Construction Cost Escalation: What Facility Managers Need to Know
In today’s rapidly shifting economic climate, construction costs are anything but predictable. Whether you're managing capital improvements for a university campus, renovating a healthcare facility, or expanding a commercial property portfolio, the reality is the same—construction costs are escalating, and it’s not a temporary trend. For facility leaders responsible for budgeting, planning, and long-term investment decisions, understanding the causes and implications of cost escalation is no longer optional—it’s essential.
At Vivid Project Management, we work alongside owners and facility teams across healthcare, pharma, higher education, commercial, and retail sectors. Our role is to help you navigate the complexities of modern project delivery, and right now, that means helping you respond strategically to rising construction costs.
Understanding Construction Cost Escalation
Cost escalation refers to the increase in the price of materials, labor, equipment, and other inputs over time. While minor fluctuations are normal in any market, today’s environment is experiencing prolonged and significant increases driven by several intersecting factors.
Some of the primary drivers include:
Material shortages and supply chain disruptions
Labor scarcity and rising wages
Inflation and interest rate hikes
Geopolitical tensions and regulatory shifts
Surging demand for sustainable and technologically advanced buildings
These pressures are impacting every stage of the construction lifecycle—from preconstruction budgeting to procurement and closeout. Left unaddressed, cost escalation can cause project delays, scope reductions, and even cancellations.
In our own work across the Mid-Atlantic region, we’ve seen escalation rates between 6% and 9% year-over-year on healthcare renovations – particularly where MEP trades and specialty finishes are involved.
The Numbers Behind the Trend
According to the U.S. Bureau of Labor Statistics, construction input costs rose over 11% from 2021 to 2023, with certain materials like steel, copper, and concrete experiencing increases well above that. The Turner Building Cost Index, a widely respected benchmark in the industry, has tracked steady quarterly cost increases for nearly three years.
Locally, general contractors in New Jersey and Greater Philadelphia have reported material bid volatility of +/- 3-5% within a 30-day window. This reinforces the importance of securing pricing early and protecting capital budgets with built-in escalation buffers.
While we are seeing some leveling off in select categories, the general consensus among economists and construction professionals is that higher costs are here to stay—at least for the foreseeable future.
Why Facility Managers Should Pay Attention
If you're a facility manager, capital planner, or project stakeholder, here’s why construction cost escalation matters:
Your budgets may no longer reflect real market conditions
Budgets developed even a year ago may already be outdated. Escalation must now be factored into every capital planning cycle. We recommend a minimum 5-7% annual escalation factor in budget models for projects starting within the next 12-18 months.Projects take longer and cost more
Procurement delays, material price volatility, and extended timelines can significantly alter project schedules and final costs.Value engineering may compromise long-term performance
In an effort to cut costs, some teams reduce scope or quality—decisions that can increase maintenance burdens or reduce facility efficiency over time.Financing structures may shift
As interest rates rise and lender requirements change, the structure of financing packages is becoming more complex and potentially more expensive.
How to Plan for Cost Escalation
While cost escalation cannot be entirely avoided, it can be managed. Here are several strategies we recommend to our clients:
1. Start Earlier
Engage your project team—including your owner’s rep—early in the planning phase. Early engagement allows for realistic budgeting, smart phasing strategies, and early procurement of long-lead materials.
2. Use Escalation Contingencies
Set aside specific contingencies for escalation in your capital project budgets. These are separate from traditional construction contingency funds and are designed to cover anticipated increases in materials and labor. A best practice is to allocate 3-6% of hard costs to escalation contingency depending on project type, schedule duration, and market volatility.
3. Invest in Market Intelligence
Stay informed about the latest trends in your region and industry. Our team regularly provides clients with benchmarking data, vendor input, and escalation forecasts to support informed decision-making.
4. Negotiate Procurement Strategies
Consider procurement options that lock in pricing early—such as pre-purchased materials, bulk buys, or guaranteed maximum price (GMP) contracts. These approaches can provide cost certainty and reduce exposure to volatility.
5. Prioritize Critical Infrastructure
If cost escalation is causing delays or reallocation of capital, focus spending on infrastructure projects that are mission-critical, reduce operational risk, or directly impact safety and compliance.
6. Explore Alternative Delivery Methods
Construction Manager at Risk (CMAR), Design-Build (DB), or Integrated Project Delivery (IPD) can allow for more collaborative budgeting and scheduling. These methods often create efficiencies that help absorb or offset cost increases.
The Role of an Owner’s Representative
As an owner’s representative, Vivid Project Management serves as your advocate throughout the planning, design, and construction process. During a period of cost escalation, our responsibilities become even more crucial. We help facility leaders:
Conduct accurate cost estimating and budget validation
Vet and manage vendor performance
Develop risk mitigation plans
Evaluate and recommend cost-saving alternatives
Ensure project alignment with organizational goals and stakeholder expectations
In today’s environment, where the margin for error is shrinking, our team conducts escalation risk audits at project kickoff—identifying trades, timelines, and scopes most susceptible to volatility. We then embed early procurement strategies and targeted contingencies directly into the project charter, ensuring that both the big picture and fine details are aligned for successful delivery.
Looking Ahead: Building with Confidence
The reality of construction cost escalation isn’t going away soon—but it doesn’t have to derail your capital plans. The difference lies in how you respond. By understanding the market, adjusting your approach, and working with trusted advisors, you can still deliver projects on time, within budget, and with the long-term value your organization demands.
At Vivid Project Management, we believe in building with clarity. Our team exists to give you the data, direction, and confidence to move forward—no matter how complex the landscape becomes.
Need help navigating construction costs for your next project?
Let’s start the conversation. Visit www.vividpm.com to learn more about how we support facility leaders from concept through closeout.
