Price Adjustment Practice of Road Projects in Nepal

Abstract

The construction industry always faces problems on price fluctuation and adjustment of the price to compensate the cost fluctuation becomes necessary. There is dilemma on which formula of price adjustment to use in construction contracts. Price adjustment affects all the stakeholders i.e. Client, Consultant and Contractor. This research revealed about the trend of the cost of components of construction i.e. Labor, Material, Fuel, equipment etc. Compare the different formulas of price adjustment and understand the view of client, Consultant and Contractor regarding price adjustment. Questionnaire was distributed to the Client, Contractor and consultant’s representative who are a part of the above projects. For the questions based on Likert scale, afive point Likert scale ranging from 1 to 5 is adopted and Relative Importance Index wascalculated and for other questions the result is presented in the form of pie chart and bar chart. From our study, it can be concluded that most of the Clients, Contractors and Consultants are affected by price adjustment. PPMO formula should be used for price adjustments in construction contracts.After the initial completion date of contract has crossed and extension of time has been done, the price adjustment factor should be calculated based on the indices before and upto the initial completion date only and Price adjustment should be provided after the initial completion date of contract also. The research findings also suggest that 25% of bidders bid for the value range of 0-5% below the Engineers’ Estimate while only 13.85% of bidders in case of E-bidding bid for the same range. The researcher believes that the findings of this study are useful for reviewing the existing provision of public procurement system. This also supports the conviction that more constructive roles has to be played in public procurement of infrastructure projects by local governments in Newly Constituted Federal Structure of Nepal.