Impact of Using Price Fluctuation Related Conditions on Construction Projects

Abstract

The inherent nature of construction projects is long duration and high cost. Extended project duration leads to escalation of cost. If the project duration is too long, the initial estimation may not be sufficient to recover the actual cost of the contract. To address this problem, Construction Industry Development Authority (CIDA) has introduced a price adjustment method called the “ICTAD formula method for adjustments to contract price due to fluctuation in prices”. Contract documents related to construction projects also provide some provisions to address the issues with material price fluctuations. This study investigated the practices of contractors to minimize the effect of price variation and support of price fluctuation clauses to minimize the impact of price variation. A questionnaire survey was conducted among the professionals to represent CS2 to C5 grade construction companies registered at CIDA. The questionnaire consisted of practices of contractors to minimize the effect of price variation and the impact of using price fluctuation clauses in different aspects. Collected responses were converted to a quantitative value using the relative importance index (RII). In addition, SPSS software was used for the critical review of responses. The results revealed that contractors mostly agree with using price fluctuation clauses to recover the increased project cost due to increased construction input prices. Further, results are evident that using price fluctuation clauses helps to fair risk sharing between the contractor and the client.