New Approach Towards Study and Estimation of Cost Escalation in Construction Industry

Abstract

The constructіon industry іs a vіtal sector іn whole economy and significantly advance socio-economic well-being of a country. Cost escalations  is a well known of the consequentіal іdentіfіed rіsks faced by constructіon іndustry. Current concern to accommodate price variance in India is distorted and non-compensating. With the advent of new and innovative contracting practices in the construction Industry, reviewing the current methodology of price variation(capital and labour risk faced by contractors) and suggesting changes in the working process is of utmost importance. This paper attempts to lay down the alternatives for the traditional cost escalation formula for the Indian construction industry. While the traditional formulae in India and many various countries consider the use of Wholesale Price Index (WPI) and Consumer Price Index (CPI) to predict cost variation, the new approaches lay stress on  new indices known as Construction Cost Indices, or by the market rate method for calculating escalation. This paper further tries to bring forth the other shortcomings in the current methodology and suggests ways to dodge such inadequacies in the new approaches. The paper besides emphasizes the use of these formulae in the international arena and provides a comparison of the methods to highlight the use of these new approaches