EVALUATION OF COST ESCALATION IN CONSTRUCTION PROJECTS OF PAKISTAN AND RECOMMENDING FRAMEWORK FOR MANAGING CONSTRUCTION COST ESCALATION

Abstract

Cost Escalation refers to a rise in prices that causes the purchasing power of a nation to fall. Escalation is a normal economic development as long as the annual percentage remains low; once the percentage rises over a predetermined level, it is considered as inflation crisis. The term “Escalation " once referred to increases in the money supply (monetary inflation); however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price Escalation. Economists generally agree that high rates of Escalation are caused by an excessive growth of the money supply and this trend is expected to continue in the near future due to competition for resources and skilled workers, as well as continued strong growth and excess work available. De-escalation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of escalation is caused by money supply growing faster than the rate of economic growth. The study starts with an overview of inflation in Pakistan with its trends in recent past. Causes and impacts of this increase in cost in construction projects have been discussed. Factors causing construction cost escalation has been highlighted through literature review. Methods for measuring the construction cost escalation in international bidding documents and Pakistan engineering council have been highlighted and discussed in the research .Most appropriate method for the measurement is recommended on the basis of comparisons of 02 formulas currently used in Pakistan by collecting data from construction sites of Pakistan. Survey was carried out regarding the factors affecting the construction cost escalation in Pakistan and issues in providing the provision of cost escalation in construction projects and findings were mentioned on the basis of graphical analysis. Finally a framework has been developed showing the perspective of all concerned in managing construction cost escalation.