Study Flickers Hope to Dismayed Construction Industry

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.