Operation of Price Adjustment in Construction Projects

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 has revealed about the trend of the cost of components of construction i.e. labor, material, fuel, equipment, etc. and compare the different formulas of price adjustment Ten contracts commencing within 2010 A.D to 2019 A.D have been chosen. The formula used in the contracts has been compared with other formulas under same circumstance that original formula was used. The cost of fuel and bitumen cannot be predicted as it is fluctuating with respect to time. PPMO formula for Price Adjustment use NRB index of labor, material and equipment or fuel. Labor index has increased by 44.86 % during June 2015 to June 2019. Material index is fluctuating and has increased by 20.66% and Equipment index by 31.54%. Comparing the price adjustment factor using different formulas it is seen that the value of price adjustment factor using different formulas are different and change with course of time. Thus, it cannot be generalized that which formula could give minimum value of price adjustment. It depends upon condition such as time, index and cost.