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Sat 26 Apr 2008 04:00 AM

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Qatar reworks contracts to cover price increases

Qatar's Public Works Authority (Ashghal) is revamping its contract system to include price escalation clauses to help contractors cover the cost of raw material price fluctuations.

Qatar's Public Works Authority (Ashghal) is revamping its contract system to include price escalation clauses to help contractors cover the cost of raw material price fluctuations.

The move comes as soaring costs continue to cripple the construction sector across the GCC.

The country's electricity and water operator, Kahramaa, implemented a similar clause towards the end of 2006.

According to Mish'al Dhanim, project manager with Ashghal, the move should help to attract more bidders for the authority's projects. "When the new contracts are ready, the clause will be there," he said.

"Contractors' costs have gone up by more than 40 to 50% of the original estimate - so the price clause will bring this down.

If contractors need items like steel, concrete and sand, we give them the paperwork and they go and get it from the concerned factories - so they don't need to worry about paying for delivery; if the prices go up, the government will take care of it.

Construction firms in Qatar hope other government authorities and private firms will adopt a similar strategy.

"We're hoping the others will follow this example, which would give us breathing space. This is very important for us," said Kayihan Bagdatli, general manager of Nurol Machinery and Steel.

"The government has to protect the construction companies who are here with goodwill and commitment, and who believe in the future of these countries. Companies like ours should not be penalised for taking unforeseen risks which are out of our control.

Bagdatli added that the cost crisis is creating discomfort among contractors in the country.

"Oil and gas prices are increasing. And some portion of the cost increases in steel, for example, is mainly through transportation," he said.

"But somehow, private clients are not willing to give price differences for things like cement, rebar and steel parts, particularly in turnkey contracts.

"We hope private clients and the government will look into this and start giving material price difference payments over a period of time, which would contribute a lot to our activities here. Otherwise, we'll just put the risk on the price, which will again cause inflation."

RELATED LINK: Finding solutions to Qatar's rising costs

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