Inflation and the Construction Industry

Inflation has become a chronic problem whose effects permeate the entire construction industry. Owners are not only paying for the increased costs of facilities and capital but also for premiums on construction prices because of the uncertainties of inflation and its side effects. Contractors are faced with severe uncertainty in bidding and financing work on projects. Productivity is affected because contractors cannot accurately forecast long-term returns on their investments and are required to divert necessary capital to meet resource costs. Owners and contractors must plan for these effects and attempt to reduce the risks entailed. In particular, the proper assignment of economic risks in contracting should reduce costs in the long term, although this would entail considerable change in construction industry operations.