Watching inflation in project cost estimating

Abstract

In this article the consequences of cost escalation on the estimation of project costs are described. There are many reasons why costs in many sectors of the project process plant industry have escalated at a higher rate than the rise in materials and earnings and the general inflation rate: The upsurge in the U.K. demand for plant in the period of 1974–1976, especially North Sea oil and gas projects, the decline in sterling relative to other currencies, the price control legislation tending to encourage suppliers and contractors to obtain business overseas. Another important, and somewhat hidden factor, was the unusual demand on the European process plant industry from the process industries in the U.S.A. whose plant manufacturers were failing to meet the higher level of home demand. There has been evidence that during the last year many suppliers are having to quote prices at a much lower rate than previously in an endeavour to maintain their throughput; this should assist in keeping the escalation rate of process plant at a tower level.