Rising material costs hits construction industry | Sunday Observer

Rising material costs hits construction industry

9 January, 2022

The construction industry, a pivotal cog of the economy is in dire straits due to the staggering import cost of construction material triggered by the weak rupee, dearth of labourers, rising labour cost and the extension of construction deadlines which has added on to the construction cost, said a top official of the Chamber of Construction Industry Sri Lanka (CCI) last week.

Construction costs had shot up by around 30-40 percent due to the issues triggered by the global pandemic that led to construction delays, rise in import cost of materials and absence of workers at construction sites, said CCI Secretary General and CEO Nissanka Wijeratne.

According to construction industry experts the industry would take a considerable time to bounce back to the pre-pandemic level to support the labor force and the economy.

The construction industry contracted by 6.0 percent during the third quarter last year following the contraction of the economy by 1.5 percent during the same quarter.

Mining and quarrying sector suffered the biggest blow with a contraction of 6.9 percent according to the Department of Census and Statistics.

The industry had performed well when the economy expanded by 4.3 percent and 12.3 percent in the first two quarters last year showing a co-relation between the economic and the industry.

However, according to the CCI the industry has not recovered to its pre pandemic level as the dark clouds of the global crisis still continues to hover over the industry. Construction companies were adversely affected by the pandemic that forced workers to confine themselves to their homes and contractors needing extensions for the completion of projects which added to the cost of maintaining cites comprising provision of security, insurance and bank guarantees.

In countries such as UK the full additional cost of shutdowns were not passed on to either the contractor or client alone. While 50 percent had to be borne by the client the balance had to be borne by the contractor.

The CCI gave directions to the Construction Industry Development Authority (CIDA) to cover the period of shutdowns to be given extensions and the cost to be reimbursed in a justifiable manner, Wijeratne said.

However, he said there has not been a favourable response since the proposal had been made six months ago. Any construction contract which will have over three months for completion should include the reimbursement of price fluctuations which is a government procurement guideline, Wijeratne said, adding that certain state-owned enterprises do not follow the guideline for projects that have crossed the three-month period.

He said a Cabinet decision had been taken that the price fluctuation should be given subject to 20 percent of the contract sum for all contracts exceeding three months.

However, he said the actual cost in most instances is over 20 percent and added that even if the price fluctuation provision is included in contracts the mechanism to estimate price fluctuations is grossly outdated because the CIDA formula does not reflect the market price.

The construction industry faced an uphill journey during the past two years of the pandemic that led to an acute shortage of workers who delayed returning to work from homes.

According to industry personnel, around 100,000 workers had been out of work due to the lockdowns.