‘Construction Holiday’ Looms as Nepal Rushes Cost Revision for Infrastructure Projects

Amid soaring fuel and construction material prices triggered by the ongoing conflict in West Asia, under-construction projects across Nepal are facing mounting cost pressures. To address the situation, the Ministry of Physical Infrastructure and Transport has initiated a process for cost adjustment of ongoing projects.

A price adjustment committee formed by the ministry has recommended determining prices through the Public Procurement Monitoring Office based on appropriate indicators, noting that adjustments will vary according to the nature of each contract. The committee has been given 15 days to submit recommendations for necessary decisions.

According to construction entrepreneurs, work on most infrastructure projects has slowed due to price hikes. Although no formal "construction holiday" has been declared, work at sites has nearly come to a halt. They report that only about 25 percent of work is taking place during the peak development and construction season.

Construction businesses had been demanding price adjustments following sharp increases in the cost of construction materials, fuel, bitumen, and other essentials. On Wednesday, the Ministry formed a committee led by a joint-secretary to oversee the adjustment process.

The committee concluded that the abnormal rise in petroleum product prices has significantly increased the cost of public construction, threatening the continuity of projects.

A similar price adjustment was carried out in 2008 under comparable circumstances. The current adjustment is being prepared based on provisions in the Public Procurement Act 2006 and its related regulations.

Ministry spokesperson Ramhari Pokharel informed that while discussions are underway regarding the adjustment, no final decision has been made yet.

Nicolas Pandey, President of the Federation of Contractors Association of Nepal, said he has received information that the additional cost burden will be covered through adjustments. Depending on the project and type of work, costs have increased by up to 50 percent, he said. “We have proposed adjustments based on labor, construction materials, and equipment,” Pandey said. Expressing confidence in the government’s commitment, he added that contractors expect compensation according to the increased prices.

Ramesh Sharma, Chairman of Sharma & Company, reported that overall road construction costs have risen by 30 percent, noting that petroleum products account for about 25 percent of costs on road projects, while bitumen represents 15 percent. He recalled that price adjustments were also made in 2008 when fuel and rebar prices increased. Sharma added that prices of nearly all construction materials have gone up by at least 10 percent.

Basis for Price Adjustment

Under Section 55 of the Public Procurement Act 2006, unless otherwise stipulated in the contract, price adjustments may be made for contracts exceeding 12 months if deemed necessary. For national-level tenders, price adjustments can be made if the price of any material fluctuates by more than 10 percent. Section 119 of the Public Procurement Regulations 2006 specifies the basis and formula for adjustments, considering labor, materials, and fuel prices, with nine indicators used for calculation.

Under the regulations, the maximum price adjustment is generally capped at 25 percent of the initial contract value. If this limit is exceeded, the public entity may terminate the contract, negotiate cost adjustments, adopt cost-reduction measures, or arrange additional budget as needed.