least to complicate conventional story of antebellum Southern economic history by focusing not on cotton analogue to Jane Eyre or Hamlet among economic historians but on railroad construction, which authors view as vital to explaining not only high slave prices in 1850s but also overall robustness of Southern economy during that decade. Unfortunately, for a variety of reasons, this act of repositioning, of changing perspective is far less successful than efforts mentioned above by Rousseau, German Expressionists, Rhys, or Stoppard. Indeed, most that can be said about article is that it may help some, particularly uninitiated, to appreciate more fully degree to which cotton, slavery, transport improvements, and role of state were linked in antebellum South. Most economic historians of South, of course, have known this for some time. Before going any further, let me summarize authors' argument, which is fairly straightforward. At broadest level, Y-T-E argue that railroad construction had a major (and statistically significant) impact on determination of slave prices in antebellum South. The authors contend

Railroad Construction and Slave Prices: Rejoinder and Extension

Railroad Construction and Slave Prices: Rejoinder and Extension

Railroad Construction and Antebellum Slave Prices*

Slave prices rose rapidly to historic highs in the late‐antebellum South. The boom in railroad construction in the South helps explain this large increase in slave prices. The economic connection between railroads and slave prices reconciles the views of traditional economic historians who thought slavery was economically irrational and the views of the new economic historians who have concluded that slavery was highly profitable. It was the massive public subsidies to railroads that explain it was public policy that provided the stimulant to slave prices, not the “peculiar” culture of the antebellum South or the planter efficient management of slave labor.

A theoretical framework for determining the minimum number of bidders in construction bidding competitions

A theoretical framework is proposed for determining the minimum number of bidders in competition for projects in the construction industry. This is based on the neo-classical micro-economic theory for price determination in construction and the assumption of random contractor-selection. Empirical analysis of the Hong Kong data set not only illustrates the applicability of the framework, but also supports the relevance of the microeconomic model for construction price determination. The main implication for clients is that, in order to obtain the most competitive bids for projects in the most cost-efficient way, they should vary the minimum number of bidders in competition according to market conditions.

Pricing strategy in the US construction industry

This paper presents several issues related to pricing in construction. First, problems with current pricing strategy in construction are explored. Second, pricing strategies based on a market-based approach are proposed. Third, survey findings of the top 400 US contractors are presented regarding their current pricing practices and the applicability of the proposed pricing strategies. In conclusion, the belief that current pricing strategy in construction is predominantly cost-based is confirmed by the survey findings; indeed, in setting the markup, most contractors rely on their intuition after subjectively assessing the competition. The three internal pricing variables that have the largest statistically significant contingency coefficients with pricing strategy are ‘marketing intelligence capabilities’, ‘annual contract value’, and ‘the type of client in most projects’. ‘Owner's characteristics’, ‘competitors'characteristics’, and ‘market demand’ are statistically significant external variables in making pricing strategy decisions. A change of bidding procedure is proposed so that all parties in construction can maximize the benefits of market-based pricing strategies.