T

he Chemical Engineering P l a n t

Cost Index (CEPCI) is an established institution. Since its introduction in 1963 [1], it has been

published in each and every issue of

C E. For more than 37 years, chemicalprocess-industry (CPI) professionals —

engineers, managers, and technicians

— have used the CEPCI to adjust

process plant construction costs from

one period to another. This index —

rather, indexes, as it consists of a composite index and eleven sub-indexes —

has received such wide acceptance that

it has even been written into construction-contract cost-escalation clauses.

The CEPCI has a history of revisions. Most of these have been cosmetic, such as renaming the “Fabricated equipment” sub-index to the

more descriptive “Heat exchangers and

tanks” sub-index. The most recent, and

most significant, revision — more like

an overhaul — occurred in 1982 [2] .

The major changes included reducing

the number of components from 110 to

66, replacing many components with

more suitable ones, and revising the

productivity factor downward from

2.50% to 1.75%. (See next page for an

explanation of the productivity factor.)

The 1982 changes deliberately retained the structure of the CEPCI. 

The set of sub-indexes has remained

unchanged for nearly four decades —

decades that have seen major changes

in the CPI, especially in plant design

and operation. We have not changed

the data series and the relative

weights since 1982. That is a long

time to freeze an index, and does not

necessarily reflect recent changes. For

that reason, we have decided it was

time for the CEPCI to be revised

again, this time to bring it into the

twenty-first century. The structure is

not being changed, but many underlying details are being updated. 

The established structure

Before describing the latest CEPCI r evision, we need to review its structure

and some history. Table 1 shows that

the composite index is built from seven

component-indexes and four sub-indexes, For all of these, values have

been reported running back to 1947.

Table 2 lists annual values of the four

sub-indexes and the composite index

for the years 1963 to 2000. Component-index data and an extension back

to 1947 can be purchased from C E ’ s

editorial department. Each annual

index is the arithmetic mean of the

monthly indexes.

Details of computing the values will

be discussed below. For now, we will

stick with an outline, as shown in

Table 1. The component-indexes are

compiled, and with appropriate

weighting factors, are added up to

make up the Equipment Index. Independently, three other sub-indexes

are compiled, and with appropriate

weighting and normalizing, the four

sub-indexes add up to the CEPCI.

While Table 2 is informative, it is a

lot easier to see trends and relative

changes among the indexes when plotted in Figure 1. A cursory look at this

figure tells us that none of the five indexes increased monotonically during

these 37 years. They had their “ups

and downs,” but all of them were significantly higher in 2000 than in 1963.

The Equipment sub-index exhibited

the most growth (approximately 340%)

over this period, followed by the composite CEPCI, and the Buildings, 

Engineering and Supervision, and

Construction Labor sub-indexes, respectively. The relatively steep rise in

the Equipment sub-index was partly

due to sharp increases in fabricated

equipment prices, which were driven,

in turn, by jumps in the costs of raw

materials (for instance, stainless steel).

Because this sub-index contributed so

much (61%) to the composite CEPCI,

the latter exhibited very similar behavior; the two curves are nearly parallel.

There is another reason for the relatively modest increases in the other

sub-indexes — the CEPCI productivity factor. This factor, which discounts

changes in the labor-cost components

in the sub-indexes, tends to dampen

increases in these sub-indexes. An

index with large labor components,

such as Construction Labor, is more

influenced by the productivity factor

than those with less-significant labor

cost elements (such as Equipment). 

The five index curves change slopes

downward around the year 1982. This

was the year of the last major CEPCI

revision. This revision involved a

change in the productivity factor, as

well as major reductions in the number of index components. Taken toEngineering Practice

62 CHEMICAL ENGINEERING WWW.CHE.COM JANUARY 2002

Updating the Plant

Cost Index

Changing ways of building plants 

are reflected as this widely used index 

is brought into the 21st century

William M. Vatavuk

Vatavuk Engineering

TABLE 1. STRUCTURE OF THE CECPI

A. Equipment Index, 

includes the following sub-indexes:

• Heat exchangers and tanks

• Process machinery

• Pipe, valves & fittings

• Process instruments

• Pumps & compressors

• Electrical equipment

• Structural supports & miscellaneous

B. Construction Labor Index

C. Buildings Index

D. Engineering and Supervision Index

CE Plant Cost Index (composite)
gether, these changes significantly affected the next 18 years of the CEPCI

and its sub-indexes. There were other

macroeconomic trends that also influence the data; such as a decline in interest rates over 20 years from 20 to

2%. The inflationary 1970s have come

and gone but left their mark.

Meet the productivity factor

We have mentioned the CEPCI productivity factor several times already

without explaining what it is or how it

is calculated. In 1982 Matley [3] explained that the productivity factor

“should be thought of as a technological productivity factor [that is] predicated on advances in working tools and

techniques.” These advances include

such obvious ones as the proliferation

of personal computers and

other electronic tools, and

less-evident (to non-construction professionals, at

least) innovations as the

implementation of modular construction techniques. However, Matley

said that the factor,

“should not be considered

to account for changes in

productivity arising from

improvements in the quality of construction workmanagement... [nor

should it] be regarded as

reflecting productivity

changes due to advances

in the skill, experience or

motivation of the workforce. Lastly, the factor

does not take into account

regional variations in construction wages” [3]. 

Let us do the math and

enter the productivity factor into the calculation of the CEPCI

composite and its sub-indexes. It is

used on every labor-cost component

within a sub-index, component index,

or the composite index. Take the raw

change in a labor-cost component and

multiply it by the productivity factor

to obtain the adjusted change in that

component. This adjusted change is

then an input to the calculation of the

appropriate CEPCI sub-index, and

the composite index.

The productivity factor is calculated

via Equation (1):

P.F. = 1/(1 + p/12)n (1)

where: P.F. = productivity factor (< 1)

p = Annual growth in construction

labor productivity (fraction)

n = Number of months between January 1947 and the index-update month

The index is calculated monthly.

That is why the average productivity

increase appears as p/12. 

For instance, suppose that the raw

(unadjusted) increase in the Engineering cost component from February 1963 to August 2000 was 400% (or

4.00). Here is how to calculate the adjusted change in this component: Substitute an annual productivity growth

rate of 2.2% or 0.022 (this value is verified p.69) and the number of months

from January 1947 to August 2000 (53

3 12 + 8 = 644). Equation (2) solves for

a productivity factor of:

P.F. = 1/(1 + 0.022/12)644 = 

0.3074 (2)

The adjusted increase in the engineering cost component is 0.3074 3

400% = 123%. 

The exponent n in Equation (1) is

calculated from January 1947 instead

of from February 1963, the month and

year the CEPCI was introduced, because 1947 is the year that the Marshall and Swift (M&S; formerly Marshall and Stevens) Equipment Cost

Index was started as a regular feature

of CE [4]. We suspect that Arnold and

Chilton derived the productivity factor from this data, but they did not

leave a paper trail.

Despite the fact that the M&S index

is based on used-equipment prices,

while the CEPCI is built around new

plant-construction costs, trends in the

M&S have been comparable to the

CEPCI. The quarterly M&S index is

published on CE’s Economic Indicators page, along with the VAPCCI (see

box, p. 69) and other indexes. 

Two questions of engineering philosophy intrude here and need addressing. Why do we use a productivCHEMICAL ENGINEERING WWW.CHE.COM JANUARY2002 63

FIGURE 1. The major indexes show an irregular rise over 37 years

TABLE 2.ANNUAL PLANT COST INDEXES

Year Com- Equipment Construc- Buildings Engineering 

posite tion and superCE Index labor vision

1963 102.4 100.5 107.2 102.1 103.4

1964 103.3 101.2 108.5 103.3 104.2

1965 104.2 102.1 109.7 104.5 104.8

1966 107.2 105.3 112.4 107.9 106.8

1967 109.7 107.7 115.8 110.3 108.0

1968 113.7 109.9 121.0 115.7 108.6

1969 119.0 116.6 128.3 122.5 109.9

1970 125.7 123.8 137.3 127.2 110.6

1971 132.3 130.4 146.2 135.5 111.4

1972 137.2 135.4 152.2 142.0 111.9

1973 144.1 141.8 157.9 150.9 122.8

1974 165.4 171.2 163.3 165.8 134.4

1975 182.4 194.7 168.6 177.0 141.8

1976 192.1 205.8 174.2 187.3 150.8

1977 204.1 220.9 178.2 199.1 162.1

1978 218.8 240.3 185.9 213.7 161.9

1979 238.7 264.7 194.9 228.4 185.9

1980 261.2 292.6 204.3 238.3 214.0

1981 297.0 323.9 242.4 274.9 268.5

1982 314.0 336.2 263.9 290.1 304.9

1983 317.0 336.0 267.6 295.6 323.3

1984 322.7 344.0 264.5 300.3 336.3

1985 325.3 347.2 265.3 304.4 338.9

1986 318.4 336.3 263.0 303.9 341.2

1987 323.8 343.9 262.6 309.1 346.0

1988 342.5 372.7 265.6 319.2 343.3

1989 355.4 391.0 270.4 327.6 344.8

1990 357.6 392.2 271.4 329.5 355.9

1991 361.3 396.9 274.8 332.9 354.5

1992 358.2 392.2 273.0 334.6 354.1

1993 359.2 391.3 270.9 341.6 352.3

1994 368.1 406.9 272.9 353.8 351.1

1995 381.1 427.3 274.3 362.4 347.6

1996 381.7 427.4 277.5 365.1 344.2

1997 386.5 433.2 281.9 371.4 342.5

1998 389.5 436.0 287.4 374.2 341.2

1999 390.6 435.5 292.5 380.2 339.9

2000 394.1 438.0 299.2 385.6 340.6

Indexes’ base: 1957-59 = 100.0
ity factor at all? Why not just leave the

labor-cost components unadjusted?

According to Arnold and Chilton [5],

“All cost indexes that have labor rates

as components and that do not make

corrections for labor productivity have

built into them what index technicians call an upward bias.” They felt

that, without labor productivity corrections, indexes will, over time, overstate true (as opposed to apparent)

labor-cost changes. However, we

should note that the productivity factor dampens labor-cost decreases, as

well as increases. As mentioned earlier, Figure 1 displays the effect of

labor productivity on index trends. 

Assembling the CEPCI data

The productivity factor is one of 54 inputs that are used for calculating the

updated CEPCI and sub-indexes. We

will discuss accessing the other key inputs used in their calculations and

how this calculation is performed.

We said that each index and subindex is the weighted sum of several

components. Most of these components

correspond to Producer Price Indexes

(PPIs), updated and published monthly

by the U.S. Department of Labor’s Bureau of Labor Statistics (BLS; Washington, D.C.). According to the BLS definition, the PPIs, “track the

average-change in net transaction

prices that domestic producers in the

mining, manufacturing, agriculture,

and forestry sectors, as well as selected

services industries, receive for the

products that they make and sell.” The

price quotations that the BLS uses to

build these indexes come from a statistically chosen sample of representative

transactions obtained from a statistically chosen sample of representative

producers in each 600 or so industries.

“In all, the PPI includes roughly

100,000 price quotations from about

25,000 domestically producing establishments, resulting in the publication

of approximately 13,000 indexes” [6] .

From these several thousand indexes, 41 PPIs have been selected as

inputs to the CEPCI and sub-indexes.

These PPIs cover products as diverse

as carbon steel plates, fans and blowers, concrete pipe, and lighting fixtures. All of these items and many

more are key elements in a typical

Engineering Practice

64 CHEMICAL ENGINEERING WWW.CHE.COM JANUARY 2002

TABLE 3. REVISED CEPCI COMPONENTS AND WEIGHT FACTORS

Component BLS index Component Component Component 

number weight group—Level I group—Level II

factor (weight factor) (weight factor)

Plates, carbon steel pcu3312#412 0.140

Plates, stainless steel pcu3312#45 0.110

Pressure tubing, welded,

carbon steel wpu10170628 0.043

Pressure tubing, seamless,

carbon steel wpu10170628 0.043

Nonferrous mill shapes wpu1025 0.043

Plates, alloy pcu3312#431 0.110

Hot rolled bars, plates, 

and structural shapes pcu3312#4 0.110

Storage tanks, 6,000 gal 

or less wpu10720104 0.027

Storage tanks, over 

6,000 gal wpu10720104 0.025

Metal tanks wpu10720152 0.021

Custom tanks, 3/4 in. 

and less wpu10720136 0.082

Other custom tanks, 

field assembled wpu10720152 0.010

Petroleum storage tanks wpu10720104 0.010

Subtotal, heat exchangers 

and tanks – components — — 0.774

Subtotal, heat exchangers 

and tanks – labor eeu31340006 0.226

Total for Heat 

Exchangers and Tanks — — 1.000

Plates, carbon steel pcu3312#412 0.105

Sheets, hot-rolled, 

carbon steel pcu3312#311 0.030

Cold-rolled sheets 

and strip pcu3312#7 0.010

Foundry and forge 

shop products wpu1015 0.060

Industrial materialhandling equipment wpu1144 0.075

Fans and blowers, except

portable wpu1147 0.025

Chem. ind. machinery wpu116604 0.250

Integral-hp motors and

generators pcu3621#2 0.035

Crushers, pulverizers and 

screening machines wpu119202 0.150

Concrete ingredients wpu132 0.030

Subtotal, Process 

machinery – components — — 0.770

Subtotal, Process 

machinery – labor eeu31350006 0.230

Total for Process 

Machinery — — 1.000

Plastic construction 

products wpu0721 0.050

Line and standard pipe,

carbon steel wpu10170618 0.400

Mechanical tubing, 

carbon steel wpu10170629 0.100

Copper and brass mill 

shapes wpu102502 0.100

Concrete pipe wpu1332 0.050

Metal valves, except 

fluid power wpu114902 0.200

Metal pipe fittings,

flanges, and unions wpu114903 0.100

Total for pipes, valves 

and fittings — — 1.000

Continues on adjacent page
CPI plant. The first columns in Table

3 list these PPIs and their BLS code

numbers. The latter begin with the

designation pcu or wpu. 

The CEPCI inputs also include 12

labor-cost indexes (see Table 3) .

These indexes are also compiled by

BLS. They track changes in labor

rates, for such categories as Fabricated products and General building

contractors. In addition, special laborcost indexes are included for technical

specialties, such as engineers and designer-drafters. Except for the last

two, which are p c u 8 7 1 1 # 1 a n d

p c u 8 7 1 2 # 4, all of the labor-cost index

numbers begin with the letters e c u o r

e e u. The large number of entries for

products and labor results in a table

that sprawls over three pages.

In Table 3, alongside each component and BLS index number is a component-weight factor, which has been

revised (or left unchanged) in this update. As the name implies, this factor

weights the change in the component’s

price in proportion to its importance to

the sub-index or composite CEPCI.

Consider the first entry: Plates, carbon

steel. This component is given a

weight of 0.140. This means that

changes in the price of carbon-steel

plate accounts for 14% of the change in

the “Heat exchangers and tanks” component-index. The subtotal of weight

factors equals 0.774. The balance

(0.226) is contributed by the labor for

fabricating these components. 

Moving one column to the right,

“Heat exchangers and tanks” is listed

under the column heading Component

Group — Level I. The weight factor in

that column is 0.338. This weight factor

denotes the contribution of “Heat Exchangers and Tanks” to the Equipment

index, which is listed in the column

Component Group — Level II. Finally,

notice that the weight-factor for Equipment is 0.507, meaning that it contributes 50.7% to the composite CEPCI.

The other three major sub-indexes do

not have a Component Group — Level

I. Buildings has just two components:

“Construction materials” and “General

building contractors.” These contribute

53% and 47% to the Buildings subindex, which, in turn, contributes 4.6%

to the CEPCI. The four components of

the Engineering and Supervision subCHEMICAL ENGINEERING WWW.CHE.COM JANUARY2002 65

TABLE 3. REVISED CEPCI COMPONENTS AND WEIGHT FACTORS (Continued)

Component BLS index Component Component Component 

number weight group—Level I group—Level II

factor (weight factor) (weight factor)

Sheets, hot-rolled, 

carbon steel pcu 3312#311 0.057

Sheets, cold-rolled,

carbon steel wpu10170711 0.014

Foundry and forge shop 

products wpu1015 0.077

Nonferrous mill shapes wpu11025 0.060

Copper and brass mill 

shapes wpu1102502 0.053

Integral-hp motors and

generators pcu3621#2 0.036

Electronic components 

and accessories wpu11178 0.400

Metal valves, except 

fluid power wpu114902 0.053

Subtotal, Instrument and 

controls – components — — 0.750

Relays & industrial 

controls – labor eeu31362506 0.063

Process control 

instruments – labor eeu31382306 0.187

Subtotal, Instrument and 

controls mfg. – labor — — 0.250

Total for process 

instruments — — 1.000

Industrial pumps wpu114102 0.900

Air compressors, stationary wpu1 1 4 1 0 3 0 . 0 5 0

Gas compressors,

stationery wpu114104 0.025

Other compressors and

vacuum pumps wpu114111 0.025

Total for pumps 

and compressors — — 1.000

Nonferrous wire and cable wpu1 0 2 6 0 . 0 5 7

Lighting fixtures wpu1083 0.188

Integral-hp motors and

generators pcu 3621#2 0.306

Motors, generators,

generator sets wpu1173 0.043

Transformers and power 

regulators wpu1174 0.146

Switchgear, switchboard 

equipment wpu1175 0.260

Total for electrical 

equipment — — 1.000

Prepared paint wpu0621 0.024

Hot-rolled bars, plates, 

and structural shapes pcu 3312#4 0.406

Concrete reinforcing bars,

carbon steel pcu 3312#425 0.089

Concrete ingredients wpu132 0.129

Insulation materials wpu1392 0.353

Total for structural 

supports and 

miscellaneous — — 1.000

TOTAL--EQUIPMENT — — — — 1.000

Construction materials 

(special index) wpusi012011 0.530 — —

General building 

contractors eeu20150006 0.470

Total for buildings — — 1.000

Continues on next page
index contribute to that category, while

the Construction Labor sub-index has

three components. The “Engineering

and supervision” and “Construction

labor” sub-indexes account for 15.8%

and 29.0% of the composite CEPCI, respectively. These weight factors are entered into an Excel spreadsheet that is

used to calculate the composite CEPCI

and sub-indexes. 

Normalizing the index

Also entered into this spreadsheet, in

protected squares, for each component

is the base value of the Producer Price

Index. This base value is the arithmetic mean of the twelve monthly values of this PPI for 2000. Thus, we can

say that the base date of the revised

CEPCI is Year-2000. On Table 2 this

is the last line augmented with the

values for the component-indexes. We

believe that selecting a year’s worth of

data allows for a broader base than a

single month. 

At this point, the data entry is correct, but the results make no sense,

unless the data are normalized. The

PPIs do not all start at 100 in

1959–1961, which is the historical

base of the index. (PPIs are given a

value of 100 on the month that the series begins.) Also, labor costs are

given in units of dollars per hour.

66 CHEMICAL ENGINEERING WWW.CHE.COM JANUARY 2002

OBSERVING THE FIVE-YEAR RULE

A

rule-of-thumb limit for cost escalation is five years. This applies to all escalations of capital or operating costs. There are

sound reasons for this particular time limit. Over periods of up

to five years, the differences between actual prices of equipment

and labor and those predicted by a cost index have been found to

be small relative to the inherent error in most budget-level estimates (±20 to ±30%)[10]. Over longer periods, these deviations

can become much larger. That implies that the CEPCI can (and

should) be used to adjust costs — but only if the adjustment period

is limited to five years. 

An example will be used to as background for discussion. Let us

say that a 700-t/d liquid oxygen (LOx) plant was built in 1970 for

$10 million. How much would it cost in 2000 to construct a 700-

t/d LOx plant? First, read the annual average composite CEPCI’s

for 1970 and 2000 from Table 1. These values are 125.7 (1970)

and 394.1 (2000). Then multiply the 1970 cost by the ratio of

these two CEPCI’s to obtain the plant cost in 2000. Inflationary

changes in the buying power of the dollar are built into the index,

so don’t make unnecessary currency corrections.

Cost = $10,000,000 3 (394.1/125.7) = $31,300,000 (3)

This cost is not likely to be accurate. To begin with, during the intervening thirty years a host of changes occurred. Some of these

changes involved the liquid-oxygen production process. There are

steps made more efficient, steps omitted and steps added. The net

result was an improvement in the production efficiency, resulting in

a lower dollar-per-ton production cost. 

Other changes were due to outside factors. Among the most influential of these were the many health, safety, and environmental

regulations that were imposed on the CPI. These included rules affecting such diverse matters as the height of catwalk railings, the

monitoring of wastewater pH, and the control of fugitive VOC

(volatile organic compound) emissions from relief valves. To comply with these regulations, CPI plants had to modify their

processes, install monitoring and control equipment, and hire additional professional and support personnel. For this reason alone,

a comparison of the 1970 and 2000 LOx plants would fall in the

“apples-and-oranges” category.

But let’s get hypothetical for a moment; suppose that the 1970

and 2000 LOx plants were absolutely identical in all respects.

Even then, the CEPCI-escalated cost would not be accurate.

Even though these two plants would contain exactly the same

number and types of all parts, the prices of this equipment and,

more importantly, the labor required to install it, have escalated

at different rates. The major change to the composition of the

CEPCI is to increase the weight of the costs of labor and cut the

weights of the equipment costs. Specifically, in the old CEPCI,

Equipment contributed 61% to the composite index, while in the

new CEPCI it contributes just 51%. At the same time, labor’s

weight factor increased from 32% in the old index to 45% in the

new CEPCI. ❒

TABLE 3. REVISED CEPCI COMPONENTS AND WEIGHT FACTORS (Continued)

Component BLS index Component Component Component 

number weight group—Level I group—Level II

factor (weight factor) (weight factor)

Administrative support,

including clerical ecu11142I 0.060 ————

Engineering pcu8711#1 0.325

Designer/drafter pcu8712#4 0.395

Executive, administration 

and managerial ecu11112I 0.220

Total for engineering 

and supervision ———— 1.000

General building 

contractors eeu20150006 0.467 ————

Heavy construction

contractors eeu20160006 0.317

Special trade contractors eeu20170006 0.217

Total for 

construction labor ———— 1.000

GRAND TOTAL—CE PLANT COST INDEX: 1.000

TABLE 4. DATA FOR MARCH 2001 - BUILDINGS

Component Weight Base Current PPI Ratios x 100

Factor PPI PPI Unadj. Adj. Weighted 

Product

Construction material 0.530 144.1 142.3 98.8 98.8 52.34

General. bldg. 

contractors 0.470 17.22 17.50 101.6 30.9 14.52

Total — before 

normalization: 66.86

Total — after 

normalization (normalization factor = 5.764): 385.4

TABLE 5. NORMALIZATION

FACTORS

Subindex or component Normalization

index Factor

Heat exchangers and tanks 4.550

Process machinery 5.264

Pipes, valves, and fittings 5.484

Process instruments 4.499

Pumps and compressors 6.665

Electrical equipment 3.393

Structural supports 

and miscellaneous 4.244

Equipment 4.911

Buildings 5.764

Engineering and supervision 11.190

Construction labor 9.779

Composite CEPCI 6.363
There has to be some computational

adjusting to make the series continue.

Every month, the latest values of

the component PPIs are entered into

the spreadsheet. For each component,

the ratio of the current PPI and the

base PPI is multiplied by the weight

factor. When this calculation has been

made for all the components of a subindex, the results are added. This sum

becomes the current value of the subindex. Lastly, each of the sub-indexes

is multiplied in the spreadsheet by a

“normalization factor” that has been

selected such that the resulting value

of each revised sub-index for January

2001 is exactly equal to the value of

the corresponding old index for January 2001. This normalization process

ensures that the old and revised indexes will have a seamless transition. 

If that was a little hard to understand, we present a simple example to

illustrate the CEPCI calculation

process. Consider the Buildings subindex for the March 2001. The components, their weight factors, and their

PPIs are shown in Table 4. The weight

factors are in Table 3 and the base PPI

values for 2000 have been stored. The

current PPI data were read from the

BLS website: www.bls.gov/data/home

.htm. The unadjusted ratio is (current

PPI)/(base PPI). General Building Contractors is a labor cost, so it is multiplied by a productivity factor (0.3040 in

March 2001).

The Weighted Product is the adjusted PPI ratio multiplied by the

weight factor. The sum of these

weighted products is shown both before and after normalization. Again,

the normalization (splicing) factor is

the ratio of the Buildings sub-index

calculated via the old CEPCI to the revised sub-index. Finally, the post-normalization value, 385.4, is the Buildings sub-index for March 2001. The

splicing factors are stored in the

spreadsheet and they were worked

out to make sure that the index continues without a discontinuity. Table

5 is a list of normalization factors. 

What was revised?

There are more compelling reasons to

revise the CEPCI than the centennial

of this magazine in 2002 or the start of

a new century. Progress over the last

18 years is the main impetus for a

fresh look. Here are some of the reasons for an update, and some of the actions put into the revised index. 

1) The BLS no longer reports 14 of

the PPI inputs to the old CEPCI. Consequently, each of these inputs had to

be frozen at the value last reported by

BLS. Needless to say, a frozen PPI

contributes nothing to the index-updating process. We were able to find

suitable replacements for these discontinued PPIs. These replacements

are listed in Table 6.

2 ) Two of the labor categories in the

old CEPCI (Draftsman and Typist) a r e

CHEMICAL ENGINEERING WWW.CHE.COM JANUARY2002 67

TABLE 6. DISCONTINUED BLS PRODUCER PRICE INDEXES 

AND THEIR REPLACEMENTS

Discontinued Producer Price Index Replacement Producer Price Index

Number Name Number Name

wpu10170611 Standard pipe, carbon wpu10170618 Line and std. pipe and oil

country tubular goods, etc

wpu10170622 Pressure tubing, welded, wpu10170628 Pressure tubing, carbon

carbon

wpu10170624 Mechanical tubing, wpu10170629 Mechanical tubing, 

welded, carbon carbon

wpu114105 Other compressors wpu114111 Other compressors and 

vacuum pumps

wpu10720112 Bulk storage tank, 6,000 wpu10720104 Storage and other 

gallons or less non-pressure tanks

wpu10720113 Bulk storage tank, over wpu10720104 Storage and other 

6,000 gallons non-pressure tanks

wpu10720138 Custom tanks, 3/4 in. wpu10720136 All other tanks and 

and less vessels,custom-fabricated 

at factory

wpu10720147 Petroleum storage tanks wpu10720104 Storage and other 

non-pressure tanks

wpu10720148 All other customized wpu10720152 Metal tanks and vessels, 

tanks, field assembled custom fabricated and

field erected

wpu11660412 Chemical mixers wpu116604 Chemical industry 

machinery

p c u3 3 1 2 # 4 1 5 1 1 Structural steel shapes p c u3312#4 Hot rolled bars, plates, 

and structural shapes

wpu114904 Parts & attachments for wpu114903 Metal pipe fittings, flanges,

valves & fittings and unions

p c u3312#453 Stainless steel plates p c u3312#45 Plates and structural 

shapes, stainless

TABLE 7. WEIGHT FACTORS AS REVISED

Component or component group PPI No. Weight factor

original Revised

Prepared paint wpu0621 0.028 0.024

Hot-rolled bars, plates & structural shapes pcu3312#4 0.382 0.406

Concrete reinforcing bars, carbon steel pcu3312#425 0.077 0.089

Concrete ingredients wpu132 0.117 0.129

Insulation materials wpu1392 0.396 0.353

Engineering pcu8711#1 0.330 0.325

Designer-drafter pcu8712#4 0.470 0.395

Executive, administrative, and management ecu11112I 0.140 0.220

General building contractors ecu20150006 0.334 0.467

Heavy construction contractors ecu20160006 0.333 0.317

Special trade contractors ecu20170006 0.333 0.217

Heat exchangers and tanks grouping 0.370 0.338

Process machinery grouping 0.140 0.128

Pipes, valves and fittings grouping 0.200 0.190

Process instruments grouping 0.070 0.105

Pumps and compressors grouping 0.070 0.064

Electrical equipment grouping 0.050 0.070

Structural supports and miscellaneous grouping 0.100 0.105

Equipment grouping 0.610 0.507

Buildings grouping 0.070 0.046

Engineering and supervision grouping 0.100 0.158

Construction labor grouping 0.220 0.290
no longer relevant. These days, drafting is typically done via CAD (computer-assisted drafting) programs, not

on blueprints, and today’s engineeringdesign firms employ hardly any typists. PCs on everyone’s desk have replaced most typists. Hence, we

replaced these labor categories with

those that more accurately reflect the

21st-century labor mix. These new job

categories are in Table 3 under the Engineering and Supervision sub-index.

3 ) Another area needing modernization was the set of component-weight

factors. For the most part, these reflected the composition of the typical

CPI plant circa 1960 or 1970. We surveyed roughly twenty CPI companies,

engineering firms, index publishers

and technical organizations to obtain

the information necessary to update

these weight factors. As a result of their

responses, we modified all of the Level I

and Level II weight factors, and several

of the component weight factors [7]. 

Table 7 displays the weight factors

that were changed, showing both the

old and revised values. We had to adjust components (such as Prepared

Paint), Level I component groups

(Heat Exchangers and Tanks), and

Level II component groups (Equipment). The new weight factors for

each entry (whether revised or left unchanged) are listed with their position

on Table 3. For instance, the revised

weight factor for Heat Exchangers

and Tanks (0.338) tells us that this

component group accounts for 33.8%

of the Equipment sub-index, not

33.8% of the composite CEPCI. 

The differences between the original (1982) and revised (2001) weight

factors are not large. Still, there is a

definite trend away from equipmentoriented components and toward

labor-cost-oriented components. The

Equipment sub-index weight factor

decreases from 0.61 to 0.507, while

the factor for Construction Labor increases from 0.22 to 0.29. The relatively slow growth in equipment

prices (as tracked by the PPIs) over

the past few decades account for much

of the drop in the equipment component weight factors. This slow price

growth is due to improvements in domestic fabrication processes, the importing of foreign-made equipment,

and other factors. On the other hand,

the relatively large increases in labor

costs (both technical and non-technical) are attributable to the usual influences — inflation, skilled personnel

shortages, and labor-management

bargaining agreements. 

4 ) Lastly, the annual productivity

growth rate was revised to better reflect both short- and long term changes

in construction-labor productivity. As

this growth rate is the key input to the

productivity factor, it had to be selected

with care. Unfortunately, while the

BLS compiles labor-productivity data

for 100% of the manufacturing sector,

68 CHEMICAL ENGINEERING WWW.CHE.COM JANUARY 2002

Engineering Practice

FIGURE 2. The revised CEPCI shows a

slight tendency to decline while the old

index is rising during 2001

FIGURE 3. The revised Equipment

subindex shows a steady decline while

the old Equipment subindex is nearly

constant during 2001

TABLE 8.NEW CE PLANT COST INDEXES: JANUARY – SEPT. 2001

Index/ Month Jan. Feb. Mar. Apr. May Jun. Jul.* Aug.* Sept.*

CE Plant Cost 395.4 393.6 394.4 393.2 393.8 393.9 393.8 394.2 393.7

Equipment 439.6 437.0 437.7 437.7 436.5 436.5 436.8 436.8 436.1

• Heat exchangers 

and tanks 367.7 365.6 365.7 360.3 361.3 361.3 363.6 363.0 364.6

• Process machinery 441.6 441.1 442.1 441.5 442.1 443.3 442.6 440.9 431.1

• Pipes, valves 

and fittings 551.2 544.1 545.8 551.6 549.0 547.8 547.0 540.4 542.4

• Process instruments 368.1 365.8 365.8 364.5 363.8 362.9 361.0 360.2 357.1

• Pumps and

compressors

672.6 670.3 673.0 673.3 675.8 674.0 673.3 693.1 695.3

• Electrical equipment 340.2 340.8 341.7 342.1 342.6 342.0 341.8 341.1 341.1

• Structural supports

and misc. 416.3 414.2 414.3 413.4 413.6 415.9 415.7 415.8 416.6

Construction labor 300.6 300.0 301.1 299.1 300.8 301.5 301.2 305.3 304.7

Buildings 385.4 385.6 385.6 385.2 389.1 389.1 386.6 387.8 387.4

Engineering 

and supervision 341.3 341.1 342.5 343.7 343.4 342.8 342.2 342.2 341.5

* The index values for this month are preliminary

TABLE 9.COMPARISON OF CE PLANT COST INDEXES: JAN.–SEPT. 2001

Month CE Index Equipment Const. Labor Buildings Engr.and Supv.

revised older revised older revised older revised older revised older

Jan. 395.4 395.4 439.6 439.6 300.6 300.6 385.4 385.4 341.3 341.3

Feb. 393.6 395.1 437.0 438.8 300.0 301.4 385.6 385.7 341.1 341.0

Mar. 394.4 394.3 437.7 438.1 301.1 300.0 385.6 383.9 342.5 341.7

Apr. 393.2 394.5 436.5 439.6 299.1 297.6 385.2 382.7 343.7 341.4

May 393.8 395.4 436.5 439.7 300.8 299.8 389.1 386.6 343.4 342.0

June 393.9 395.1 436.5 439.0 301.5 300.2 389.1 386.2 342.8 341.7

July(P) 393.8 395.3 436.8 439.1 301.2 301.6 386.6 385.2 342.2 341.5

Aug.(P) 394.2 396.3 436.1 439.7 305.3 303.9 387.8 386.7 342.2 342.1

Sept.(P) 393.7 396.8 435.7 439.9 304.7 305.4 387.4 387.4 341.5 341.8
it does not compile construction-labor

productivity data. Our efforts to obtain

these data from other sources, governmental and private, failed.

However, based on BLS’s recommendation, we have decided to use the

labor productivity for the Total Nonfarm Business sector. According to

BLS, this sector, “represents changes

in the productive efficiency of a sector

that includes service-producing industries and the construction and mining

industries, as well as manufacturing”

[8]. The annual productivity growth

(measured in output per hour) for the

Private Nonfarm Business sector was

2.3% for the 1995–98 period and 2.2%

for the 1947–98 period [9]. (The most

recent year for which these productivity data are available is 1998.) Thus,

the short and long term compound

growth rates for this sector are virtually equal. We have selected the 2.2%

annual growth rate to use in the productivity factor calculation. This replaces the 1.75% rate used in the old

CEPCI computation. (Coincidentally,

the 2.2% rate is close to the arithmetic

mean of 1982’s 1.75% and the original

2.5% rate used [1963 to 1981] in the

CEPCI calculation.)

Something old, something new

In this ending section, we present the

new indexes and display them sideby-side with the indexes they’ve replaced. The achieved objective has

been to improve and update the

CEPCI but not change its basis. 

For this comparison we prepared

Table 8. This table lists the CEPCI

composite, along with its sub-indexes

and component-indexes for the

months of January through September 2001. Note that the indexes for

July and August and September are

still preliminary. That is, at the time

of the writing of this article (mid-December) the BLS inputs for the

months following June were not final. 

While it’s a bit risky to draw inferences from preliminary results, we can

indicate some trends, or lack thereof.

The CEPCI composite decreases from

a January high of 395.4 to 393.7 in

S e p t e m b e r. But in the meantime, it oscillates within that range. The Equipment sub-index shows a modest decline while Construction Labor

increases. Meanwhile, the Buildings,

and Engineering and Supervision subindexes stay almost constant during

these n i n e months. 

This is interesting, especially when

we remember that these last three subindexes are heavily weighted with

labor-cost components. That is, any

changes — increases or decreases — in

these labor components have been discounted by the productivity factor. Despite that dampening effect, the sub-indexes have grown, while the composite

CEPCI and Equipment sub-index have

decreased. A good part of that decrease

is due to the steep drop during this peCHEMICAL ENGINEERING WWW.CHE.COM JANUARY2002 69

THE VAPCCI INDEXES

Several cost indexes appear on the Economic Indicators page of this magazine. One set of that relies

heavily on BLS inputs consists of the Vatavuk Air Pollution Control Cost Indexes (VAPCCIs). These are custom-designed for adjusting the equipment costs of

air-pollution control systems. They were created in

1994 and first published in CE in late 1995 [11].

These quarterly indexes presently cover 11 controlequipment categories. The first-quarter of 1994 is the

base date for the VAPCCIs. All indexes have been arbitrarily assigned a value of 100.0 for that base date.

Table 10 lists the annual VAPPCIs for 1994 through

2000. Each annual index is the average of the quarterly indexes. Year 2001 can be found on the back

page of this issue. Reference [11] is posted at

www.che.com/CEEXTRA. ❒

FIGURE 4. There is no discernable difference in Construction Labor subindex

in 2001 between the revised and the

older version

FIGURE 5. There is no significant difference in Buildings Cost subindex in

2001 between the revised and the older

version

FIGURE 6. There is a no systematic difference in Engineering and Supervision

Cost subindex in 2001 between the revised and the older version

TABLE 10. VATAVUK AIR POLLUTION CONTROL COST INDEXES

Control device Year

1994 1995 1996 1997 1998 1999 2000

Carbon adsorbers 101.2 110.7 106.4 104.7 103.6 100.8 108.0

Catalytic incinerators 102.0 107.1 107.0 107.7 106.5 102.9 114.3

Electrostatic precipitators 102.8 108.2 108.0 108.8 109.2 101.2 101.1

Fabric filters 100.5 102.7 104.5 106.2 109.5 111.7 113.0

Flares 100.5 107.5 104.9 105.8 103.6 99.4 104.3

Gas absorbers 100.8 105.6 107.8 107.6 109.7 110.9 112.9

Mechanical collectors 100.3 103.0 103.3 103.9 111.0 119.6 121.8

Refrigeration systems 100.5 103.0 104.4 106.1 107.6 105.7 106.1

Regenerative thermal 

oxidizers 101.4 104.4 106.3 107.9 108.9 108.1 109.0

Thermal incinerators 101.3 105.9 108.2 109.4 110.5 108.1 107.9

Wet scrubbers 101.3 112.5 109.8 109.0 109.7 108.8 113.8
riod in some of the steel-related PPIs

that are key inputs to the Equipment

components. These include such components as stainless steel plates

(dipped 7.4%) and carbon steel sheet

(declined by 6%). Because the Buildings, Engineering and Supervision,

and Construction Labor sub-indexes

are influenced much more by changes

in labor costs than in basic steel prices,

they usually increase over time.

Finally, the revised and old (previous)

C E P C Is for January through S e p t e mb e r 2001 are compared in Table 9. This

table, along with Figures 2 through 6,

displays the respective C E P C I c o m p o sites and the four major sub-indexes. Notice that the January entries in Table 8

are identical. This is not mere coincidence. As explained earlier, the revised

C E P C I composite and sub-indexes for

January have been purposely equated

with the their counterparts in the old

C E P C I. This normalization has been

done to effect a seamless transition between the two C E P C Is. 

While there isn’t space in this article

to compare all five indexes, we can

focus on one, the CEPCI composite.

From equality in January-March, the

respective composites begin to diverge.

By September, the composites have

drifted away from each other by 2.9

points. The revised index shows a little

deflation and the old index shows a little inflation. We can allow one observation: The old and new CEPCIs are

responding to the same economic inputs — for instance, the PPIs and productivity factor. But, because of the revisions we’ve made, the indexes are

responding to them differently. 

Some final thoughts

We hope that the revised CEPCI is a

much better fit than the previous version, with respect to how accurately it

tracks changes in CPI plant-construction costs. Nevertheless, the CEPCI

cannot be applied unthinkingly; there

are limitations to its use. 

In general, the CEPCI can be used

confidently, to escalate plant costs, but

only for periods no greater than five

years (See box p. 66). Such limitations

merely remind us of the true nature of

indexes. That is, like all other indexes,

the CEPCI is merely a model — a representation of equipment and labor

pricing schemes. Over one extended period, the CEPCI might track these

prices quite closely. But over the very

next period, it might deviate from them

significantly. Needless to say, do not escalate plant costs blindly via the CEPCI

(or any other index) if you can access

current costs. Still, when there is not

enough time or resources to obtain the

latest costs, the CEPCI and its components — easy to use, easy to understand, and custom-designed for the CPI

— provide an excellent substitute. ■

Edited by Peter M. Silverberg

Engineering Practice

Author 

William M. Vatavuk is president of Vatavuk Engineering

(3512 Angus Road, Durham,

N.C. 27705-5404; Phone: 919-

489-8810; Fax: 413-638-1336;

Email: williamvatavuk@msn

.com), a consulting firm specializing in air-pollution-control technology and cost

analysis. He retired from the

U.S. EPA’s Air Programs Office in 1999 after a thirty-year

career. Vatavuk is the author of two books and

dozens of technical articles on cost analysis for

pollution control. He created and regularly updates the “Vatavuk Air Pollution Control Cost

Indexes” which appears monthly in CE. Vatavuk

has a B.E. in pollution engineering from

Youngstown State University and is a registered

professional engineer in North Carolina. 

References

1. Arnold, T.H. and Chilton, C.H., New Index

Shows Plant Cost Trends, Chem. Eng., pp.

143–148, February 18, 1963.

2. Matley, J., CE Plant Cost Index — Revised,

Chem. Eng., pp. 153–156, April 19, 1982.

3. Ibid.

4. Stevens, R.W., Equipment Cost Indexes for

the Process Industries, Chem. Eng., 54, 11,

pp. 124–126, November 1947.

5. Arnold and Chilton, Op Cit.

6. Kowal, J., U. S. Bureau of Labor Statistics,

Producer Price Index Analysis and Public Information, E-mail sent August 27, 2001. 

7. The following individuals kindly provided

(via private communications) helpful suggestions for improving the weight factors:

• William Haselbauer (Lyondell, Houston, Tex.) 

• John Hollmann (American Association of Cost

Engineers, Morgantown, W. Va,)

• Bernard A. Pietlock (DuPont Automotive,

Wilmington, Del.)

• Richard Vishanoff (Marshall & Swift, Los Angeles, Calif.)

8. Usher, L., U.S. Bureau of Labor Statistics,

Division of Industry Productivity Studies, Email sent February 28, 2001. 

9. U. S. Bureau of Labor Statistics, “Multifactor Productivity Trends, 1998,”

(http://stats.bls.gov/news.release/

prod3.nr0.htm), September 21, 2000. 

10. Merrow, E.W., and H o l l m a n n J.K,. Controlling Project Costs, Chem. Eng., 108, 12,

pp.76–80, November 2001.

11. Vatavuk, W., Air Pollution Control — Escalate Equipment Costs, Chem. Eng., 102, 12,

pp. 88–95, December 1995. A copy of this article has been posted at www.che.com/CEEXTRA

70 CHEMICAL ENGINEERING WWW.CHE.COM JANUARY 2002