Price Adjustment System in Ethiopia

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CHAPTER ONE

1. INTRODUCTION

1.1 BACKGROUND

The problem of price escalation, especially in the construction industry, is a worldwide phenomenon, and its ripple is normally a source of friction between clients and contractors on the issue of price escalations. If this friction is not properly handled, this could stall the progress of work and may subsequently lead to project abandonment and the actual project will suffer with universal inflations of costs. [5]Although the causes of project cost escalations are well known, the methodology used in handling its evaluation, especially on those aspects relating to price escalations, is very inadequate.

The unprecedented escalation of prices escalations in the construction industry has caused significant financial hardships for unprepared supplier, subcontractors, contractors, and owners. Contract losses suffered, projects delayed, or serious disputes resulting from the efforts of constructions industry players to mitigate, shift or recoup the financial consequences of this sudden and dramatically price escalations. Yet, it is certain that profits have been lost, relations have been damaged, projects have been impacted, and construction lawyers have been called upon to look for ways to soften or shift the impact of price escalations on their unprepared constructions client.[11]

1.2 SCOPE

In implementation of data's indicate that majority of the construction works suffered with an extended delay that lead to the major disputes lots of time and money, and the end user can not use the intended projects on the appropriate time. And in several instances the dalliance is not the intention for both the client and contractor as it does not help both, either in the performance or in the cash flow.

Therefore solving these kinds of claim & disputes during the course of construction will automatically improve quality of work by creating an amicable atmosphere for client, contractor and consultant and save substantial amount of money. [5]

1.3 PURPOSE

The problem of price escalation, especially in the construction industry, is a worldwide phenomenon, and its ripples are normally a source of friction between clients and contractors on the issue of price escalations. If this friction is not properly handled, this could stall the progress of work and may subsequently lead to project abandonment and the actual project will suffer with universal inflations of costs. Although the causes of project cost escalations are well known, the methodology used in handling its evaluation, especially on those aspects relating to price escalations, is very inadequate.

The unprecedented escalation of prices escalations in the construction industry has caused significant financial hardships for unprepared supplier, subcontractors, contractors, and owners. Contract losses suffered, projects delayed, or serious disputes resulting from the efforts of constructions industry players to mitigate, shift or recoup the financial consequences of this sudden and dramatically price escalations. Yet, it is certain that profits have been lost, relations have been damaged, projects have been impacted, and construction lawyers have been called upon to look for ways to soften or shift the impact of price escalations on their unprepared constructions client.

1.4 AIM OF THE RESEARCH

The aim of research is to review the cause of price variation and their impact on the progress of constructions industry and also to recommend on possible adjustment system that can be taken as remedial measure with assessing the case of cost escalation in constructions industry. Generally, the aim of the Research is:

➢ Identifying the cause of price escalations & their impact ➢ Possible treatments mechanism for price escalations
➢ Minimizing disputes on price escalation and

1.5 RESEARCH METHODOLOGY

The key task in research is to design research process that the information obtained permits the...
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