IHS and Procurement Executives Group Introduce Engineering and Construction Cost Index (ECCI)

IHS Inc., the leading global source of information and analytics, together with the Procurement Executive Group (PEG), a leading authority on procurement, materials management and subcontracting topics to the engineering and construction industry, today announced the introduction of the IHS PEG Engineering and Construction Cost Index (ECCI). The ECCI is a leading indicator for wage and material inflation specific to the industry and will enable more effective supply management of critical materials, equipment, and labor throughout the design and construction of capital projects.

“Procurement effectiveness, supplier performance and contractor management are critical elements of operational excellence for any engineering and construction firm,” said Scott Lockhart, IHS vice president, operational excellence and risk management. “Trying to manage all of the market drivers and dynamic forces that introduce variability into material, equipment and labor supply is extremely difficult. The IHS PEG Engineering and Construction Cost Index provides powerful insight on cost trends that enable faster, more confident decisions that drive operational excellence.”

The ECCI headline index tracks industry specific trends and variations, while identifying market turning points for key projects.  It is insight drawn from data independently obtained and compiled by IHS from members of the Procurement Executives Group, a forum consisting of procurement executives at leading engineering, procurement, and construction firms.

“The Procurement Executives Group serves as a forum for the executive leadership of procurement and supply management in the engineering and construction industry,” said David Hammerle, executive director of the Procurement Executives Group. “IHS is a key collaborator in our industry with core values that are aligned with PEG. Launching the Engineering and Construction Cost Index together is a tangible example of fulfilling PEG objectives that drive procurement leadership, excellence, expertise, innovation and the advancement of our profession within our industry.”

The table below presents the IHS PEG ECCI for October 2013. The headline index registered 52.6 percent in October, down slightly from 53.5 percent last month. Current construction costs have expanded for the 21st consecutive month, according to the October index.

Insight represented in the IHS PEG ECCI can be derived as follows:

• Difference: Represents current-month index value, minus previous-month index value
• Direction: Indicates whether current index is above or below the neutral level
• Rate of Change: Refers to a positive or negative sign in the Difference column, irrespective of direction
• Trend: The number of consecutive months which the index level has been above or below the neutral mark

Each month, members of the Procurement Executive Group (PEG) indicate whether prices-either actual paid transactions or company-informed transactions-upon individual materials, equipment and regional subcontractor rates were higher, lower or the same as the prior month. Respondents are then asked for six-month pricing expectations among these same subcategories.

A reading above 50 represents upward pricing strength, while a reading below 50 indicates downward pricing strength. Individual responses are considered raw data, which are not revised and are not seasonally adjusted. The headline index is formed by creating a weighted composite between materials/equipment-at 70 percent-and subcontractor rates-at 30 percent.

For instance, the current October subcontractor labor index registered 56.4 percent, up from 55.8 percent last month, with the strongest movements over September concentrated in Eastern Canada and the U.S. Northeast.  Shortages this month again focused on labor markets, with welders reported in short supply. Meanwhile, other notable concerns were identified with fabrication shop loads, in anticipation of project loads to pick up next year.

“Leading-edge procurement executives like those representing PEG member companies are demonstrating how IHS can help transform market data into important new insight that drives competitive advantage,” noted Lockhart. “We proudly join PEG to announce availability of the ECCI, and congratulate as well as thank them for sharing their experiences so that other organizations can benchmark operational performance and procurement excellence more effectively.”

Click here to learn more about the new IHS PEG Engineering and Construction Cost Index or to obtain the latest published insight.