Fed Nods Positive for Public Projects Cost Adjustment

The federal government has approved the injection of billions of Birr to contractors undertaking public projects covering them from cost escalations in construction materials and inputs. Some construction companies have yet to receive contract adjustments double the value they initially signed up for.

Price variations in the bill of materials have led to long delays and suspensions of public projects, often causing disputes and litigations.

It is the story of Tower Plc, incorporated 18 years ago with 3.5 million Br capital. It is now a construction firm caught up in confusion, hired to build a dining hall in Dilla University, in the Southern Regional State, at a contract cost of 48 million Br. It had committed to complete the project in 18 months but has yet to finish it. Tower's management says right-of-way issues forced the company to wait for half a year before commencing construction.

"We're qualified for a cost escalation adjustment," said Aboneh Gessese, a shareholder and general manager of the company.

However, the laws dictate that cost adjustment can only be considered a year following the effective date of contracts.

A study carried out by the Construction Works Regulatory Authority, a federal agency supervising and evaluating progress on public projects, identified projects eligible for the cost escalation adjustment under 41 public universities, half of the ongoing 800 public projects with an outlay of close to 100 billion Br. The study led to a proposal tabled to Ahmed Shide, minister of Finance, two months ago.

Incorporated 25 years ago, Berhan Tobia Construction was contracted for three projects with a combined value of 217 million Br, including the erection of an administration building and assembly hall at Bahir Dar University. The firm was awarded the contracts four years ago and expected to finalise them within two years. The projects are still afoot.

The cost of these projects shot up by 250pc, according to Natnael Semachew, general manager of the company.

“We're hoping the cost adjustment would be quick," he said.

Experts had initially determined the value of the adjustments based on a formula introduced three years ago. However, the method was a source of contention between contractors and clients. Last month, the Public Procurement & Property Authority changed the formula. Its Director General, Haji Ebsa, decided price adjustments should be determined using a different method introduced 12 years ago.