Assessment of the Causes And Effects of Price Escalation of Federal Road Contracts in Ethiopia

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Addis Ababa University


It is a mere understood fact that road network expansion is essential for a country’s economic growth and sectors development through enabling provision of road accesses to a number of regions within a country or several international destinations. This is believed to generate and flourish business transaction locally and globally thereby further promoting the economy of the country. In addition to manpower and machinery cost of road projects, construction materials price such as cement, reinforcement steel bar, bitumen, fuel, etc take the lion’s share of the overall total cost of a road construction projects. The ever increasing cost of these construction inputs supplemented with market inflation and other unforeseen national and international factors are hypothetically believed to have strongly contributed to road construction project contracts price inflation. There has been considerable road project price escalation in Ethiopia over the past years that was believed by most stakeholders to have impacted the overall Road Sector Development Program (RSDP) of the country. Road project prices especially over the recent years have been increasing at an alarming rate that the escalation has been neither linearly compatible with the increasing market indicators nor tangibly justified by concerned stakeholders or researchers. Due to the fact, there is a speculation created among the stakeholders whether the planned government’s budget allocations are sufficient enough to cover anticipated sector programs as a result of periodical high tender price offers received that frequently exceeds pre-tender engineering estimates. This is presumed to jeopardize the number of road improvement works that can be achieved for the planned budget year. This research focuses and deals with an in depth assessment of the causes and effects of price escalation of federal road contracts in Ethiopia. As a baseline study, the research went through briefly into the historic study of the trend of price escalation of road contracts in our neighboring east and sub-Saharan African countries to support the final outcome of the assessment. Assessment of the Causes and Effects of Price Escalation of Federal Road Contracts in Ethiopia AAU, Civil Engineering Department – Yadessa Dinsa III Construction Technology & Management The objective of this research is to identify the possible root causes and effects of price escalation of federal road contracts in Ethiopia so that an awareness of the causes would be created amongst road clients, consultants, contractors and stakeholders of the road construction industry so that timely remedial measures would be taken to mitigate the resulting problems in due possible time. Hence to address the problem, a questionnaire was designed and disseminated to contractors, consultants and employers involved in the road construction industry and a supplementary desk study was conducted on price escalation of federal road contracts in Ethiopia to assist the survey study. Based on the findings of the research using simple statistical approaches, Likert’s scale and Kendall coefficient of concordance, it’s been possible to conclude that, cost inflation of construction materials, change in foreign exchange rate of imported materials, lack of proper budgetary planning and less emphasis given to planning by clients and financiers, cost of labor, equipment and material and the tendency of the client to stick to list bidder criteria rather than analyzing the bid offer against the engineers estimate are the first top five causes in chronological order that triggered price escalation of road contracts in Ethiopia. Therefore this research signifies that apart and beyond the stakeholders’ responsibility, due proper contract management responsibility by road clients is inevitable to play a major role in the construction industry from realization, conception, and procurement to the implementation and follow up stages of road projects so that it would be possible to minimize the prevalence of price escalation of road construction contracts in Ethiopia. Key Words: Price escalation, Cost estimation, Inflation, Unreliable & Engineers estimate.



Price Escalation, Cost Estimation, Inflation, Unreliable & Engineers Estimate