Govt contractors seek price revision as construction costs hit ceiling

Infograph: TBS

Soaring prices of construction raw materials will give a steep rise to the costs of different ongoing development projects too, eventually coming in the way of their scheduled completion. 

From steel to bitumen to imported stone to cement to brick, all have become very costly – up to 40% higher than the government rates.

In this situation, project contractors have already demanded an adjustment to the rate schedule in keeping with the current market prices.

The LGED Contractors Association in Chattogram on  Monday threatened to stop all ongoing government development projects if the prices of construction materials are not readjusted within the next 15 days.

The rising construction material prices have thus now appeared as a new headwind at a time when all project work has picked up momentum after a long spell of slowdown caused by the pandemic-led lockdowns.

The planning ministry say they are now working on making an unified rate of schedule and will consider raising product prices in it.

The government's ongoing projects amount to Tk2.36 lakh crore and 80% of those are construction projects.

According to various ministries and departments, work on over Tk1 lakh crore worth of construction projects is now going on. 

Prices of all construction inputs have shot up by at least 30%. Steel prices have now reached a whopping Tk80,000-Tk82,000 per tonne from Tk50,000-Tk52,000 per tonne in November last year.

Likewise, imported stone has become costlier too with a minimum of Tk11,000 rise in its price in the span of a year. Bitumen also now sells at Tk43,000 per 150kg drum, up by Tk3,200 from Tk6,300 a year ago. Cement prices have also gone up by at least Tk40 per 50kg bag.

Besides, brick prices have increased to Tk9,000 per 1,000 pieces from Tk5,000. The wage hike of labourers has also joined the construction price rally.

Such skyrocketing prices of construction inputs might translate into a big blow for many big projects, such as Padma Bridge Rail Link Project and converting Elenga-Hatikamrul-Rangpur Road to a four-Lane Highway project.

Padma Bridge Rail Link Project Director Md Afzal Hossain told The Business Standard that the project progress might somewhat get hampered because of rising construction material prices. 

"Almost all work deals relating to the Padma rail link project have been completed. We can increase contract values up to 10%. To do more, we need to revise the cost and seek approval from the Executive Committee of the National Economic Council," he added.

However, Dr Md Waliur Rahman, project director of the Elenga-Hatikamrul-Rangpur four-lane highway project, opined that for now it is not possible to say whether the project work will be affected because of rising construction costs or not. 

Every project has a price contingency plan, given a rise in its necessary products and materials. Besides, as per the BBS' building material price index, there is also an additional allocation in some projects to pay for extra costs, he also said, adding that additional money is released in favour of contractors if necessary on these bases.

A project implementation gets impacted if the surplus demand exceeds the allocation earmarked in the Development Project Proposal in line with price contingency and building material price index.

Ecnec approved Tk16,000 crore for construction of Elenga-Hatikamrul-Rangpur Road to a four-Lane Highway project under the Roads and Highways Department. The project involving Tk6,000 crore at present  is expected to be completed by 2024.

Infograph: TBS

Economist Ahsan H Mansur told TBS that prices of all kinds of construction materials have gone up with the rise in global fuel price hike.

"We can complete some projects by using a 2% price contingency, while a few others will cost extra," he added.

As a temporary measure, the economist suggested prioritising the implementation of large projects in the communication infrastructure sector.

According to the Roads and Highways Department, 232 local and foreign contractors are currently constructing roads  at a cost of more than Tk22,000 crore.

Abdul Monem Limited, Spectra Engineers Limited, MM Builders and Engineers Limited, Monico Limited, Concord Pragatee Consortium Ltd, Mir Akhter Hossain Limited, Toma Construction and Hasan Tech are among 20 contractors engaged in those projects. 

Mainuddin Monem, managing director at Abdul Monem Limited, told TBS that construction is now being hampered as the current market prices of raw materials are  much higher now than it was in the rate schedule.

He demanded that the government make an immediate adjustment to the allocation.

There are now around Tk30,000 crore worth of projects under the Local Government Engineering Department (LGED).

Md Abdur Rashid Khan, chief engineer of LGED, said many contractors had approached them about adjusting the rate schedule. 

They have also come to know about the stopping of work by many. "We cannot raise project costs even if we want because such work is done through a tender from every local government department level. Besides, some work is conducted from the head office," he added.  

The Housing and Public Works Department has projects worth Tk19,000 crore.

Various development work of the Public Works Department, Rajuk, National Housing Authority, Chattogram Development Authority, Cox's Bazar Development Authority, Rajshahi Development Authority, Khulna Development Authority, Urban Development Directorate, and Department of Architecture and Housing and Building Research Institute are now underway.

About 1,000 members of Bangladesh Public Works Contractors' Association are executing these constructions.

Babul Akter Babla, secretary at the association, told TBS, "We have already talked to the public works secretary about rising construction costs. If no initiative is taken, we will have no other way but to stop work."

"We hope the public works department will take immediate measures in this regard," he added. 

Work on around 60 out of 200 projects has already been stopped owing to rising raw material prices, he pointed out.

Public Works Secretary Md Shahid Ullah Khandaker said, "The contractors have already talked to us about this. But increasing project costs is not only in our hands, we will reach a decision after consulting the agencies concerned."  

Prof Shamsul Haque, a Buet professor, said the demand of contractors for adjusting the rate schedule is somewhat logical because to ensure quality work, project allocation should be readjusted in line with the current market.

But the opportunity of increasing project costs repeatedly on the pretext of rising market prices should be blocked, he also said, adding that therefore, the government should take a good look at the issue seriously.

The market analysis shows that prices of various construction materials have gone up by 25%-30%. So, in line with the hike, a new rate schedule should be made quickly so that project work is not affected.

Referring to the past experience, Prof Shamsul said project prices can go up 30%-40% as per the new rate schedule because contractors will influence in various ways for the hike. The project duration will be extended too, he added.

Mezbaur Rahman Ratan, general secretary of Bangladesh Contractors Association, said 80% of the ongoing development projects have got allocations as per the rate schedule of 2018 or later. Prices of construction materials have now increased by 40%-50% compared with the rate schedule.

Contractors will be forced to stop work if the government does not adjust the official rate schedule with the current market prices, he added.

Pradip Ranjan Chakraborty, secretary to the Planning Division, told TBS that the government is working on a unified rate of schedule for all ministries and divisions. If it is enacted, it will close the opportunity for different agencies to charge different prices for the same type of work.

"The new rate schedule would take into account rising prices of commodities and materials. After this rate schedule is ready, we will be able to say how much project costs will increase," he added.