There’s a line item missing from most not-for-profit construction budgets. It’s invisible in year one and unavoidable by year three.
Imagine approving a construction budget in the spring. The architect has finished schematic design. The cost estimator has signed off. Everyone in the room feels good about the number. The board votes to proceed.
Now fast-forward eighteen months. The project is ready to bid. The contractor’s number comes back 11% higher than the estimate. The room goes quiet.
What went wrong? Nothing, except that nobody budgeted for escalation.
Construction cost escalation is the simple, relentless reality that building materials and labor cost more tomorrow than they cost today. In the Northeast and Mid-Atlantic, annual escalation has historically run 3 to 6% in stable markets. Currently, uncertainty from tariff and oil shock exposure is driving heightened escalation risk.
Nassim Taleb: “The accuracy of a forecast degrades rapidly as you extend it through time.” Budget estimates are forecasts.
An experienced Owner’s Rep applies escalation factors indexed to the anticipated midpoint of construction, not the date of the estimate.
Pandion Development Management builds forward-looking budgets. Call us.
