Guide for Implementing Price Escalation to Balance Risk Sharing in DOT Construction Projects

With recent labor and material shortages, state departments of transportation (DOTs) are facing difficulty accurately budgeting for projects. This is compounded by the impacts of high inflation. In this unstable market, the cost for materials and labor is volatile and rising rapidly, and contractors must include this risk component in their bids. Fluctuating prices of certain bid items, such as asphalt and fuel, have historically been accommodated through escalation clauses, which can mitigate the dynamic price environment. Through this method, risk is reduced for contractors, which in turn translates into cost savings for the state DOT. It is also recognized that price escalation clauses are extremely limited in practice, there is a lack of consistent indexing for most construction materials and manufactured products (e.g., lane striping), and existing fuel and asphalt binder adjustment factors used by many DOTs are not consistently updated. With the advancement of new construction materials, equipment, and technologies, a national research effort would provide DOTs up-to-date information for specification revisions. The objective of this research will be to determine strategies and processes to broaden escalation clauses through expanded material indexing and improved estimating approaches for commodity/composite materials and labor fluctuations. This approach will help state DOTs equitably share risk with the contractors, reduce overall project cost, and fairly compensate contractors during periods of uncertainty.

• Record URL:
  http://apps.trb.org/cmsfeed/TRBNetProjectDisplay.asp?ProjectID=5532
• Supplemental Notes:
  • Contract to a Performing Organization has not yet been awarded.

Language

• English

Project

• Status: Proposed
• Funding: $450000
• Contract Numbers:

  Project 19-24

• Sponsor Organizations:

  National Cooperative Highway Research Program

  Transportation Research Board
  500 Fifth Street, NW
  Washington, DC  United States  20001

  American Association of State Highway and Transportation Officials (AASHTO)

  444 North Capitol Street, NW
  Washington, DC  United States  20001

  Federal Highway Administration

  1200 New Jersey Avenue, SE
  Washington, DC  United States  20590
• Project Managers:

  Brooks, Michael

• Start Date: 20230731
• Expected Completion Date: 0
• Actual Completion Date: 0

Subject/Index Terms

• TRT Terms: Budgeting; Construction projects; Contract administration; Cost estimating; Risk management; State departments of transportation
• Subject Areas: Construction; Finance; Highways; Planning and Forecasting;

Filing Info

• Accession Number: 01889424
• Record Type: Research project
• Source Agency: Transportation Research Board
• Contract Numbers: Project 19-24
• Files: TRB, RIP
• Created Date: Jul 31 2023 4:40PM