Following the market oriented economic policy EPRDF employed; the number of localrnprivately owned contractors has been increased. However, the larger share of roadrnconstruction projects have been undertaken by Chinese firms and the participation ofrnlocal road construction firms is limited. In light of this, the level of technical efficienciesrnand factors that are attributable to the existing level of technical inefficiencies arerninvestigated simultaneously using a panel data of eight firms which are categorized in torntwo groups (Chinese and Ethiopian) during the study period of 2006-2008. Using arnCobb-Douglas production function, the study employed a stochastic frontier approach.rnAs the likelihood ratio test indicates, half normal distribution is a better assumption forrnthe inefficiency term, most of the discrepancy between actual and frontier level of outputrnis due to technical inefficiency rather than external factors and the explanatory variablesrnin the inefficiency model are found to be jointly significant. The technical efficiency ofrneach group is estimated using the maximum likelihood estimation technique and the meanrntechnical efficiency score is found to be 48% for Ethiopian firms and 52% for Chinesernfirms, which clearly shows the low performance of Ethiopian firms relative to Chinesernfirms. On the other hand, capital labor ratio, which indicates the firms' intensification,rn/let revenue, which represents firms size and incentive per worker are found to havernimportant effect on technical efficiency. Thus, as the results of the study indicates, therernis a need of better policies and strategies such as provision of credit in order to increasernthe capacity of local firms and designing effective incentive payment strategies in orderrnto improve the existing level of technical efficiency and to make the local roadrnconstruction firms more competent.