Material Pricing & Escalation Flashcards
7 cards from real CEC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Material Pricing & Escalation flashcards as text
Which of the following factors does NOT directly cause material price escalation in construction?
Answer: An increase in the prime lending rate
The prime lending rate affects financing costs and project feasibility but does not directly drive the price of physical construction materials.
An estimator is preparing a bid for a federal project and must comply with FAR (Federal Acquisition Regulations) escalation clauses. FAR escalation adjustments are typically tied to which index?
Answer: Producer Price Index (PPI) published by BLS
Federal contracts commonly reference the Bureau of Labor Statistics Producer Price Index (PPI) for escalation adjustments under FAR provisions.
A contractor negotiates a 'price in effect at time of delivery' clause for reinforcing steel. This arrangement transfers price risk to:
Answer: The owner
A 'price in effect at time of delivery' clause means the contractor pays whatever the market price is at delivery, transferring that risk from supplier to contractor.
When performing a cost-to-complete estimate at the 50% project milestone, material escalation adjustments should be applied to:
Answer: The remaining unpurchased materials for the balance of work
Escalation adjustments at a cost-to-complete review should apply only to unpurchased materials, since purchased materials have locked-in prices.
A project estimate shows $2.4M in structural steel. The contractor believes steel prices will rise 12% before purchase. What contingency amount should be added for steel escalation?
Answer: $288,000
$2,400,000 × 12% = $288,000 escalation contingency for structural steel.
Which purchasing strategy is most effective for mitigating material escalation risk on a 3-year highway project?
Answer: Locking in prices through forward purchase agreements or long-term supply contracts
Forward purchase agreements or long-term supply contracts lock in prices for future delivery, effectively hedging against escalation on extended projects.
An escalation clause specifies that adjustments are made only when the change in index exceeds a 5% 'threshold band.' If the PPI rises 3.5% from the base date, the contractor receives:
Answer: No adjustment, because the change is below the threshold
A threshold band means no adjustment is made unless the index change exceeds the band; a 3.5% rise is below the 5% threshold, so no adjustment is triggered.