Investigation of Effect of ICTAD Price Fluctuation Formula Procedure to Recover the Actual Materials Cost of Contract

Abstract

The cost estimation prepared during the bidding stage may not same as the cost calculated at the time of actual work done. This is because open market escalation of construction inputs. To address this problem ICTAD has introduced a country specific documents “ICTAD formula method for adjustments to contract price due to fluctuation in prices”. Price Fluctuation Formula mainly considers several parts; value of work done for a particular period, non-adjustable work elements, cost of materials at site, percentage input contribution from each construction inputs and price indices variation compared to the start of the project. Therefore careful identification, selection and calculation in relation to each and every factors used in the formula are very important to recover the actual cost variation to the contractor. This research mainly focused on effect of ICTAD price adjustment formula to recover the actual material cost of contract. To fulfil this, research aimed at finding the relationship between ICTAD price adjustment and true price adjustments through the data analysis and estimating accuracy and effect of the ICTAD price fluctuation formula procedure. Finally some suggestions were made to modify the formula to increase the accuracy of ICTAD price fluctuation formula. To fulfil above objectives, analysis were carried out under four sections for the data gathered from 11 actual projects which are already completed. Those four sections are Effect of Non- adjustable elements, Effect of current indices related to the materials which are not used during a particular valuation period, Effect of selecting Input percentage and Cost of Materials at the site. Base on the results it was identified that excluding non-adjustable elements in the formula does not affect to the actual cost recovery. But careful identification is very essential. Use of material cost at site which is not still used for the construction is having some effects. It may lead to get higher price adjustment to the contractor which may unfair to the client. Also use of same input percentages throughout the project may lead to get higher price adjustment. Dividing the input percentages based on the interim bills and not for the entire project may have fair decision to both contractor and the client, but further research is suggested on this.