Cost escalation in road and rail construction projects: NSW experience

Cost escalation is a topic of much interest for transport planners, project managers and economists who are keen to understand the drivers underlying cost increases in transport projects. Research undertaken in Australia and overseas indicates that there are several underlying drivers including inflationary trends, market factors, scope changes and changing regulatory requirements. This paper focuses on the inflationary aspects of cost increases over the last 15 years in NSW and shows that cost of road and rail projects have increased faster than the CPI (Consumer Price Index). However, transport agencies in NSW use cost escalation factors that reflect general price trends such as the CPI for budget planning. The use of the CPI or other medium term forecasts for escalation is likely to lead to under-budgeting of project costs in terms of outturn dollars leading to potential shortfalls in cash flow budgets of transport projects. This paper develops specific price indices for road and rail construction based on sample data from road and rail agencies in NSW and proposes escalation factors based on 15 year compound average growth rates (CAGR). A “principal component method” was used to analyse cost trends in key road and rail transport construction projects and forecast escalation factors were developed. The research for NSW indicates that road construction project costs have increased at a compound average growth rate (CAGR) of 3.8% compared to the overall general inflationary trend of 2.8% as measured by the CPI. The corresponding figure for rail construction projects is 4.0%.

• Record URL:
  http://atrf.info/papers/2015/index.aspx
• Authors:
  • Raniga, P
• Conference:
  • Australasian Transport Research Forum (ATRF), 37th, 2015, Sydney, New South Wales, Australia
• Publication Date: 2015-9

Language

• English

Media Info

• Pagination: 15p
• Monograph Title: Informing transport's future through practical research: 37th Australasian Transport Research Forum, 30 September to 2 October 2015, Sydney, New South Wales

Subject/Index Terms

• TRT Terms: Administration; Budgeting; Construction management; Costs; Economics; Evaluation; Financing; Highway operations; Project management; Railroad transportation
• Uncontrolled Terms: Road networks; Transport costs
• Geographic Terms: Australia; New South Wales
• ATRI Terms: Budget; Construction management; Project evaluation; Rail transport; Road management; Transport costs; Transport economics
• ITRD Terms: 1063: Railway network
• Subject Areas: Economics; Highways; Railroads; I10: Economics and Administration;

Filing Info

• Accession Number: 01586984
• Record Type: Publication
• Source Agency: ARRB
• Files: ITRD, ATRI
• Created Date: Jan 14 2016 11:46AM