Contract price adjustment indices, also known as CPAs, are commonly used in the construction industry to adjust contract prices in the event of changes in the cost of materials, labor, and other factors. These indices provide a mechanism for ensuring that both parties to a contract are protected against unexpected changes in prices and can help to minimize disputes.
As we enter July 2021, it`s important to be aware of the latest CPA indices that are in effect. Here are some of the most important indices to keep in mind:
1. Producer Price Index (PPI): The PPI measures the cost of goods and services at the wholesale level, and is often used as a proxy for changes in the cost of materials. As of June 2021, the PPI for construction inputs was up 24.3% year over year, indicating significant inflation in materials costs.
2. Employment Cost Index (ECI): The ECI measures changes in labor costs for private sector workers, and can be used to adjust contract prices for changes in wages and benefits. As of March 2021, the ECI for construction workers was up 2.9% year over year.
3. Consumer Price Index (CPI): The CPI measures changes in prices for goods and services at the retail level, and can be used as a proxy for changes in the cost of living. As of May 2021, the CPI was up 5.0% year over year, indicating significant inflationary pressures in the broader economy.
4. Engineering News-Record (ENR) Cost Index: The ENR Cost Index tracks changes in construction costs and is published monthly by Engineering News-Record. As of May 2021, the index was up 9.2% year over year.
5. RSMeans Construction Cost Index (CCI): The CCI is published quarterly by Gordian and measures changes in construction costs across various regions of the United States. As of Q1 2021, the CCI was up 4.7% year over year.
As you can see, all of these indices indicate significant inflationary pressures in the construction industry and the broader economy. As such, it`s important for contractors and subcontractors to be mindful of these trends when bidding on projects and negotiating contracts. By utilizing CPA indices and other cost adjustment mechanisms, both parties can ensure that they are protected against unforeseen changes in prices and can work together to achieve successful project outcomes.