Fluctuation In construction industry

Here both Price fluctuation and Currency fluctuation are considered.

Price fluctuation

Time taken for award of contract
Delay in awarding contract causes many problems in the implementation stage in the following matter. Price fluctuation becomes very high creating lot of uncertainty, as the base index is generally calculated 28 days before the bid submission when there is a delay in awarding the contract on the first month after commencements of the work there is a fluctuation of price accounted.

Material
When there is sudden change in obtaining the materials; the cost of the project goes up.
e.g. Steel price in the recent past has gone up very rapidly due to short supply of steel in the world market, The reason given for the above was China has purchased bulk Quantity of steel from the world market which is required for the infrastructure development for the forth coming Olympic games in year 2008.
Strict environmental restriction imposed by the government of Sri Lanka has caused many problems in the construction industry including cost overruns due to the high prices of sand. Strict environmental restriction on rock blasting operation, sand harvesting also has caused cost overruns.

Labour
Availability of skill trained Labour is a problem for the construction industry in Sri Lanka ,hence the contractor had to mobilize skill labour from far away places & pay high salaries provide other facilities like lodging, food … etc which increase the Labour rate.

Plant and equipment
Availability of various type of plant and equipment is limited in Sri Lanka, when there is a big demand for the above, either necessary equipments have to be imported by the contractor or the work program has to be adjusted according to the availability of plant and equipments. Both options will increase the cost of construction.

Fuel
Sudden increase in the fuel price (Crude oil) in the world market will cause increase in price of fuel in Sri Lanka, which will intern increase the cost of construction. When the fuel prices increases, the following will also automatically increases.

1. Hiring charge or Operation charge of the machines goes up.
2. Transportation cost goes up.
3. Material production cost goes up

Currency fluctuation


Time taken for award of contract
When above increases currency fluctuation also increases then there will be uncertainty in the final cost of the project. The cost goes up when the currency is devalued.

Portion of payment through foreign currency to the contactor
Generally for the major contract portion of the payment is made on one or more foreign currencies. As there is generally contractors are from foreign countries and they opt, to get portion of payment in foreign currency. Generally in Sri Lanka the value of the local currency comes down; hence the money paid in foreign currency will be very high and leads for cost overruns in the projects.

Price increase in imported materials
For the imported materials payment has to be made in foreign currency hence in Sri Lanka for the imported material when the value of the local currency goes down, higher cost has to be paid for the imported material.

Price increase in imported Machinery and equipment
The reason mentioned in the 3.2.3 is applicable for the machineries also.