O h i o D e p a r t m e n t o f T r a n s p o r t a t i o n

Ohio Construction Cost Indices and Inflation

Forecasts

TEA ConferenceOctober 6, 2007

Prepared by:Bid Analysis and Review Team

O h i o D e p a r t m e n t o f T r a n s p o r t a t i o n

ODOT In-Place Construction Cost Index:

Conceptual Description Select a basket of items to represent an item class.

Base Year: SFY04-SFY05 (State Fiscal Year Begins July 1) Exclude items: Miscellaneous, As-Per-Plan, Warranty, & Difficult

Units of Measure Exclude items not represented well over time.

Calculate expected prices for each basket item. 12 month weighted average price. Regression analysis Interpolation Trend line

O h i o D e p a r t m e n t o f T r a n s p o r t a t i o n

Conceptual Description (cont.)

Calculate the composite price weighted by base year expenditures. FY04-FY05.

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Current InflationYearly Composite with Base Year Centered to (Jan 2002=100)

ODOT In-Place Construction Cost Index Aug2003 Aug2004 Aug2005 Aug2006 Aug2007Aug'06-Aug'07

Growth

Aggregate Base (304) [ 3%] 104.5 105.4 106.5 130.1 132.3 1.7%

Asphalt (Surface and Intermediate Courses) [ 26%] 103.0 107.1 116.8 143.8 165.5 15.1%

Asphalt Bituminous Base (301 & 302) [ 4%] 102.9 106.8 117.0 145.8 162.6 11.5%

Drainage [ 7%] 111.2 110.0 113.5 140.2 132.5 -5.5%

Earthwork [ 11%] 110.0 101.4 109.6 125.1 147.9 18.2%

Guardrail [ 3%] 100.4 102.9 123.3 125.4 126.7 1.0%

Maintenance of Traffic [ 9%] 111.0 112.7 107.6 100.5 104.9 4.4%

Pavement Marking [ 3%] 97.1 133.4 144.9 163.8 168.7 3.0%

Portland Cement Concrete Pavement [ 5%] 101.7 112.1 120.2 136.0 145.2 6.8%

Structures including Maintenance [ 29%] 101.0 104.6 122.8 130.8 144.6 10.6%

Composite ODOT Construction Index 104.1 107.5 117.7 133.2 146.5 10.0%[The weight given to each category for calculating the Composite.]

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Disaggregated Historical Cost Index

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Asphalt (Surface and Intermediate Courses) Structures including Maintenance EarthworkMaintenance of Traffic Drainage Portland Cement Concrete PavementAsphalt Bituminous Base (301 & 302) Pavement Marking Aggregate Base (304)Guardrail

X:\Bart Bid Analysis\1A Current MonthlyCost Index\Monthly Composite Values.xls

O h i o D e p a r t m e n t o f T r a n s p o r t a t i o n

ODOT Semi-Annual Inflation Forecast:

Conceptual Description Data Collection

Monitor construction publications

Compare recent inflation trends with our predictions ODOT Cost Index vs. Selected Federal Indexes

vs. Turner Cost Index

Consider long-term price trends for critical construction goods and services

A group consensus determines the final inflation forecast

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Causes for Change Commodity Steel

Increases in world-wide demand Worldwide consolidation of manufacturers Regionalization and supply control

Local consolidation Higher input costs: energy, scrap, & iron ore

Fewer steel owners are better able to pass increased costs to customers.

Plants shut down rather than produce below cost

O h i o D e p a r t m e n t o f T r a n s p o r t a t i o n

Causes for Change Energy

Significantly reduced predictions for future daily oil output and increased future consumption will create a supply and demand squeeze as early as 2012*

Medium-term outlook on refined oil product production is static**

* International Energy Agency, July 2007, Medium-Term Oil Market Report, p5.

** Based on information provided by the Marathon Petroleum Company

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Predicted Cost Inflation FY08-FY12:

July 2007

1. The predictions in the Table are based upon our experience and understanding of the changes affecting the construction industry in Ohio. BART sourced information from its own ODOT construction cost index and from outside construction analysts whom it believed had relevant information to contribute to developing these predictions.

2. We believe that the most important cost drivers of construction cost inflation for the next five years will be energy, steel, and cement. Unlike many other construction materials, these items are impacted by international influences which are difficult to predict.

FY08 FY09 FY10 FY11 FY12

High 14.5% 14% 13% 10% 8%

Most Likely 10% 10% 8% 6% 5%

Low 7% 6.5% 5% 4% 3%

Inflationary Compounded GrowthInflationary Compounded Growth

10% 21% 31% 39% 45%Most Likely

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Actual inflation –based on ODOT derived formulae FY2003 - 3.1% FY2004 - 3.5% FY2005 - 8.5% FY2006 - 12.3% FY2007 - 11.6% (forecast at 11.5%)

ODOT Inflation Forecast FY2008 - 10% FY2009 - 10% FY2010 - 8% FY2011 - 6% FY2012 - 5%

O h i o D e p a r t m e n t o f T r a n s p o r t a t i o n

Predicted Cost Inflation FY07-FY11:

Calendar Year 2006

FY07 FY08 FY09 FY10 FY11

High 14.0% 7.0% 6.0% 5.5% 5.5%

Most Likely 11.5% 6.0% 4.5% 4.0% 4.0%

Low 8.0% 4.0% 3.5% 3.0% 3.0%

Predicted Cost Inflation FY07-FY11: July 2006

Predicted Cost Inflation CY06-CY10: January 2006

CY06 CY07 CY08 CY09 CY10

High 12.0% 7.0% 6.0% 6.0% 5.0%

Most Likely 8.5% 5.5% 5.0% 4.0% 4.0%

Low 7.0% 4.5% 4.0% 3.0% 3.0%

1. Predictions are based upon our experience and understanding of the changes affecting the construction industry in Ohio. Forecasting information comes analyzing ODOT data along with data from third-party analysts and experts.

2. We believe that the most important cost drivers of construction cost inflation for the next five years will be energy, steel, and cement.

O h i o D e p a r t m e n t o f T r a n s p o r t a t i o n

CY07 CY08 CY09 CY10 CY11

High 10.5% 9.5% 7.0% 5.0% 5.0%

Most Likely 6.0% 5.5% 5.0% 4.0% 4.0%

Low 4.0% 3.5% 3.5% 3.0% 3.0%

Predicted Cost Inflation CY07-CY11: January 2007

FY08 FY09 FY10 FY11 FY12

High 14.5% 14.0% 13.0% 10.0% 8.0%

Most Likely 10.0% 10.0% 8.0% 6.0% 5.0%

Low 7.0% 6.5% 5.0% 4.0% 3.0%

Predicted Cost Inflation FY08-FY12: July 2007

Predicted Cost Inflation FY07-FY11:

Calendar Year 2007

1. Predictions are based upon our experience and understanding of the changes affecting the construction industry in Ohio. Forecasting information comes analyzing ODOT data along with data from third-party analysts and experts.

2. We believe that the most important cost drivers of construction cost inflation for the next five years will be energy, steel, and cement.