Predicted cost escalations in competitively bid highway projects

Low bid and completed project cost data were obtained for competitively bid highway construction projects in Great Britain and the United States. A st rong linear relationship exists between the natural logarithm of the low bi d and the natural logarithm of the completed project cost. Linear regressio n models were developed to predict the natural logarithm of completed proje ct cost using only the natural logarithm of the low bid as input. The regre ssion equations for the British and American data were similar. The models produced good predictions with 23 of 28 British test projects and 84 of 90 American test projects predicted within 15% of the actual final cost. It wa s shown that the relationship between the untransformed low bid and final p roject cost is a multiplicative model where final project cost increases as a power of the low bid, multiplied by a constant.