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  • 1.  Construction Cost Escalation

    Posted 08-09-2018 12:54 PM
    Edited by Tirza Austin 08-09-2018 12:54 PM
    I am researching various cost escalation models for predicting future prices of commercial construction projects. I was wondering if anyone knew of a reliable source for cost indices by state rather than cities or regions?
    Also if anyone would like to share their theories on the best way to predict future costs please share!
    Thanks!

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    Michael F
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  • 2.  RE: Construction Cost Escalation

    Posted 08-10-2018 10:15 AM
    Edited by Tirza Austin 08-10-2018 10:15 AM
    I am a recently retired Structural Engineer and have been reading in the ASCE SMART BRIEF that the major projects forecasting 10% to 25% over the budget costs for the completion of the projects! I remember you have the contingencies built into your original budgets, and that number shall be based on the past historical state by state data available. Yes, I am also interested in the latest tools available to be more accurate forecasting the project budgets. Thanks.


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    Kirit Parekh P.E., F.ASCE
    Senior Struct. Engr
    Raleigh NC
    (919) 782-5306
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    Original Message


  • 3.  RE: Construction Cost Escalation

    Posted 08-10-2018 11:28 AM
    Edited by Tirza Austin 08-10-2018 11:28 AM
    CONSTRUCTION COST ESCALATION SIMULATION MODEL: Cost escalation is the changes in cost or price of specific goods or services in a given economy over a period. Escalation is usually calculated by examining the changes in price index measures for a good or service. Future escalation can be forecast using econometric, and because price escalation may occur in a micro-market (such as construction), The common technique for estimating cost escalation for future event is the Monte Carlo Method. Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted due to the intervention of random variables. It is a technique used to understand the impact of risk and uncertainty in prediction and forecasting models.


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    Olusegun Afolabi P.E., M.ASCE
    University of Lagos
    Lagos
    234803 4248600
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    Original Message


  • 4.  RE: Construction Cost Escalation

    Posted 08-14-2018 10:53 PM
    Edited by Tirza Austin 08-14-2018 10:53 PM
    This isn't a direct answer to the question, but I'm hoping it will add value since it partially explains why it has become more difficult to estimate costs recently, especially in non-urban areas where there is a limited subcontractor supply. I work in the mid-atlantic states (PA and MD predominately) and this is what we've been seeing as becoming more and more common in recent years. 

    We are undergoing a serious construction labor shortage that is only going to get worse. Even things like drywall have gone up in cost 20% in the last year in my area, largely due to increased labor costs. On several design-build projects in the past few years (large commercial or university buildings where a 20 million dollar project is considered "small"), we are seeing an increased trend of large GC's "estimating" by bidding out directly to the subs (or a select group of subs) to get more accurate costs starting as early as schematic design. Escalation of labor is far beyond any increased material costs in my market, and is often related to how many other large projects are going on in the area. With less labor available, labor costs have increased and I don't think there is an end in sight due to retirements and societal status issues around going to college versus a trade school. 

    Most recent large commercial projects we have seen in our area are including a 10-20% labor/material escalation contingency on the entire project (with it mostly being labor) by the general contractor if construction isn't scheduled to finish for a year or more (most of our projects are on a 2 year schedule). So far that's been close and (unfortunately) not overly conservative. Fortunately we are currently working with knowledgeable owners who don't force that escalation contingency down, but I've been in plenty of situations in the past where we told them that contingency was needed, the owner decided it was not, and then there's this surprise when the project is magically over-budget.

    Curious as to others are seeing the same things in their area, or if we just have a particularly tight labor market. These are about the largest escalation contingencies I have seen since I started in the industry 15 years ago.

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    Stephanie Slocum P.E., M.ASCE
    Founder
    Engineers Rising LLC
    State College PA
    (814)826-3151
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    Original Message


  • 5.  RE: Construction Cost Escalation

    Posted 08-15-2018 10:21 PM
    Edited by Tirza Austin 08-15-2018 10:21 PM
    Hello Michael,

    As a colleague of mine stated after reading a post on this thread...its cheaper in Texas. Although she may or may not have been aware she was on to something. Texas heavily relies on seasonal workers in which receive a unique tax form identification. Border states in America do not have rising cost issues because labor is found elsewhere contracted from Mexico and officials in the city. 

    A method to predict cost escalation will be to keep tab on region based on migrant/seasonal workers. The railroad companies use to do it, and so do most of  Forbes top 500 companies!

    Hope this helps!

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    Mike Echevarria S.M.ASCE
    B.S Civil Engineering Undergraduate
    Houston TX
    [Skyscraperboricua@...]
    [Mikeechevarria@...]
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    Original Message


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