Influence of macroeconomic factors on construction costs: an analysis of project cases

Abstract

This study explores the relationship between price increase and project cost increase under macroeconomic shocks by considering the hierarchical structure within price categories, diversification of the cost breakdown structure, infrastructure sector, delivery system, construction methods, and type of bid. The analysis of a large construction company with five large projects as embedded units of analysis reveals significant variations in the relative influence of specific factors across the projects. Unit price categories located higher in the hierarchical breakdown structure display lower vulnerability to macroeconomic changes due to their unique and group-specific influencing factors while price categories influenced by macroeconomic factors depart at lower values in the hierarchical structure. Projects with low-cost breakdown structure diversification can either mitigate or exacerbate cost increases depending on construction methods (off-site or on-site), price drivers of most representative materials (global or local), and delivery systems risk allocation. Under macroeconomic crisis periods, public entities may consider giving high priority to projects more reliant on materials driven by regional dynamics (e.g., concrete pouring) over those driven by global market conditions (e.g., steel, aluminum) while prioritizing integrated delivery systems (e.g., design-build) that promote enhanced collaboration, proactive risk management, aligned incentives, and adaptability for managing complexities and volatilities. Complementary, for projects with higher reliance on global market-driven materials, the results suggest that contractors should prioritize early procurement and acquisition of highly volatile resources in projects under macroeconomic crises.