BY ABEBE WOLDEGIORGIS
In the construction industry misunderstanding has been rampant between the contractors and owners of the projects. Breaking contract between the two entities is common as a result of the construction works are delayed far from their completion time.
In fact, there are factors which induce misunderstanding between contractors and owners who hire them. However, since recently the misunderstanding and conflicts between them have been exacerbating. The absence of mutual trust and miscommunication among each other creates havoc on the construction industry. The sky rocketing of the price of the construction materials and increasing of construction cost further aggravates the situation. The incrementing of construction cost hampers contractors not to continue the job.
In the last five years, the price of the construction materials is irrationally increasing. As a result, many projects failed to eye their completion. Some owners of the projects show tolerance and agreed with contractors that the construction work to continue as per the schedule by whatever price but many of the owners of buildings instead interrupt contract.
According to Girma Habtemariam, President of the Ethiopian Contractors Association, in the last five years the unabated price hike of the construction materials is affecting the construction industry. Particularly in the last two years, the price is increased by 400 percent. Aluminum price which is used as input for construction work, for instance, is increased by 360 percent only within one year. The uninterrupted price hike of the materials indicates how the sector is found itself in misery. Such and other constraints made the construction works not to be completed as per the schedule.
In Ethiopia, the government is the major owner of the construction projects hence, the price hike witnessed in construction materials forced projects to be halted.
The capacity limitation of the design adjustment of contractors, failing to pay payments for contractors on time and other factors contribute a lot for prolonging the construction completion time.
According to Girma and other engineers, failing to take remedial action to contain inflation witnessed in the sector by the government aggravated the situation further. The problems in relation with construction appeared not only on the government projects, but also on private ones. Most contractors interrupt the construction works due to price hike before the termination phase of the project.
Among the companies faced such problem is Nib Insurance Company /NIC/. The Chinese construction company which took contract from the NIC was forced to abruptly stop the construction due to misunderstanding by the rise of construction cost. During the recently held annual meeting NIC announced that initially it made an agreement with the Chinese construction company to pay 810 million Birr for the construction of its building but the Chinese Company gave up the construction before the completion of the construction due to the increment of the cost of the construction,.
The construction of the 30 flour building was intended to serve as head office for the NIC but the construction work was interrupted when the work was reached to 10th flour. As to construction professionals, the delay of the construction work further increases the cost. Others big construction works also interrupted and will face similar fate. Badly, some buildings under construction eyeing their completion soon, failed to reach their final phase as a result of the price hike.
As to Girma, interrupting construction work and giving the interrupted construction work to the new contractor incurs additional cost on the owners. However, as to him, to adjust the construction cost the document which contains the agreement between the two parties is a decisive. But it is advisable to resume the contract through consensus rather than dealing the mater through legal means.
The Oromia Insurance Company is the case in point in this regard. It resumed the construction work through making dialogue with the contractor and reached to consensus by adjusting the construction cost. Had the construction work been given to a new contractor, the cost would have been beyond its paying capacity. Therefore, the action taken by the Company can be said exemplary to others.
According to experts, disputes rose between the contractor and the project owner due to the price hike of construction materials is solved based on the rules noticed in the agreement reached between the two parties. But the project owner can resume the work by increasing the construction cost by five or ten percent. Many project owners took such measure as preferable mechanism. But it might be impossible to resume if the construction cost is increased above ten percent.
Therefore, it is vital to reach consensus between the two parties not to interrupt the construction work. According to the reality on the ground, contractors are demanding the difference of the cost created by the current price hike due to inflation. Hence, if this is understood, both parties can resolve the disputes and resume the construction work.
According to Girma, in some projects owned by the government, construction cost adjustment is undergone. Unless, these projects are completed as per the schedule, it incurs additional cost on the government which again burdened on the tax payers. However, recently, some government owned projects which were interrupted due to the price hike, were given to the new contractors and consequently the government is forced to pay additional money.
The construction works owned by Federal Housing Corporation for the Ministry of Foreign Affairs can be taken as the case in point. The project was given to the Afro-tsion construction company three years ago to be constructed by 1.1 billion Birr. However, after it constructed 15 percent of the construction, the company demanded price adjustment but did not reach to consensus with the owner.
As a result, the construction remained unfinished yet. However, after the contract with Afro-tsion Construction Company was broken, the project was given to a new contractor to be finalized by 4.5 billion Birr. Here, one can understand that how costly it is transferring the interrupted project to the new contractor. As to Girma, delaying the project only for three years brings additional cost which is beyond imagination.
Therefore, others should draw lesson from these practices. In addition, radical measure like in the cement product should be taken in other construction inputs to address the problem because; breaking a construction contract and giving it to the new one may accelerate the cost of production by two or three folds.
He further said that, due to the Ethiopian Contractors pressure in order to resume the government construction projects, price adjustment on selected construction materials has been made. Such a move is perceived as a positive measure and projects which were began before 2021 will benefit from the price adjustment. However, only 60 percent of the additional cost will be covered by the government and the rest 40 percent will be covered by the contractor. Nevertheless, as there are many projects which were stared before 4 and 6 years, implementing the price adjustment plan might face a challenge.
A contractor who asked his name to be hold anonymity said that the measures that have been taken for price adjustment through compensation are fully in trouble. As to him, the major problem lies on part of the government. The government takes away projects as it wishes arbitrarily and gives it again to the new contractor.
Again, it provides compensation to any contractor as it wishes. It also makes price revision as it wishes. Therefore, though the government claims that it took various measures to stabilize the sector, it has no consistency. Such a situation brought its own negative consequence by delaying more construction projects for long and incurred additional cost.
Not getting the compensation money on time further aggravates the problem. Currently, the price compensation scheme does not cover most construction materials; therefore, revising the construction agreements should be undertaken.
For example, wage for workers, payment for sands and others are not included in compensation scheme. Hence, corrective measures should be taken as soon as possible.
THE ETHIOPIAN HERALD WEDNESDAY 18 JANUARY 2023
