Typically, the contractor is responsible for the risk related to fluctuations in labor, equipment, and material costs during the project. However, if a contractor’s operation is delayed by compensable delay from one labor agreement period to another, causing the contractor to pay a higher hourly wage rate, the contractor may be entitled to additional compensation.

Note that escalation can be caused by both a critical and non-critical delay.

The same would apply if the purchase of materials was postponed due to a compensable delay and, as a result, the materials purchased for the project cost more.
Damages resulting from escalation are usually determined by calculating the difference between the cost of the labor, equipment, or material components that the contractor would have incurred had there been no delay and the actual cost of the labor, equipment, or material components resulting from performing the work later than originally planned.
Note that a contractor’s recovery of escalation damages is not limited to just critical project delay.

Escalation damages can also result from owner-caused inefficiency, disruptions, and suspensions that do not result in critical project delays; but, instead to specific, non-critical work operations.

Asphalt and Fuel Price Escalation Provisions

Note that some construction contracts contain price escalation provisions for items like asphalt and diesel fuel. Contractors should be aware of these contract provisions and how they affect their entitlement to the recovery of delay damages for material cost escalation and how those costs should be calculated.