Study of Price Adjustment Practices in Medium Building Projects of Ethiopia Over the Last Ten Years
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Date
2024-10
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Addis Ababa University
Abstract
Price adjustment clauses in construction contracts serve to account for fluctuations in material and labor costs, helping to maintain fairness and financial stability for all parties. These clauses typically adjust contract prices based on economic indicators such as inflation, exchange rates, or key commodity prices. Their use reflects the inherently volatile nature of construction projects, where unexpected economic shifts can cause significant cost deviations. Incorporating such mechanisms allows stakeholders to manage risks and uphold contract balance amid changing market conditions.
This study focuses on medium-sized building construction projects in Ethiopia, aiming to evaluate the causes and impacts of price escalation, and to assess current price adjustment practices. The research highlights the importance of managing price fluctuations effectively to support sustainable construction and economic development. Data were collected using a combination of desk studies, self-administered questionnaires (both open- and closed-ended), unstructured interviews, and archival records.
Cronbach‘s alpha, Spearman‘s correlation coefficient and the Relative Importance Index (RII) were employed to analyze survey data and rank contributing factors. Results show that internal issues such as inaccurate cost estimation, poor planning, and unclear contract clauses significantly contribute to price escalation. External factors include volatile material prices and exchange rate instability, particularly affecting items like cement, fuel, and ceramics. These fluctuations result in project delays, cost overruns, cash flow problems, and contractual disputes.
Findings indicate that while the Public Procurement Agency (PPA) contract form is generally effective in addressing price adjustments, concerns remain regarding contractors‘ understanding of the mechanism and the accuracy of applied indices. Recommendations include enhancing contractor awareness, refining tender estimates, improving price databases, and encouraging regulatory oversight. These measures aim to reduce the negative effects of price escalation and strengthen the resilience of Ethiopia‘s construction industry.
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price escalation, price fluctuation, price adjustment, construction price index, medium building projects