Case Study: Cost Overrun from Material Price Escalation on Florida Highway Reconstruction (Miami, FL, 2015)

Project Overview
• Name: Miami-Dade Highway Reconstruction
• Location: Miami, Florida
• Year: 2015
• Project Size: $700 million
• Scope: Major highway reconstruction including asphalt paving, bridges, and drainage improvements
• Lead Agencies/Contractors: Florida Department of Transportation (FDOT) /

Category of the Issue, Problem, or Challenge
• Material Price Escalation
• Cost Management

Summary of the Issue, Problem, or Challenge
Significant increases in asphalt and steel prices during the construction period caused unexpected budget overruns.

Root Cause Analysis

• Market Volatility: Global steel and oil price fluctuations impacted material costs.
• Fixed-Price Contracts: Contracts did not account for material price escalations.
• Lack of Hedging: No mechanisms were in place to hedge against price increases.
• Procurement Timing: Bulk purchasing delays led to exposure to market price spikes.

Impacts Due to the Issue, Problem, or Challenge

• Cost overruns reached approximately 18%.
• Budget adjustments required mid-project.
• Contractor disputes over cost sharing arose.

Corrective Actions Taken

1. Adopted escalation clauses in future contracts.
2. Implemented material price monitoring and early procurement strategies.
3. Used financial instruments to hedge against commodity price risks.
4. Increased contract flexibility to share market risks.

Lessons Learned

• Material price volatility must be factored into contract and budget planning.
• Early procurement and price hedging reduce exposure.
• Flexible contracts help manage market risks.

Audit & Prevention: Project Control Questions to Ask on Future Projects to Help Control the Situation

• Are material price risks identified and managed?
• Do contracts include escalation or risk-sharing provisions?
• Is procurement timed to minimize exposure to price spikes?