“The Effect of Price Escalation on The Success of Building Construction Projects of Addis Ababa; The Case of Projects Performed by Grade-1 Contractors”
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Date
2024-10
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Addis Ababa University
Abstract
The research aimed at studying the effect of price escalation on the success of building construction projects in Addis Ababa. Additionally, the research attempts to show that price escalation is regarded as a critical success factor in the building construction companies. 10 building construction companies in the capacity of Grade-1has been considered for this study. Other grades have not been considered due to time and cost limitations. A quantitative approach was used in this research. Questionnaire was developed based on the internal and external causes of price escalation to study the effect of the price escalation on the success criteria of the building projects performed by the respective companies. A descriptive analysis indicates that price escalation is a significant challenge faced by most construction firms, with 94% of firms encountering issues related to price escalation in their building construction projects. The application of price adjustment requires careful consideration and negotiation to ensure they are fair and reasonable for all parties involved has taken the highest score with mean of 4.40 and standard deviation of 0.605 on a 5 point Likert scale from a total of 67 responses. A correlation analysis reveals that there is a strong and positive relationship between the price escalation and project success criteria. A regression analysis found that project schedule change, poor estimation, fluctuation in money exchange rate and increase in global demand of construction materials have significant contribution to the project success criteria. The study concludes that construction firms need to focus on improving cost estimation, planning and scheduling processes, and managing external factors like material costs and exchange rates in order to mitigate the negative effects of price escalation on project success. Careful consideration and negotiation of price adjustment mechanisms is also crucial.
Key Words: Price escalation, project success, Building Construction, Addis Ababa