Material Pricing & Escalation Flashcards

An escalation formula in a contract reads: Adjusted Price = Base Price × (I₁/I₀), where I₀ = 150 and I₁ = 165. If the base price is $200,000, what is the adjusted price?

Answer: $220,000

$200,000 × (165/150) = $200,000 × 1.10 = $220,000.

When evaluating a vendor's quote that is significantly lower than all other bids, the estimator should first:

Answer: Verify that the quote covers the full scope, correct specifications, and applicable delivery costs

An outlier low quote often signals a scope exclusion, specification mismatch, or omitted freight; verification protects against a low-bid trap.

In the context of material pricing, 'basis of design' pricing means the estimate is based on:

Answer: A specific named product used to establish quality and cost, with or-equal substitutions potentially accepted later

Basis of design pricing establishes a cost benchmark using a specified product; substitutions may be evaluated against this baseline during procurement.

Which of the following escalation contingency approaches is most appropriate for a project with a 36-month construction schedule?

Answer: Apply escalation factors phased by the anticipated procurement date for each major material category

Phased escalation by procurement date captures the different timing of steel, concrete, MEP, and finish material purchases, producing a more accurate contingency.

A tariff is imposed on imported steel, raising prices 25% mid-project. Under a standard AIA fixed-price contract with no escalation clause, who bears this cost?

Answer: The contractor, unless a force majeure or change-of-law clause applies

Without an escalation or change-of-law clause, fixed-price contracts assign commodity risk to the contractor; force majeure may provide relief only in limited circumstances.

The term 'price in effect at time of shipment' in a purchase order means the buyer is exposed to:

Answer: Material price escalation between order placement and actual delivery

This clause shifts escalation risk to the buyer; the seller charges the market price at shipment, not the price quoted at order time.

When using a cost index to escalate a historical estimate, which step is performed first?

Answer: Identify the index value at the time the historical estimate was prepared

You must establish the base index value corresponding to the historical estimate date before calculating the ratio to the current index.