Best Practices for Dealing with Price Volatility in Utah's Residential Construction Market

Abstract

Price volatility is a problem that affects each discipline involved in the residential construction industry. The myriad factors that can have an impact on construction costs are such that it is extremely hard to anticipate upcoming changes in a timely and accurate way. When prices fluctuate during the course of a project, estimates become erroneous and completion of projects within expected budgets becomes difficult. Increasing prices typically leave contractors with the majority of the risk burden due to the enforceability of contracts were likely executed months prior. Numerous methods have been developed for managing the risk of price volatility. The various methods available are implemented based on the disciplines involved, the types of contracts being used, and the existing market conditions. Typical practices transfer the risk of price volatility to other involved disciplines, be it the owner, the contractor, subcontractors, or suppliers. However, no method has proven completely effective at removing the risks associated with price volatility. Involved disciplines need to utilize a combination of best practices to protect themselves. They need to coordinate and communicate with the other disciplines to ensure that the risk of price volatility is appropriately accounted for and managed throughout the construction process.