The Ministry of Finance gives a green light to some public institutes to apply price adjustments on building projects despite project contracts not having room for price escalation terms.
The high price volatility in the market has become a tough nut to crack for public projects to which expects explain that it is becoming something of a thorn since it not only delays projects but leads to a high degree of overhead costs.
Experts lament that a significant price in the construction industry has forced contractors to be in embattlements with some being forced to halt activities that they have already commenced.
The delicate issue has similarly grabbed the government’s attention, which is also weary of the delay and the cascading implications to the economy.
According to the information that Capital obtained, the Ministry of Urban and Infrastructure, Construction Authority and Construction Contractors Association of Ethiopia have both expressed their concern to the Ministry of Finance (MoF) to come up with a viable solution, since lots of projects may face interruption because of the extraordinary price hike on building materials like cement, rebar and ceramics.
The concern is also that the country procurement proclamation does not allow price adjustment for projects that do not have a life span of less than one and half years and also for those that started at least about 12 months ago.
“However, at the ground price escalation is raining havoc with spikes occurring within months and sometimes in weeks on some major inputs,” experts explained, adding, “It has become very challenging for contractors to run projects as per their contract.”
To solve the problem, MoF has resorted to forming a technical committee that comprises of relevant government bodies including; Ethiopia Construction Authority and Public Procurement and Property Authority to assess the situation and come up with a viable solution.
According to experts, several projects have been halted because of the price escalation and cognizant of this, MoF has provided some rapid solutions to combat this.
As per the decision, those who do not have the term of price adjustments on their contract are now eligible to reconsider the price adjustment.
Projects that would have less than 18 months in accomplished period but face delays due to different reasons excluding the cause from the contract are now able to be included on the price revision.
“Meanwhile there are claims that projects that have less than 18 months life span should be revised,” Gebeyaw Yitayew, Procurement and Property Reform and Capacity Building Lead Executive at Public Procurement and Property Authority reveals, adding, “But it would not be manageable by MoF.”
According to Gebeyaw the circular that was signed by Eyob Tekalegn, does not by pass the proclamation or its directive but it has taken major changes from the experience in the past.
Gebeyaw told Capital that the government has taken a big decision for contracts which do not have a price escalation term to consider the adjustment.
There is a clam that the current procurement proclamation that was issued in 2009 and the directive are not aligned with the reality that affects public procurements.
The proclamation has been under a revision process for the past several years and early this week the Council of Ministers had approved the amendment of the proclamation which was sent to parliament for ratification. Experts said that the new proclamation would have several changes and a conducive environment to smoothen public procurement unlike the current experience.
Despite MoF allowing for the price adjustment for all public building projects, the decision is so far applied to public higher education institutions, which have several building projects currently on going.
Article 16.14.2 of public procurement directive that was issued in 2010 read that the public body may, under the following circumstances, indicate in the bidding document that price adjustments are allowed in respect of works contracts, after 12 months from the effective date of such contracts. Sub article A of this article further stated that where it is verified, in respect of works contracts, the performance of the contract requires more than 18 months.
The directive article 29.4 has also given room for the amendment of the contract. It reads, “Where it is called for, the contract may be amended in the course of its performance; it being understood that such amendment shall not be detrimental to the interest of the public body and not favor one supplier or certain suppliers to the prejudice of the other suppliers.”