Assessing the Effects of Price Escalation on Building Construction Projects in Adama, Ethiopia

Abstract

In the Ethiopian construction sector, one key issue is that contemporary building projects demonstrate price escalation. The Management of Cost escalation requires more understanding of its driving forces. Hence, this research aimed to assess the price escalation factors and their effects on building construction projects in Adama, Ethiopia. Through an in-depth literature review and project archives, thirteen (13) possible price escalation-causing attributes and five (5) its effects were identified for this research. Forty-eight (48) self-administered questionnaire survey has been sent to clients, consultants, and contractors that actively participated in Adama city construction projects and forty-three (43) responded. The relative importance index (RII) had computed to rank the price escalation-causing factors and their effects on building projects. The five most significant factors these causing price escalation on building projects were fluctuation in foreign currency exchange rates, an increase in material cost and unstable market conditions, unbalanced demand and supply of construction materials, limitation of construction material producer's capacity, and project schedule changes. While in this study, delayed project progress, cash flow (financing) problems, higher construction projects cost, and increasing disputes between contracting parties were among the utmost significant impact of rising prices happening on building construction in Adama, Ethiopia. To evaluate the respondents' observed level of agreement on the ranking of price escalation factors and their effects, the Spearman rank correlation coefficient with the aid of SPSS version 26 was used. The outcomes were 0.914 among client and consultant, 0.815 with the client and contractor, as well as 0.856 for consultant and contractor on ranking price increase factors, whereas, 0.921 among client and consultant 0.821 with the client and contractor, and 0.975 for consultant and contractor on ranking price increase effects. Therefore, the result implies a positive relationship among respondents towards factors causing price escalation and their effects on building construction projects in Adama city.