Assessment on the Causes and Effects of Price Escalation of Building Construction: In the Case of Addis Ababa Design and Construction Works Bureau
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Date
2023-07
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Addis Ababa University
Abstract
In order to effectively manage major capital construction projects, it is necessary to coordinate a vast array of organizational, technical, human, and natural resources. Cost has been shown to be a key determinant of project success. One of the many issues that the construction sector is now dealing with is price escalation. The building construction projects in Addis Ababa Design and Construction Works Bureau (AADCB) has, in recent years, encountered a serious challenge due to price escalation that threatened the ability of the construction sector to deliver projects within budgeted cost, at stipulated time and at satisfactory quality. Accordingly, this paper aims to assess the causes and effects of price escalation of building construction projects in the case of Addis Ababa Design and Construction Works Bureau, to identify problems of price escalation and adjustment and methods to manage/administer price escalation on Addis Ababa Design and Construction Works Bureau (AADCB), which can serve as the way forward for future work in coping with these escalations. The data required for this study were collected through questionnaires. The statistical method of Relative Importance Index and Spearman’s correlation coefficient were used to analyze the collected data through questionnaires. Based on the finding’s variables were ranked according to their occurrence. In addition, the respondent’s correlation 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, fluctuation in money exchange rates and limited capacity of material producers are identified as major external causes of price escalation of construction projects in Addis Ababa Design and Construction Works Bureau. 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 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 Addis Ababa Design and Construction Works Bureau. Finally, based on the analysis of the results, recommendations have been proposed that enables to minimize the problems of price escalation and adjustment on Addis Ababa Design and Construction Works Bureau and favors the construction industry for better performances
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Keywords
Price escalation, Price adjustment