Issues with Construction Cost Indexes, Location Factors, and Cost Estimating for IDIQ and JOC impact cost visibility and transparency. Indefinite Delivery and Indefinite Quantity (IDIQ) and Job Order Contracts (JOC), as well as other multi-year construction contracts require a way for contractors do account for cost impacts associated with various contingencies. In this case the discussion is centered upon addressing costs for the local market as well as annual (or quarterly) economic impacts to costs.
Independent research and professional experience has clearly demonstrated that the use of location factors/indices and economic indexes are do not enable reliable cost information capable of being used for construction planning, procurement, and associated project delivery.
Locally researched detailed unit price cost data is best suited for providing verifiable cost visibility and transparency at a site, or other appropriate geolocation basis. Similarly, updating the locally researched cost data annually or quarterly provided far more useful information than the simple multiplication of a cost factor. In this manner, labor, material, and equipment can all be updated at a granular level to best reflect actual costs of construction tasks.
History of Cost Factors
Initially, index numbers were used to factor in the cost of money.the value of the money using simple non-weighted values. The were used primarily in the financial sector. Indexes were not used in the construction industry until the 1920’s. Today there are multiple indexes available targeting time-based economic costs at both a high level on an annual, quarterly, monthly basis, etc., as well as factors addressing specific classes such as materials, equipment, or labor. Location factors are also now readily available.
Issues with Construction Cost Factors
Although using construction cost factors to localize cost data is faulty concept it remains common practice. The common practice of using construction cost indexes to localize cost information or account for changes over time should be reconsidered by all real property owners.
References
- 2016 – Indefinite Delivery/Indefinite Quantity project
selection framework using stochastic techniques - 2011 – Price Indexing in Transportation Construction Contracts
- 1975 – Index numbers in theory and practice