Construction inflation is an allowance included in an order of cost estimate or cost plan for changes in the prices of labour, plant and equipment, and materials during the period from the date of tender return to the mid point of the construction period. See also tender inflation.
Under NRM 1, inflation is split into two parts. Tender inflation covers the period from the base date of the estimate to the date of tender return. Construction inflation then covers the period over which the contractor will be buying labour and materials. Using the mid point of the construction period is a simple way of reflecting that costs are incurred progressively. How much construction inflation the client carries depends on the contract: on a fixed price contract the contractor prices the risk, while a fluctuations or price adjustment provision passes some of it back to the client.
Related terms: tender inflation, base date, fluctuations, cost index.
