Review on Price Adjustment Valuation Practices in Ethiopian Federal Road Construction Projects

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Addis Ababa University


In developing countries with deficit in infrastructure facilities, like Ethiopia, the role of road network expansion programs are fundamental. In line with this logic, Ethiopia is engaging in a number of road construction projects under regional and federal level by implementing consecutive Road Sector Development Programs (RSDP). Nevertheless, due to the fact that most road construction projects take over a year for completion on one hand and the cost of materials, equipment and labor often increase on the other; projects face an increase in contract price which leads to major problems in administration of the contract and completing the project within allocated budget. In contracts, the risk and uncertainty caused by fluctuations in cost of construction materials, labors and equipments, have been managed by providing price adjustment provisions usually by using a formula method. However, the implementation of these provisions encores different challenges regarding to determination of permissible weightings and coefficients as well as getting the price indices/price which reflects the actual market conditions. Therefore this research aims to explore and analyze the current price adjustment valuation methods in Ethiopian federal road construction projects and evaluate their capability in depicting the reality on the ground. To achieve the research aim specific objectives are set and case study method is used as research instrument. Accordingly, probing questions and themes are prepared and meticulously analyzed against the international practices evolved from literature review. The research result shows that the price adjustment practices observed on all selected cases are different on the subject of the non-adjustable portion, permissible weighting ranges as well as the source of index and prices. Based on the analysis of the cases, the establishment of permissible weighting ranges and nonadjustable factors are found to be inconsistent from the logically acceptable international practices. Besides, the question of the reliability and reputability of price indices/prices is identified as point of controversy between contracting parties.



Non-adjustable portion, Price Adjustment, Source of index, prices Weighting Coefficients