Methodology for determining price variation in project execution

The problem of cost overrun, especially in the construction industry, is a worldwide phenomenon, and its ripples are normally a source of friction between clients and contractors on the issue of price variation. If this friction is not properly handled, this could stall the progress of work and may subsequently lead to project abandonment. Although the causes of project cost overrun are well known, the methodology used in handling its evaluation, especially on those aspects relating to price variation, is very inadequate. This research is aimed at developing a suitable model for the evaluation of cost overrun during project execution, focusing primarily on cost effect with respect to the extent of work done, payment schedule, and government fiscal/monetary policies. Based mainly on discounted cash flow of the expected income compared with the actual payment at various time periods with inflationary rate as the discounting factor, this model has been used successfully in evaluating price variations of two state-owned projects-the grain silo at Okigwe and the soybean milk factory at Ubakala in Umuahia, both in Nigeria. The model has also proved useful at conflict resolution (between the contractors and clients) arising from price variation claims by many Nigerian contracting firms and has the potential of adaptability in other parts of the world.