Price Fluctuations and the impact of the CIDA formula on the profits earned by the contractors of Civil Engineering Construction Projects implemented in Sri Lanka

Abstract

The price fluctuation formula introduced by the Construction Industry Development Authority (CIDA) is widely used by the Sri Lankan construction sector to calculate price fluctuation of civil engineering construction projects because of its high standard, ease of use, and easy access provided to the information. The price fluctuations calculated using the formula carries some degree of uncertainty. This study was conducted to assess the degree of accuracy of the calculations made using the CIDA formula and the impact of the formula on the profits earned by contractors in civil engineering construction projects. The study adopted a qualitative research approach. Ten interviews were conducted with experts in the construction industry to identify the impacts of the formula on contractor profit and the strategies that would help manage those impacts. Thematic analysis using code based manual content analysis was used to analyse the collected data. The study findings reveal the difference between the actual price adjustment required and the price adjustment using the CIDA formula. The main reasons behind this difference are the use of inaccurate price indexes and the basic assumptions made to derive the CIDA formula. The effect of the CIDA price fluctuation formula method on contractor profit margins in civil engineering projects implemented in Sri Lanka was also investigated. To lower the overestimated price adjustments, modified cost adjustment factors and reliable price indexes are recommended as the main suggestions. Industry practitioners can adopt these suggestions to increase the effectiveness of the CIDA formula in civil engineering projects.