Assessment of Price Escalation and Adjustment Problems on Federal Road Construction Projects
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Date
2013-02
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Addis Ababa University
Abstract
Managing large capital construction projects requires the coordination of a multitude of human, organizational, technical, and natural resources. Cost has its proven importance as the prime factor for project success. Price escalation is one of the wide ranging problems that the construction industry is facing currently.
Investigation of factors that might contribute to a price escalation is significant in order to notice attention to specific areas of improvement for federal road construction projects in Ethiopia. Hence, assessment of price escalation and adjustment problems on federal road construction projects needs to be done in order to better support the economic development. Accordingly, this research attempts to assess causes and effects of price escalation, to identify problems of price escalation and adjustment and methods to manage/administer price escalation on federal road construction projects,which can serve as the way forward for future work in coping with these escalations. The data required for this study were collected through self-administered open and close ended questionnaires, desk studies/archival records (four in number) and unstructured interviews.
The statistical method of Relative Importance Index and Spearman’s correlation coefficient were used to analyze the collected data through questionnaires. Based on the findings variables were ranked according to their occurrence. In addition the respondent’scorrelation in ranking variables was studied in order to identify the agreements between respondents.
Poor estimation, improper planning and/or improper implementation of proper planning and project schedule changes are identified as major internal causes of price escalation and also increase in material cost/material price fluctuation, increase in global demand for construction materials, fluctuation in money exchange rates and limited capacity of material producers are identified as major external causes of price escalation in Ethiopian federal road construction projects.
Findings revealed that the major effects of price escalation are higher project costs, cash flow (project financing) problem of the projects, delay and dispute among parties. The study also identified uncompensated increase in cost of construction materials, construction price indices MSc. Thesis: Assessment of Price Escalation and Adjustment Problems on Federal Road Construction Projects AAU, AAiT, Department of Civil Engineering Page IV COTM, Mohammed Gashaw, February, 2013
may over estimate or under estimate the market conditions as at how prices have risen and selection of the most suitable index in using inflation indices are identified as major problems of price escalation and adjustment in Ethiopian federal road construction projects. Finally, based on the analysis of the results, recommendations have been proposed that enables to minimize the problems of price escalation and adjustment on federal road construction projects and favors the construction industry for better performances.
Key wordsc: price escalation, price adjustment, construction price index, road projects.
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Keywords
Price Escalation, Price Adjustment, Construction Price Index, Road Projects