Construction tender price index : modelling and forecasting trends

Akintoye, SA

Abstract

The thesis considers the construction tender price index, an important area of
construction economics, and models are developed to fit the trends in this index.
Between 1980 and 1987, the UK Building Cost Index produced by the Building Cost
Information Service increased at an annual rate of 6.3% compared with Tender Price
Index 3.3% and Retail Price Index at 6.7% per annum. This significant disparity
between Tender Price and Building Cost Index is unexpected in view of the attributed
importance of input prices in the tender price formation. This suggests that other
factors apart from input prices may be responsible for the trends in building prices
generally. The thesis reviews the pricing strategies of construction contractors leading
to the conclusion that macroeconomic factors are equally important.
A univariate analysis of 24 potential indicators of tender price trends identified some
variables of importance. An analysis is described of these variables using the OLS
system of regression analysis. Single structural equation model of construction tender
price level is developed which offer structural explanation of the movements in the
index. Indicators of construction price (in real terms) produced by the structural
equation were found to be unemployment level, real interest rate, manufacturing
profitability, number of registered construction firms, oil crisis, building cost index,
construction productivity and construction work stoppages.
A Reduced-form model of construction price is developed that utilises simultaneous
equation models comprising construction demand, supply and equilibrium models -
the reduced-form models being generally regarded as having better predictive power
than structural equations. The model is validated by comparing its accuracy with
forecasts produced by two leading organisations in U.K. The out-of-sample forecast
errors of the reduced-form model are 2.78, 3.58, 4.28 and 5.59 RMSE percent over
0, 1, 2 and 3 quarter forecast horizons respectively, which are better than the Building
Cost Information Service (3.32, 5.29, 7.57 and 9.96 RMSE percent) and Davis,
Langdon and Everest (3.21, 5.01, 7.16 and 10.41 RMSE percent).

Citation

Akintoye, S. Construction tender price index : modelling and forecasting trends. (Thesis). University of Salford

• Thesis Type: Thesis
• Deposit Date: Sep 19, 2011
• Publicly Available Date: Sep 19, 2011
• Award Date: Jan 1, 1991