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Construction PPPs

 A variety of approaches have been used over the years to collect price data for international construction price comparisons. These have been based on:

  • Input prices to construction (the prices paid by construction contractors for the inputs to construction work – primarily construction materials and labour)
  • Output prices of construction (the prices of completed construction projects charged by contractors to their customers)
  • Intermediate prices (prices used, for example, by contractors for parts of construction work, either in their own estimates or in tenders to customers)
  • Some combination of the above.

Comparable input prices are the most straightforward to collect. They are for standard units of measurement (tonnes, m2, m3, days, etc) of readily available items (concrete, timber, steel, skilled labour, etc). Input prices (and, indeed, all construction prices) are context dependent, that is they are, at least to some extent, dependent on the quantity used, the scale of the project, how and where it is used, who is doing the work, and who is the customer for the work. A particular problem with this approach is that input prices are not purchaser prices, they are the prices paid by contractors to their suppliers, not the prices charged to their customers. 

It is difficult to obtain directly comparable construction output prices. It is most unusual for identical projects to be constructed in different countries at the same time in exactly the same circumstances. The output prices that are typically used are either consultant’s or contractor’s estimates, that is, they are not ‘real’ prices; they are, however, based on experience and represent an expert view on a range of projects and thus contain an element of subjectivity. Even though it is usually possible to obtain normalised average real prices (e.g. per m2) for broadly similar project types (mass market housing, industrial buildings, office buildings, sections of highway, etc), these are not identical and may vary in quality and functional performance. Again, they are expert views and based on a range of projects.

Intermediate prices are available – from price books, successful tenders, for example – but the ways they are used depend on the pricing approach of particular contractors and the circumstances of particular projects. They need to be used consistently, if prices from successful tenders are used, all prices need to come from the same tender. Price book prices cannot reflect the specific context of projects or the methods use by different contractors.

 

Historically, three main methods have been used to calculate PPPs for Construction goods.

The first method called the "Method of Technical Resource Models" (MTRM) and used by the CIS countries, is input-based. Participating countries are required to collect statistics on wages and salaries in the construction industry, as well as statistics on building materials and energy products. Once collected, the inputs’ prices are entered into linear equations called the "Technical Resource Models" thus allowing for the pricing of 100 different residential buildings, non-residential buildings and civil engineering works.

The second method, called the "Standard Project Method" (SPM) and used by OECD-Eurostat group, is based on standard models for different types of construction projects. Participating countries are required to price each standard construction project by specifying a "Bill of Quantity" covering all the costs that constitute the purchaser’s price.

Finally, the third method-called the "Basket of Construction Components" (BOCC) - lies in between the input- and the model-based approach (i.e. the MTRM and the SPM methods). It was developed and used for the 2005 ICP. Under this method, participating countries collected the direct costs of a basket of construction components (direct costs include building materials, labor costs and hire of construction equipment). However, practical problems were encountered when the method was used in the field; in addition, the data obtained could not be readily aligned with standard national accounts frameworks. 

Following a thorough review of the various methods above, it was decided that a new approach be proposed for the 2011 round of the ICP. The approach, developed under the framework of the research agenda of the Technical Advisory Group (TAG) is based on a selection of some 50 – 60 basic and common inputs to construction work weighted in each country to correspond with national construction output.

The issue of deriving national weights as well as labor productivity has been extensively discussed. Although Input/Output or Supply/Use data is required as an overall context for national weights and a basis for labor, there are concerns related to the unavailability of this data in some countries as well as its consistency across countries. Project models would be considered as an alternative way of deriving national weights for basic headings but only for materials and products. 

The steps followed in developing the new approach can be traced through the relevant papers discussed in the consecutive meetings of the Technical Advisory Group and which can be downloaded from the section Meetings/Technical Advisory Group. The final methodological documents are available under the Operational Material section.

Research Item 07: Construction PPPs

Source

Title

ICP Book

Construction 

OM

National Accounts Supply and Use Tables (SUT) Questionnaire (English) (Arabic) (French) (Spanish

OM

A New Approach to International Construction Price Comparison (English)

OM

ICP Construction Price Survey Form (English) (French) (Spanish) 

OM

Presentation on Construction & Civil Engineering: Operational Aspects (English)

TAG05

A new approach to international construction price comparison 

TAG05

Note on informal construction 

TAG05

Construction survey form 

TAG04

A new approach to international construction price comparisons 

TAG03

Lessons learned from use of Basket of Construction Components 

TAG03

Working Paper on Construction

TAG02

A New Approach to International Construction Price Comparisons 

TAG01

A New Construction Price Comparison Methodology for the International Comparison Program: Concept Note, Global Office 




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