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(CDR-978) Evaluating Cost Escalation Using Cost-loaded Schedules

Primary Author: Mr. Sagar B. Khadka CCE PSP McDonough Bolyard Peck, Inc
Co-author(s): Mr Christopher J Payne PE CFCC PSP McDonough Bolyard Peck, Inc

Audience Focus: Intermediate
Application Type: Experience-Based
Venue: 2012 AACE International Annual Meeting, San Antonio, TX, USA

Abstract: Predicting costs of labor, equipment and materials is an intrinsic challenge in construction contracting. The cost of materials for long-term capital construction projects can be unpredictable and swing in either direction during the project performance period. For instance, the construction industry encountered a steep up and down variation in the price of steel during the last decade, creating a highly volatile market environment. When a time extension is awarded to a contractor because of an owner-caused delay, the inclination on the contractor's part might be to expect a materials cost escalation payment for the difference between the bid price and the materials price at the time of purchase. However, that simplistic approach may not reflect all aspects of the cost increase, including the contractor's risk of escalation absent owner delay, the anticipated time of material purchases, and actual material procurement during the project. This presentation will share how such cost escalation claims were evaluated for a large capital construction project, spanning seven years, using the combination of cost-loaded schedules and the relevant materials price analysis.