Assessment Of The Causes And Effects Of Price Escalation Of Federal Road Contracts In Ethiopia

It is a mere understood fact that road network expansion is essential for a country’srneconomic growth and sectors development through enabling provision of road accessesrnto a number of regions within a country or several international destinations. This isrnbelieved to generate and flourish business transaction locally and globally therebyrnfurther promoting the economy of the country. In addition to manpower and machineryrncost of road projects, construction materials price such as cement, reinforcement steelrnbar, bitumen, fuel, etc take the lion’s share of the overall total cost of a road constructionrnprojects. The ever increasing cost of these construction inputs supplemented with marketrninflation and other unforeseen national and international factors are hypotheticallyrnbelieved to have strongly contributed to road construction project contracts pricerninflation.rnThere has been considerable road project price escalation in Ethiopia over the past yearsrnthat was believed by most stakeholders to have impacted the overall Road SectorrnDevelopment Program (RSDP) of the country. Road project prices especially over thernrecent years have been increasing at an alarming rate that the escalation has been neitherrnlinearly compatible with the increasing market indicators nor tangibly justified byrnconcerned stakeholders or researchers.rnDue to the fact, there is a speculation created among the stakeholders whether thernplanned government’s budget allocations are sufficient enough to cover anticipatedrnsector programs as a result of periodical high tender price offers received that frequentlyrnexceeds pre-tender engineering estimates. This is presumed to jeopardize the number of roadrnimprovement works that can be achieved for the planned budget year.rnThis research focuses and deals with an in depth assessment of the causes and effects of pricernescalation of federal road contracts in Ethiopia. As a baseline study, the research wentrnthrough briefly into the historic study of the trend of price escalation of road contracts in ourrnneighboring east and sub-Saharan African countries to support the final outcome of thernassessment.rnAssessment of the Causes and Effects of Price Escalation of Federal Road Contracts in EthiopiarnAAU, Civil Engineering Department – Yadessa Dinsa III Construction Technology & ManagementrnThe objective of this research is to identify the possible root causes and effects of pricernescalation of federal road contracts in Ethiopia so that an awareness of the causes would berncreated amongst road clients, consultants, contractors and stakeholders of the roadrnconstruction industry so that timely remedial measures would be taken to mitigate thernresulting problems in due possible time.rnHence to address the problem, a questionnaire was designed and disseminated to contractors,rnconsultants and employers involved in the road construction industry and a supplementaryrndesk study was conducted on price escalation of federal road contracts in Ethiopia to assistrnthe survey study.rnBased on the findings of the research using simple statistical approaches, Likert’s scale andrnKendall coefficient of concordance, it’s been possible to conclude that, cost inflation ofrnconstruction materials, change in foreign exchange rate of imported materials, lack ofrnproper budgetary planning and less emphasis given to planning by clients and financiers,rncost of labor, equipment and material and the tendency of the client to stick to list bidderrncriteria rather than analyzing the bid offer against the engineers estimate are the first top fiverncauses in chronological order that triggered price escalation of road contracts in Ethiopia.rnTherefore this research signifies that apart and beyond the stakeholders’ responsibility, duernproper contract management responsibility by road clients is inevitable to play a major rolernin the construction industry from realization, conception, and procurement to thernimplementation and follow up stages of road projects so that it would be possible tornminimize the prevalence of price escalation of road construction contracts in Ethiopia.rnKey Words: Price escalation, Cost estimation, Inflation, Unreliable & Engineers estimate.

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