CHAPTER 5 TO IDENTIFY AND EVALUATE FACTORS AFFECTING COST ESCALATION IN INDIAN BUILDING CONSTRUCTION PROJECTS

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1 94 CHAPTER 5 TO IDENTIFY AND EVALUATE FACTORS AFFECTING COST ESCALATION IN INDIAN BUILDING CONSTRUCTION PROJECTS 5.1 INTRODUCTION Construction Industry is the backbone of our economy. But being an unorganised sector is always been surrounded by various problems relating to quality, contract administration safety. One of the biggest problems is the risk sharing demarcation between owner and the contractor. All the contracts have been formulated to protect the interests of client. Owner doesn't want to shell out any extra amount other than as stated in tender. But all civil projects have construction phase of more than a year and above. Hence most projects are subjected to cost escalation from the original approved cost. Cost escalation associated with government construction projects differ according to the country and the specific sector in which they are implemented. In this chapter, the study carried out for identification and evaluation of factors affecting cost escalation in Indian building construction projects are presented. The preparation of preliminary list factor categories and factors affecting cost escalation, questionnaire formulation and survey details, analysis of survey responses for identification of factor affecting cost escalation and brief discussion on each identified cost escalation factors are presented. A case study analysis with respect to significant factors and factor categories affecting cost escalation realisation and impact for six building

2 95 construction projects is also presented. Cost escalation in building construction used in the context of this study, is the increase in the cost of any construction elements of the original contract or base cost of the a project due to passage of time. 5.2 CONSTRUCTION CONTRACT A construction contract is an agreement between two parties (Constructor and owner) by which the constructor agrees to do the construction of a structure and the owner in return agrees to pay the constructor a price for construction as per (drawings, specification etc.). The agreement has the legal booking and constraints conditions regarding the course of action available in the case of deviation and/or default. Construction contracts management therefore is not only concerned with construction management but management of the contract management. When the construction is executed departmentally by the owner/user the construction management is his responsibility. When the construction is being done through contract the construction management is the main responsibility of the constructor who is actually a contractor but in order that the construction. Management is done effectively and efficiently, it is necessary to execute the contract and the contract management is the concern of all those who are associated with the contract. The contract method of execution is represented in Figure 5.1.

3 96 Owner Contract Constructor Construction Management Construction of Project Figure 5.1 Construction management: Contract method of execution Contract is an agreement between two parties. By virtue of an agreement two parties can enter into transaction which may be selling, or buying any, commodity, borrowing or spending money, leasing, or hiring any property rendering any service etc. Legal system of a country gives its people freedom to enter into such an agreement. Any valid agreement creates mutual rights and an agreement. Any valid agreement creates mutual rights and obligation and, creates legal relations between parties entering into an agreement. To ensure uniformity among these agreement to a set of rules is formulated constituting the law of contract. The law of contract lays down the conditions enabling the enforcement of the agreement between two parties as per the law. Thus contract is an agreement, between two parties, satisfying the conditions laid down by the contract law and hence can be enforced by law. In India the law of contracts is contained in the Indian Contract Act In Government, all the projects are executed by awarding contracts. The execution of a project/work has two stages viz. the Pre-construction stage and the Construction stage.

4 PROCESS OF IDENTIFICATION OF FACTORS AFFECTING COST ESCALATION One of the aims of this research is to identify significant factors affecting cost escalation in Indian building construction project. The methodology of identification of factors affecting cost escalation was done as presented in Table 5.1. A mixed approach of interviews, questionnaire surveys and case studies were used for the study (Thomas et al 2001; Akintoye et al 1998; Wang et al 2000; Jefferies and Gameson 2002). Table 5.1 Process of identification of factors affecting cost escalation Stage Process Details 1 Preparation of preliminary list of factors and their categories 2 Identification of significant factors contributing to cost escalation 3 Identification of significant factor categories affecting to cost escalation Study of literature including research papers and case study reports. Unstructured interviews and discussions with project participants, consultant/experts for identification of factors contributing to cost escalation and their category Questionnaire survey among middle and senior level building construction project participants for identifying relative importance indices and ranking of factors contributing to cost escalation Questionnaire survey among middle and senior level building construction project participants for identifying significant factor categories contributing to cost escalation. 4 Case study analysis Detailed case study of six Indian building projects in terms of cost escalation factor categories realisation and impact for validating the survey results. 5.4 PRELIMINARY LIST OF IDENTIFICATION OF COST ESCALATION FACTOR CATEGORIES AND FACTORS IN BUILDING CONSTRUCTION PROJECTS

5 98 A preliminary list of factors and categories contributing to cost escalation associated with building construction projects in general and unique to the Indian project environment was prepared based on literature review (Gallo et al 1977; Paulson 1980; Williams 1980; Warszawski 1982; Farid et al 1985; Keng 1985; Elinwa et al 1993; Touran 1993; Blair et al 1993; Williams et al 1994; Harbi et al 1994; Makarand Hastak et al 1996; Ahmed et al 1998; Knight et al 2000; Knight et al 2000; Akpan et al 2001; Kiwus et al 2001; Kiwus et al 2001; Dawood 2001; Dawood et al 2002; Dawood et al 2002; Touran 2003; Wilmot et al 2003; Trost et al 2003; Wang et al 2004; Touran et al 2005; Touran et al 2006; Zou et al 2007; Kaliba et al 2008), interview with consultants/experts and discussions with building project participants. The preliminary list of cost escalation factors and their categories prepared was further filtered through unstructured interviews with consultants/ experts, project participants. Building construction project participants available in and around Chennai were consulted / interviewed for consolidating the list of cost escalation factors. About 25 such locally available building project participants were interviewed. These experts/ participants included Government officers, contractors and consultants. Thirteen cost escalation factors falling under five cost escalation categories have been identified and finalised.

6 CLASSIFICATION OF CATEGORIES AND FACTORS AFFECTING COST ESCALATION In the present research, thirteen cost escalation factors falling under five factor categories have been identified. Based on literature review, interviews/ discussions with Indian Building construction project participants and case studies. The cost escalation factors relating to the various participants and external factors involved in project execution have been identified and categorised under five major categories is presented in Table 5.2. Table 5.2 Classification of factors relating to categories causing cost escalation in Indian building construction projects Factor Categories contributing to Cost escalation 1. Steel 2. Cement 3. Brick 4. Coarse aggregates 5. Sand and 6. Timber Factors contributing to cost escalation Inflation Exchange Rates Environmental Protection Freight and Transportation cost Demand and Supply Government Policies Taxes Interest Rate Power Tariff Raw Material Input Labour Cost Technolgy Upgradation and Price Increase by the Manufacturer

7 SURVEY RESEARCH Questionnaire Survey Approach Due to the non-availability of organised information relating to the completed projects and including cost escalation of the project in Indian building construction projects, a mail questionnaire survey approach was considered. This approach is well recognised and widely used in both social sciences and management research studies. In the area of construction management, many researchers have used this approach (Kangari 1995; Hartman and Snelgrove 1996; Chan et al 1997; Akintoye and Macleod 1997; Ahmed et al 1998; Fing et al 1999; Shen et al 2001; Knight et al 2002; Dawood et al 2002; Abinu et al 2006; Patrick et al 2007; Kaliba et al 2008). In the survey research, factors affecting cost escalation in building construction projects were identified Survey Questionnaire The questionnaire for part-c (Questions C1 to B13 and B14 to C15) survey was designed with the main objective to identify and evaluate the factors contributing to cost escalation in Indian building construction projects in India. The preliminary questionnaire was circulated among the twenty experienced locally available experts in the field. Their suggestions with respect to contents, structure, format and sequencing of the questions were incorporated in the final questionnaire. The survey questionnaire contains questions related to identification of factors affecting cost escalation in building construction projects in India. The questionnaire used in the survey is presented in Appendix 1. Questions were relevant to the area of research. Questions C1 to

8 101 C13 and C14 to C15 were related to the causes of cost escalation in Indian building construction projects. Questions for Identification of factors affecting cost escalation: Thirteen factors under five major material categories have been finalised through literature review, case studies and interviews were given in the questionnaire and respondents were asked to indicate their response based on their experience in construction projects in India Response - Questionnaire Survey Survey was carried out among the two major participants of Indian building construction projects - Government representatives (Clients), and Contracting organisations (contractors). The survey was administered during the period June to Dec Questionnaire survey included only middle and top level officers who have responsible for execution of projects and powers for strategic decision making in their respective organisations with respect to building construction projects are included in the sample. Out of 215 questionnaires sent/delivered directly to the concerned, 119 responses were received after personal requests and visits to their respective offices. During such visits, along with questionnaire responses, discussions/ unstructured interviews were also carried out with the above respondents. The response rate of 56 percent is considered to be very good for this kind of a mail survey. Though the total number of questionnaires sent and the responses received were limited, the survey covered most of the known strategic decision makers in the Indian building construction projects. The reliability of the survey results is expected to be high because all the respondents are top-level experienced management officials in their organizations

9 Identification of Most Significant Factors Affecting Cost Escalation An all India questionnaire survey was conducted among two major participants (Government representatives and consultants) of Indian building construction projects to identify the most significant factors contributing to cost escalation in Indian building construction projects. In the identification of most significant factor contributing to cost escalation, 13 factors have been formulated in the questionnaire, which was developed to sample the opinion of construction managers on the extent to which each of the factors were contributing to overall cost escalation on a typical building project in which they are involved. The respondents were asked to adopt weights to the factors 1 to 5, where, 1 is the lowest score and 5 is the highest score. The score assigned to each factor by the respondents represents the extent to which the factor contributes to overall cost escalation on a typical building project. However, using the Statistical Package for Social Sciences (SPSS), the data were subjected to statistical analysis for further insight. Data analysis: Chan et al (1996) and Aibinu et al (2006) used the relative importance index method to determine the relative importance of the factors causing delays in construction projects. The same method was adopted for analysis of the data collected from the questionnaire survey, within various groups as classified according to the role of the participants involved in the Indian building construction industry. The five point scale was transferred to relative importance index for each factor. The factor were ranked in order of importance based on the relative importance indices values. These ranking made it possible to cross-compare the relative importance of factors as perceived by the two group of respondents i.e. owner and contractor. All the numerical scores of each of the identified factors were transformed to relative importance indices to determine the relative ranking of the factors. The relative importance index (RII) was evaluated using the following expression:

10 103 (5.1) Relative Importance Index = W A N (0 index 1) where, W = weightage given to each factor by the respondents and ranges from 1 to 5, W = total score assigned to the factor by the respondents; A = highest weight (i.e. 5 in this case); and N = total number of respondents. The factors were ranked in order of importance based on the relative importance index values. The relative importance indices and ranking of the 13 cost escalation factors were done based on the perception analysis of client, contractors and overall representatives of building construction projects in India. Results and Discussion: The details of factor name and factor identification label are presented in Table 5.3. Table 5.3 Cost escalation - Details of factor name and factor label Factor Name Inflation Exchange Rates Environmental Protection Freight and Transportation cost Demand and Supply Government Policies Taxes Interest Rate Power Tariff Raw Material Input Labour Cost Technolgy Upgradation Price Increase by the Manufacturer considering market condition Factor Label C01 C02 C03 C04 C05 C06 C07 C08 C09 C10 C11 C12 C13

11 104 The relative importance indices and rank of the 13 cost escalation factors based on the perception of client representatives of building construction projects in India is presented in Table 5.4. Table 5.4 Clients responses to the ranking of significant factors causing cost escalation (n=66) Factor Name Factor Label Relative Importance Index Factor rank Raw Material Input Cost C Power Tariff C Demand and Supply C Freight and Transportation Cost C Taxes C Inflation C Government Policies C Exchange Rates C Labour Cost C Interest Rate C Price Increase by the Manufacturer considering market condition C Environmental Protection Cost C Technolgy Upgradation Cost C The Client representative s response to the relative importance indices of the six most significant factors causing cost escalation in building construction projects in India is presented in Figure 5.2.

12 Impact of cost escalation Relative Importance Index Raw Material Input Cost Power Tariff Demand and Supply Freight and Transportation Cost Taxes Inflation Government Policies Exchange Rates Figure 5.2 Clients response - Most significant factors causing cost escalation The relative importance indices and ranking of the 13 cost escalation factors based on the perception of contractor representatives of building construction projects in India is presented in Table 5.5.

13 106 Table 5.5 Contractors responses to the ranking of significant factors causing cost escalation (n=53) Factor Name Factor Label Relative Importance Index Factor rank Demand and Supply C Raw Material Cost C Transportation Cost C Power Tariff C Inflation C Taxes C Exchange Rates C Government Policies C Labour Cost C Interest Rate C Price Increase by the Manufacturer C Environmental Protection Cost C Technolgy Upgradation Cost C The Contractor representative s response to the relative importance indices of the six most significant factors causing cost escalation is presented in Figure 5.3.

14 Relative Importance Index Impact of cost escalation Demand and Supply Raw Material Cost Transportation Cost Power Tariff Inflation Taxes Exchange Rates Government Policies Figure 5.3 Contractors response - Most significant factors causing cost escalation The relative importance indices and rank of the 13 cost escalation factors based on the perception of overall group (clients and contractors) representatives of building construction projects in India is presented in Table 5.6.

15 108 Table 5.6 Overall responses to the ranking of significant factors causing cost escalation (n=119) Factor Name Factor Label Relative Importance Index Factor rank Raw Material Input Cost C Demand and Supply C Power Tariff C Transportation Cost C Inflation C Taxes C Exchange Rates C Government Polices C Labour Cost C Interest Rate C Price Increase by the Manufacturer C Environmental Protection Cost C Technolgy Upgradation Cost C The relative importance indices of the six most significant factors causing cost escalation according to overall group representatives in building construction projects in India is presented in Figure 5.4.

16 Impact of cost escalation Raw Material Input Cost Demand and Supply Power Tariff Transportation Cost Inflation Taxes Exchange Rates Relative Importance Index Government Polices Figure 5.4 Overall group response - Most significant factors causing cost escalation Table 5.7 shows the relative importance indices and ranking of the 13 cost escalation factors based on the responses of client, contractors and overall (client and contractor) group representatives of building construction projects in India.

17 110 Table 5.7 Clients, Contractors and overall responses to the ranking of significant factors causing cost escalation in building projects construction in India Factor Name Clients response (n=66) RII Facto r rank Contractor response (n=53) RII Factor rank Overall (n=119) RII Factor rank Raw Material Input Cost Non-availability of power supply Demand and Supply Transportation Cost Taxes Inflation Government Policies Exchange Rates Labour Cost Interest Rate Price Increase by the Manufacturer Environmental Protection Cost Technolgy Upgradation Cost Note: RII Relative Importance Index The relative importance indices of the six most significant factors causing cost escalation as perceived by the client s, contractor s and overall representatives in building construction projects in India is presented in Figure 5.5.

18 Clients group Contractors group Overall group Raw Material Input Cost Power Tariff Relative Importance Index Demand and Supply Freight and Transportation Cost Taxes Inflation Government Policies Exchange Rates Figure 5.5 Clients, contractors and Overall group - Significant factors causing cost escalation Identification of most significant factor categories affecting cost escalation Six factor category (Cement, Steel, Brick, Sand, Stone aggregates and Timber) were identified through case studies of six building construction projects in India. The identified major materials components were formulated in a questionnaire survey. Pair wise comparison scale for each set of major factor category for cost escalation through Analytic Hierarchy process (AHP) questionnaires were used and respondents were asked to indicate their pairwise comparison scale for individual cost escalation impact. The responses

19 112 received were evaluated using expert choice software. A detailed case study analysis of six building construction projects were carried out to validate the survey findings on most significant factor category contributing to cost escalation. The relative weight age of the six significant cost escalation factor categories as perceived by the client s representatives is presented in Table and Figure Cost escalation impact AHP - Weightage Cement Steel Brick Sand Stone Aggregate Timber Figure 5.6 Significant factor categories affecting cost escalation as perceived by the client s group As perceived by the client s group, two most significant factors contributing to cost escalation are steel and Cement categories. The timber category was the least (among six categories identified) affecting cost escalation in building construction projects in India.

20 113 The perception analysis of client responses among CPWD, MES and TNPWD representatives is presented in Figure CPWD MES TNPWD 0.35 AHP - Weightage T Cement Steel Brick Sand Aggregates Timber Figure 5.7 Clients response: perception analysis among CPWD, MES and TNPWD The perception analysis of contractor representative s response to the relative weight age of significant factor category causing cost escalation is presented in Figure 5.8.

21 Cost escalation impact 0.30 AHP - Weightage Cement Steel Brick Sand Stone Aggregate Timber Figure 5.8 Significant factor categories affecting cost escalation as perceived by the contractors group As perceived by the contractors group, two most significant factors contributing to cost escalation are steel and Cement categories. Impact of cost escalation of steel and cement are closer. The timber category was the least (among six categories identified) affecting cost escalation in building construction projects in India. The perception analysis of contractor responses among CPWD, MES and TNPWD representatives is shown in Figure 5.9.

22 CPWD MES TNPWD 0.35 AHP - Weightage Cement Steel Brick Sand Aggregates Timber Figure 5.9 Contractors response: perception analysis among CPWD, MES and TNPWD The most significant factor categories contributing to cost escalation as perceived by the client s, contractors and overall representatives in building construction projects are presented in Figure 5.10.

23 116 Client's response Contractor response Overall response AHP Value Cement Steel Brick Sand Stone Aggregate Timber Figure 5.10 Clients, contractors and overall s response to the weight age of significant factor categories causing cost escalation From Figure 5.10, Steel and cement factor categories were identified as most significant factor categories contributing to cost escalation in building construction projects according to perception analysis of clients, contractors and overall group. Timber factor category has the least impact (among six factor categories identified) of cost escalation in the project construction projects. 5.7 CAUSES OF COST ESCALATION - STATISTICAL ANALYSIS In responses of owner and contractor representatives in regard to causes of cost escalation in building construction projects (C1 to C13) were analysed. The statistical analysis include t-test, one way analysis of variance (ANOVA). In order to evaluate the differences in perceptions among client and contractor representatives t- test was performed and is also presented in Table 5.8.

24 117 Table 5.8 T-test: Responses to causes of cost escalation in building construction project, their mean, standard deviation, T-value and P value Factor C1 C2 C3 C4 C5 C6 C7 C8 C9 Organization Status N Owner 66 Contractor 53 Owner 66 Contractor 53 Mean Standard Deviation Owner Contractor Owner 66 Contractor 53 Owner 66 Contractor 53 Owner 66 Contractor 53 Owner 66 Contractor Owner Contractor 53 Owner 66 Contractor 53 C10 Owner Mean Difference 95% Confidence Interval for Mean Difference T-Value P-Value ** *** ***

25 118 Contractor C11 Owner 66 Contractor ** C12 Owner 66 Contractor C13 Owner 66 Contractor ** $ Please refer to Question No. C1 to C13 of the questionnaire (Appendix A) for causes of cost escalation # T test of Ho : Significant mean difference between clients and contractors Ha : No Significant mean difference between clients and contractors *** Significance at 99% level ** Significant at 95% level * Significance at 90% level In order to evaluate the differences in perceptions of clients and contractors among CPWD, MES and TNPWD representatives ANOVA was performed and is also shown in Tables 5.9 and Table 5.9 ANOVA Owner responses to causes of cost escalation in building construction project, their mean, standard deviation, T value and P value Factor C1 C2 C3 Escalation Cause N Mean Standard Deviation CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD ANOVA F-Value ANOVA P-Value **

26 119 C4 C5 C6 C7 CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD

27 120 Table 5.9 (Continued) Factor C8 C9 C10 C11 C12 C13 Escalation Cause N Mean Standard Deviation CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD ANOVA F-Value ANOVA P-Value ** $ Please refer to Question No. B1 to B29 of the questionnaire (Appendix 1) for causes of cost escalation # T test of Ho : Significant mean difference between clients and contractors Ha : No Significant mean difference between clients and contractors ** Significance at 95% confidence level; *Significance at 90% confidence level

28 121 Table 5.10 ANOVA contractor responses to causes of cost escalation in building construction project, their mean, standard deviation, T value and P value Factor C1 C2 C3 C4 C5 C6 C7 C8 Escalation Cause N Mean Standard Deviation ANOVA F-Value ANOVA P-Value CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD CPWD MES TNPWD

29 122 Table 5.10 (Continued) Factor C9 C10 C11 C12 Escalation Cause N Mean Standard Deviation ANOVA F-Value ANOVA P-Value CPWD MES TNPWD CPWD MES TNPWD CPWD *** MES TNPWD CPWD MES TNPWD C13 CPWD * MES TNPWD Please refer to Question No. B1 to B29 of the questionnaire (Appendix 1) for causes of cost escalation. # T test of Ho : Significant mean difference between clients and contractors Ha : No Significant mean difference between clients and contractors *** Significance at 99% confidence level; ** Significance at 95% confidence level; * Significance at 90% confidence level

30 CASE STUDY APPROACH IDENTIFICATION OF MOST SIGNIFICAT FACTORS AFFECTING COST ESCALATION A detailed case study analysis of six building construction projects were carried out to validate the survey findings on most significant factor categories affecting cost escalation. The case study research includes interviews, discussions with construction managers, detailed study of project documents and contracts. One of the main objectives was to check how far the most significant factors identified through the survey research have adversely affected the respective projects. A brief overview of the building construction projects studied, overall impact of six most significant factors causing cost escalation in each project and comparison of most significant factors impact with results of the survey analysis are presented in Tables 5.11 and 5.12 respectively.

31 124 Table 5.11 Building Construction projects in India Impact of cost escalation study Project details Project name Type of contract Form of contract Construction of international terminal building Construction of educational building-i Building construction projects Construction of educational building-ii Construction of residential hostel building-i Construction of Hostel building-ii Construction of office Building Item rate Item-rate Item-rate Item-rate Lumsum Item-rate CPWD CPWD CPWD CPWD CPWD TNPWD ECPT Agreement value in (Rs. Million) Final value Tendered percentage Period of completion Date of starting Date of completion as per agreement Actual date of completion Time delay in completion 0.47% above the estimate cost 12.25% below the ECPT % below the ECPT months 12 months 8 months 12 months 15 months 17 months months 5 days 4 months 13 days 12 months delay 2 months 15 days 12 Months 2 months 20 days TNPWD: Tamailnadu Public Works Department CPWD: Central Public Works Department ECPT: Estimate Cost Put to Tender

32 125 Table 5.12 Most significant factors realisation and impact in Indian building constriction projects Comparison Most significant Cost escalation factor categories Project name Type of contract Form of contract Construction of international terminal building Construction of educational building-i Building construction projects Construction of educational building-ii Construction of residential hostel building-i Construction of Hostel building-ii Construction of office Building Item rate Item-rate Item-rate Item-rate Lump sum Item-rate CPWD CPWD CPWD CPWD CPWD TNPWD Overall impact of most significant cost escalation factor categories Cement % loss 14.0% 10.5% 5 to 10% 11.0 % 10.0% Steel 14.0 % loss 16.50% 13.5% 10% 15.5 % 13.5% 5.9 SUMMARY In Indian Building construction projects, five significant factor categories, along with thirteen significant factors have been short listed through preliminary studies. All India survey (in two stages) among two major participants of Indian building construction projects (Government representatives and contractors) was carried out for identification of significant factors affecting cost escalation. Identification of most significant factor contributing to cost escalation, 13 factors have been formulated in the questionnaire, which was developed to sample the opinion of construction managers on the extent to which each of the factors were contributing to overall cost escalation on a typical building project in which they are involved. The relative importance index method was adopted for analysis of

33 126 the data collected from the questionnaire survey, within various groups as classified according to the role of the participants involved in the Indian building construction industry. The five point scale was transferred to relative importance index for each factor. The factors were ranked in order of importance based on the relative importance indices values. These ranking made it possible to cross-compare the relative importance of factors as perceived by the two group of respondents i.e. owner and contractor. All the numerical scores of each of the identified factors were transformed to relative importance indices to determine the relative ranking of the factors. The perception analysis of clients representatives, eight most significant factors affecting cost escalation in building construction projects are Raw Material Input Cost, Power Tariff, Demand and Supply, Freight and Transportation Cost, Taxes, Inflation, Government Policies and Exchange Rates. The eight most significant factors causing cost escalation as perceived by the contractors representatives are Demand and Supply, Raw Material Cost, Transportation Cost, Power Tariff, Inflation, Taxes, Exchange Rates and Government Policies. The overall ranking indicates that both the groups felt that six most significant factors that can cause cost escalation in building construction projects in India are Raw Material Input Cost, Demand and Supply, Power Tariff, Transportation Cost, Inflation, Taxes, Exchange Rates and Government Polices. The five factor categories were formulated in the questionnaire, which was developed to sample the opinion of construction managers on the extent to which each of the factor category contributing to overall cost escalation on a typical building construction project in which they are involved. Pair wise comparison scale for each set of major factor category for cost escalation through Analytic Hierarchy process (AHP) questionnaires was used. The responses received from the respondent were evaluated through

34 127 Analytic Hierarchy process (AHP) software to evaluate the differences in perceptions among client and contractor representatives. Based on the perception analysis, descending order of significant factor categories affecting cost escalation are Steel, Cement, Brick, Sand, Coarse aggregates and Timber. From the study, it is found that impact of cost escalation in building construction projects are mainly due to the escalation in prices of steel and cement, followed by brick and Sand categories. The timber categories has least impact of cost escalation among the six major material categories identified. There was a fair degree of agreement between survey based factors affecting cost escalation and the actual cost escalation impact in building construction projects examined through the case studies. A majority of the cost escalation factors, which affected the above projects, fall under the Steel, Cement and Brick categories. Hence, construction organization can make use of these findings and cost escalation for these materials should be reimbursed based on actual procurement prices and quantities consumed during the contract to minimize the cost escalation