BCIS basics: are you using the right BCIS index?

BCIS indices are widely used to measure how construction costs, prices and underlying inflation change over time.

Choosing the right index is essential to ensure adjustments, benchmarking and contract mechanisms reflect what is actually happening in the market.

BCIS indices provide a sound basis for efficient decision-making, affording cost professionals more time to apply expert judgement and improve early cost advice.

This guide explains what BCIS indices represent and how to select the appropriate index for your purpose.

A whistlestop tour of BCIS indices

BCIS publishes a broad range of construction-specific indices.

These are grouped according to what they measure which, broadly speaking, falls into three main categories:

• Resource costs – the costs paid by a contractor for resources
• Tender prices – the prices included in accepted tenders for new projects
• Output prices – the prices paid by clients for works carried out by contractors

The core and most widely used index series are BCIS Cost Indices, BCIS Tender Price Indices and BCIS Price Adjustment Formulae Indices (PAFI).

These provide a foundation for observing how labour, materials and plant costs to the contractor are moving (BCIS Cost Indices), how the market is behaving (BCIS Tender Price Indices) and a mechanism for adjusting contract prices for works costs (BCIS PAFI). The granular data in BCIS PAFI can also be used to assess cost volatility at a component level.

All BCIS indices are clearly labelled to show what is being measured. Indices described as measuring costs refer to contractors’ input costs; prices refer to what contractors charge clients.

Within the service, subscribers can select specific indices and adjust frequency and time parameters to suit their analysis.

Golden rules for choosing the right index

Misapplication of indices can lead to inappropriate adjustments. For instance, economy-wide measures such as the Consumer Prices Index and Retail Prices Index are sometimes used to adjust construction contracts for inflation, even though they do not reflect construction-specific cost movements.

To ensure you choose the right index every time, consider the following golden rules:

1. Be clear about what you want to measure

Ask yourself what it is you want to measure. For example, do you want a high-level view of how building or M&E costs are moving or are you assessing the impact of underlying inflation on a specific element of work, such as demolition?

BCIS publishes indices by sector, work category and resource type. Guidance on what our indices measure can be found via the question mark icons at the top of the index results page within the service.

For instance, the BCIS All-in Tender Price Index measures the movement in contractors’ tender prices, based on accepted tenders. It’s typically used to adjust tender prices in line with current market conditions.

2. Match the index to your requirement

Once the objective is clear, it’s important to assess how closely an index or indices align with what is being measured.

This is particularly important when using BCIS PAFI. These indices represent underlying inflation and are commonly used within index-linked fluctuation provisions in contracts.

The selected mix of indices should reflect the composition of the project as closely as possible. A poor match may overstate or understate inflation, with implications for cost recovery or project budgets.

3. Assess the fine print

Before applying an index, check its publication frequency and revisions policy. Contracts should state how often the index is published and how provisional or revised figures will be treated.

For context, BCIS individual index figures are labelled ‘provisional’ when first published (based on the available data) and updated to ‘firm’ at a later stage. In some circumstances, a ‘firm’ index may change and will then be shown as ‘revised’ while certain series have forecast figures available before an index can be calculated.

How indices are revised can impact their application. Some indices are designed to give the best estimate of cost or price movement while others are tailored for contractual applications. For example, the BCIS All-in TPI will be revised over an extended period as new data is received. It is designed to provide the best available estimate of price movement and is ideal for updating cost plans.

By contrast, the Public Sector Building Non-housing (PUBSEC) index follows the same trend but has a more restricted revisions policy so is better suited to contractual applications.

To avoid misunderstandings, particularly when using BCIS PAFI to adjust pricing for inflation, contract terms should state how provisional figures and any subsequent revisions made to indices will be applied.

4. Understand the basic inputs

A detailed understanding of the methodology behind BCIS indices is not always required, but users should be aware of the principal inputs and data sources.

Notes and definitions on the calculation methodologies and revisions protocols for each index series are available within the service. For example, BCIS Cost Indices draw on factory gate materials prices and nationally agreed wage awards.

5. Do not choose an index based on past performance

Historic trends can provide useful context, but they should not determine index selection.

What matters is what the index measures and whether its application will provide the desired outcome – be that adjusting inflation appropriately, managing cost risk effectively or benchmarking with confidence.

For further information on BCIS indices and how they are presented within the service, book a demonstration with our team.

More BCIS Basics

Taking the labour out of labour calculations

Understanding project preliminaries

Six principles of benchmarking in construction

Six reasons to benchmark in construction

Using location factors in construction