Research Agenda: PPPs for Construction

PPPs for Construction

In the 2011 round, regions, expect Eurostat-OECD and CIS, estimated PPPs for Construction based on input prices for a set of materials, labor, and equipment hire, which were subsequently weighted based on resource mixes data. Eurostat-OECD compiled construction PPPs using a model-based Bills of Quantities approach, while the CIS region used a modified version of this method. The ICP 2011 input-based approach was a compromise that made the best of less than uniform measurement standards for this tough-to-measure activity. A model-based Bills of Quantities approach clearly would be better, but in general it can be argued that the 2011 input-based approach was and still is the best possible and achievable option, given the limited availability of data, as it is much less costly.

The 2011 ICP results for some countries were not fully plausible. Input data quality remains an issue, and the methodology needs to be investigated as well. Input costs (materials, labor and equipment) do not take into account the outstanding gap among economies for profits, taxation and contractor mark-ups, and therefore do not fully reflect market prices. Thus, further research regarding these problems is needed in future cycles of ICP.

Given the importance of construction in many countries (29% of GDP in China, for example), the following topics are identified for further research:

  • Investigate input data for construction, including variability;
  • Look into methodological improvements, in particular evaluate the use of productivity adjustments for labor (as in 4.3 above);
  • Improve estimates of the resource mixes weights; and
  • With the help of construction experts, review the availability and quality of other construction-related information, such as mark-ups and professional fees, and devise methods to incorporate this information in the compilation of construction PPPs.