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Synthesis of Information Related to Highway Practices. Topic 57-04. Practices for Incorporating Inflation into Cost Estimates

Preliminary Scope: Incorporating inflation into transportation cost estimates is a standard practice among state departments of transportation (DOTs), but the methods, tools, and policies used vary widely. Inflation adjustments are particularly important for long-term programs and multi-phase projects where delays, funding cycles, and volatile market conditions can significantly affect project costs. While some state DOTs apply standardized annual escalation rates or use historical cost indexes, others rely on regional data, producer price indexes (PPI), and national construction cost indexes. The National Highway Construction Cost Index, for example, has been used by state DOTs to adjust for inflation and price escalation. Practices differ in terms of when inflation is applied (e.g., year-of-expenditure or letting), how often inflation rates are updated, and whether inflation is embedded in unit costs or added as a separate line item. The lack of uniformity can lead to inconsistencies in budgeting, programming, and communication with stakeholders. Recent research and national surveys indicate that many state DOTs include inflation in their cost estimates but face challenges in methodology selection, forecasting accuracy, and transparency. The objective of this synthesis is to document current state DOT practices for incorporating inflation into cost estimates, including adjustment methods, data sources, forecasting tools, application timing, organizational responsibilities, and how inflation is addressed across project phases and integrated into budgeting and programming decisions. Information to be gathered includes (but is not limited to): (1) Types and frequency of inflationary adjustments applied in cost estimates (e.g., annual escalation, year-of-expenditure adjustments, material-specific indexes); (2) Policies on incorporating inflation into estimates and phases of projects where inflation is incorporated (e.g., planning, programming, and plans, specifications, and estimates); (3) Sources of inflation data and methods used for calculating or forecasting inflation in cost estimates (e.g., fixed rates, historical trends, econometric models); (4) Tools or systems used to apply inflation in cost estimates (e.g., Excel, AASHTOWare, custom databases, or cost index calculators); (5) Responsibility and oversight for setting inflation assumptions; (6) Approaches on how inflation is documented in estimate submittals and funding requests, including inflation on multi-year, phased, or alternative delivery projects; and (7) Integration of inflation into State Transportation Improvement Programs (STIPs) or capital improvement plans. Information will be gathered through a literature review, a survey of state DOTs, and follow-up interviews with selected DOTs for the development of case examples. Information gaps and suggestions for research to address those gaps will be identified. Information sources (partial): (1) Rueda-Benavides, J., et al. 2020. NCHRP Research Report 953: Improving Mid-Term, Intermediate, and Long-Range Cost Forecasting: Guidebook for State Transportation Agencies. Washington, DC: Transportation Research Board. https://doi.org/10.17226/25972. (2) Alsharef, A., et. al. 2024. Examining Contingency and Inflation Practices Within Several Departments of Transportation in the United States. Transportation Research Record: Journal of the Transportation Research Board. 2678:10. https://doi.org/10.1177/03611981241235171. (3) A Data Mining Approach for Analyzing the Effects of Price Adjustment Clauses on Bid Prices Considering Material Quantity and Project Size, TRB Annual Meeting, 2015. (4) Is There a “Reasonable Basis” to Use Material-Specific Inflation Rates in Highway Construction Life-Cycle Cost Analysis? TRB Annual Meeting, 2013. (5) Construction Cost Inflation Model, Research in Progress, Wyoming DOT, 2023. (6) Improving Cost Estimation and Budget Planning with New Michigan Highway Construction Cost Index, Research in Progress, Michigan DOT, 2023. (7) FHWA. Lacks Adequate Oversight and Guidance for Engineer’s Estimates, U.S. DOT Office of Inspector General, 2019. (8) A Survey of Preliminary Cost Estimating Approaches Across State Transportation Agencies, ASCE International Conference on Transportation and Development, 2024. (9) AASHTO Practical Guide to Cost Estimating, AASHTO, 2013.

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  • English

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Filing Info

  • Accession Number: 01972943
  • Record Type: Research project
  • Source Agency: Transportation Research Board
  • Contract Numbers: Project 20-05, Topic 57-04
  • Files: TRB, RIP
  • Created Date: Nov 26 2025 5:29PM