Commentaries | Mar 05,2022
August 28 , 2021
By BERSABEH GEBRE ( FORTUNE STAFF WRITER )
The findings of a new study commissioned to recommend price escalation adjustments in the construction industry may impact almost all public projects under construction.
According to individuals knowledgeable of the process, a committee comprising officials from the Urban Development and Finance ministries, the Public Procurement & Property Administration Agency, and the Ethiopian Contractors Association will participate in the study.
Out of the 800 public projects, almost 90pc with an aggregate project cost of 92 billion Br, are run by 41 public universities.
The study is an extension of a decision by the Ministry of Finance that directed federal government offices and public universities to adjust the contractual value of projects for contractors based on the changes in the price of construction inputs. This was first communicated to the offices in a letter signed by Eyob Tekalign (PhD), state minister for Finance, in March. Public offices have been adjusting contracts for inflation, although there have been disputes over the inclusion of finishing materials.
Another circular, signed by Ahmed Shide, a minister of Finance, was dispatched four months later to federal agencies, requiring them to include finishing materials.
Nonetheless, debates over the definition of finished goods, the absence of a uniform formula to make price escalations, and disagreements over the benchmark year to be used, led to another series of disputes between contractors and project owners.
Officials of the Construction Works Regulatory Authority are hopeful the new study will address these issues while helping them to identify contractors eligible for cost escalation adjustments.
The cost of construction inputs has been ballooning over the past two years, showing a 14pc annual upsurge, according to the Central Statistics Agency (CSA). The depreciation of the Birr against major currencies has made importing of goods, including construction inputs, expensive.
Leaders of the Association, representing around 2,500 contractors, say the galloping prices led to project delays, forcing a few of their members to terminate contracts. They are calling for the prompt implementation of the price escalation adjustment. The Association suggested using receipts and other data from as far back as 2017 to determine trends and the current market prices of inputs like cement, steel, rebar and finishing materials.
"Contractors attach a bill of quantity to an agreement; it should be simple to amend," said Girma Habtemariam, president of the Association.
Industry insiders see the study as a good start but maintain more needs to be done to salvage contractors and complete public projects.
For Haben Abraha, a construction expert with over a decade of experience, a clause for price adjustments needs to be included in the rules governing the industry, contributing 19pc of the country's GDP.
"The law should be amended," said Haben. "A price adjustment alone won't be much help."
Amha Sime, an owner of a grade-five construction firm with over three decades of experience in the industry, has similar concerns.
"The price of inputs is bound to rise again in the future, and an adjustment is not the way to solve the problems contractors are faced with," he said.
PUBLISHED ON Aug 28,2021 [ VOL 22 , NO 1113]
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