Investigation of Suitability of Using Unique Price Indices (ICTAD) for Price Adjustments in Construction Projects

Abstract

The nature of construction industry is, it consumes huge cost and it needs considerably long duration. This time and cost are interrelated. If the project duration is too long, the initial estimation may not sufficient to recover the actual cost of contract. To address this problem ICTAD has introduced a price adjustment method called “ICTAD formula method for adjustments to contract price due to fluctuation in prices". To use this procedure, price variations compared to a base month also are published by ICTAD as “indices”. These indices are identical to use in anywhere in the country. lit is obvious that the price of one material is not same in different districts. Therefore aim of this study is to evaluate the suitability of using unique price indices for the price fluctuation adjustment based on the ICTAD formula method. To achieve this aim the research aimed to find the relationship between ICTAD price adjustments & true price adjustments through the data analysis and to propose a modification to increase the accuracy of ICTAD formula. To fulfil above objectives, prices of sand, aggregate, rubble and bricks were collected from January, 2015 to August, 2016. First the behaviors of material prices of Colombo district were analyzed. Results show that the indices variation and variation of price of selected materials in Colombo are having similar tendency. Then those data were converted to a form of indices considering Colombo material price as the base. Results shows there is a gap between price variation in Colombo and other districts. Among the selected materials, sand price decreases about 40% in Ampara district and considerable decrease in other district also. Similarly for aggregates, it shows about 23% increase in price compared to Colombo. For rubble in some district prices are low compared to Colombo and it value is about 36.5% and some districts have high value about 25% from Colombo price. For clay bricks maximum decrease of price is about 37%. These results shows, use of unique price indices are not suitable. Therefore it is suggested that price indices can be published in district base or the price adjustment procedure can be district specific and not country specific.