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(EST-4013) Confronting Price Escalation and Volatility Issues with Construction Materials

Level: Intermediate
TCM Section(s):
7.3. Cost Estimating and Budgeting
7.7. Procurement Planning
Venue: 2023 AACE International Conference & Expo

Abstract: The construction industry in the United States is currently beset by significant price escalation beyond normally expected year-to-year increases along with material-supply issues impacting construction schedules as well with construction materials. This presentation concerns how owners and contractors can deal with these issues including value-engineering alternatives, construction-contract protections, escalation/inflation-indexing, project pre-purchasing, client transparency/open-book management, and other solutions currently being implemented in the industry. In some cases, due to the wane of the worldwide pandemic and vaccinations, supply-line issues are expected to achieve some degree of resolution. Issues concerning the significant escalation in material pricing may not be transitory but instead will be here for some time due to federal monetary policies and other factors. Many economists believe that a primary cause of escalation and inflation in the economy is deficit spending by the federal government and resulting increases in the money supply. While the in the early 2000s ceased after several years with the advent of the 2008 financial collapse, the current trends may be more in concert with what was seen in the 1970s. While the focus of the paper concerns the U.S. experience, those in other countries experiencing similar issues may find useful information to also deal with these challenges as escalation historically takes place at varying rates in various countries.