Estimating Future Highway Construction Costs

Abstract

The objective of this research was to develop a model that estimates future highway construction costs in Louisiana. The model describes overall highway construction cost in terms of a highway construction cost index. The index is a composite measure of the cost of construction labor, materials, and equipment; the characteristics of contracts; and the environment in which contracts are let. Future construction costs are described in terms of predicted index values based on forecasts of the price of construction labor, materials, and equipment and the expected contract characteristics and contract environments. The contract characteristics and contract environments that are under the control of highway agency officials, can be manipulated to reflect future cost-cutting policies. Application of the model in forecasting to highway construction costs in Louisiana shows that the model closely replicates past construction costs for the period 1984–1997. When applied to forecasting future highway construction costs, the model predicts that highway construction costs in Louisiana will double between 1998 and 2015. Applying cost-cutting policies and assuming input costs are 20% less than anticipated, the model estimates highway construction costs will increase by 75% between 1998 and 2015.