de la Garza, J M and Melin, J W (1986) Prepayment ability to offset inflation. Journal of Construction Engineering and Management, 112(4), pp. 514-529. ISSN 0733-9364
Abstract
A model is presented to highlight actions that both owners and contractors, who do construction overseas, need to take in order to obtain cost-effective construction projects. The model delineates a clear relationship between inflation, price escalation, time-lag, prepayment, and the effects of price escalation on the value of the project. To simplify that relationship, the model concentrates inflation, price escalation, time-lag, and profits into one term, the project's net present value. The analysis reveals three major points. First, the prepayment can be viewed and quantified as an additional markup whose benefits should be shared with the owner. Second, there is, indeed, an equilibrium point that defines the extent to which the prepayment accounts for inflation coverage, and thus no price escalation is needed. Finally, price escalation clauses in countries having high levels of inflation do not encourage prudence in spending. On the contrary, price escalation clauses encourage price escalation.
| Item Type: | Article |
|---|---|
| Index terms: | profit, construction project, inflation, owner, net present value |
| Subjects: | economic analysis, sociology, production management |
| Topics: | Business Strategy, Project Management, Stakeholder Management |
| Descriptive scope: | 3 PCA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here