Price volatility is a consistent problem that affects all of the parties 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 that are likely to have been executed months prior. The risk associated with the owner's role primarily exists when prices decrease and they are required to make payments on pre-existing contracts that do not accurately reflect "actual" costs at the time of construction. The risk of price volatility needs to be managed. Numerous methods have been developed for managing the risk of price volatility. The various methods available are implemented based on the parties involved, the types of contracts being used, and the existing market conditions. Typical practices transfer the risk of price volatility to other involved parties, 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 parties need to utilize a combination of best practices to protect themselves. They need to coordinate and communicate with the other parties to ensure that the risk of price volatility is appropriately accounted for and managed throughout the construction process.
College and Department
Ira A. Fulton College of Engineering and Technology; Technology
BYU ScholarsArchive Citation
Smith, James Packer, "Best Practices for Dealing with Price Volatility in Utah's Residential Construction Market" (2010). Theses and Dissertations. 2260.
James Smith, price, volatility, fluctuation, residential construction
Construction Management (CM)