Understanding True Cost of Construction | FTI Consulting

Understanding the True Cost of Construction in Today’s Market

Construction

August 7, 2019

Stocks

In recent years, companies have begun to raise concerns about the increase in costs for their major construction projects, looking for clarity as to why costs have doubled from what they were 20 years ago. Industry analysis confirms that project costs have grown about 200 percent in the last 2 decades, but only approximately 60 percent of that growth can be accounted for with inflation.

This leaves 140 percent of project cost growth unaccounted for—adding up across a combination of owner costs, indirect construction expenses, bulk material, equipment, home office and engineering and direct construction—leaving many project owners scratching their heads as to why they are paying twice as much today as they did for similar projects in the 1990s.

While overall equipment and materials costs have remained consistent with standard market inflation, and there has been some alleviation of cost pressures with the open global marketplace, overall project budgets are still increasing. There are a number of factors impacting this escalation. It is important for owners and project leads to understand the causes for the dramatic rise in construction costs over the last 20 years. The following will evaluate the real cost of projects today, providing key considerations to plan and measure projects going forward.

Often, companies approach engineering, procurement and construction (EPC) contractors with the expectation that a new project will cost the same or near the cost of a similar past project or budgets pulled from historical market data, and ask for comparable bids.


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