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Tuesday, September 2, 2014

New Index Tracks Construction and Engineering Costs

Chief procurement officers needing to track engineering and construction costs have a new index-based tool for doing so. The IHS PEG (Procurement Executives Group) Engineering and Construction Cost Index (ECCI) was developed by IHS and PEG to gauge wage and material inflation in the sector monthly and predict where these indicators could be in six months.

IHS, in Englewood, Colo., is a major source of business intelligence and analytics and has experience in developing forecasts for industries such as automotive. PEG is a private group that addresses procurement, materials management, and subcontracting issues in engineering and construction to improve operations in the sector. PEG’s membership consists of 19 companies, which contribute data for the new index.

A statement released by IHS says ECCI is designed to track “industry-specific trends and variations, while identifying market turning points for key projects.”

Member responses are equally weighted for every $2 billion of spending in North America. A reading above 50 represents upward pricing strength, while a result under 50 means prices are falling.

An important objective of ECCI is to provide CPOs in the business with a means of benchmarking operational performance and procurement.

ECCI joins other business indexes such as the Institute for Supply Management’s respective manufacturing and non-manufacturing indexes, also released monthly.

The latest ECCI results show that pricing indexes in all but one category of engineering and construction costs declined slightly in October from September.

The headline cost index was 52.6 percent last month, down 0.9 percent from September, but still growing for the 21st consecutive month. The materials and equipment price index was 51 percent in October, a 1.6-point drop from September, but posting a fourth consecutive monthly gain. Subcontractor labor, meanwhile, increased 0.6 percent in October to 56.4, to register 21 consecutive months of growth.

The strongest markets were in the northeast U.S. and eastern Canada. Shortages were primarily in labor, with welders, especially, in short supply. Fabrication shops are reportedly gearing up for higher demand in 2014.

The six-month outlook calls for similar results, though at somewhat higher levels. The headline cost index for April 2014 is forecast at 63 percent, down more than 10 percent from the outlook for next March; the materials and equipment price index should be 61.6 in April, 9.7 points down from the March forecast; and subcontractor labor will be 66.4, up 1.2 points.

Details about the ECCI index are accessible at


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