PEP Review 89-2-1
Review of Trends in the PEP Plant Construction Cost Indices and Location Factors
Published: April 1990
The engineering/construction industry has become highly globalized and much of its procurement is carried out on an international basis. In contrast, index series that track plant cost escalation typically are based on producer price data that primarily reflect only domestic supply in a given location. Our monitoring of trends in plant cost escalation and location factors has led us to conclude that, for more realistic estimates when using escalation indices, it is now necessary to make adjustments to those indices to reflect international procurement. At times of major exchange rate swings, the adjustments that are needed can be substantial.
To enable approximate estimates of the impact of this factor, in addition to the "regular" or domestic procurement based PEP Cost Indices (PCIs), PEP has therefore developed and will maintain an adjusted set of escalation factors: the PEP International Procurement Cost Indices (PIPCIs) for plant cost escalation for the U.S. Gulf Coast, West Germany, and Japan. The derivation and use of the PIPCIs are discussed in this review.