Building contractors in Kenya are faced with the prospects of running into significant losses after a steep rise in the prices of steel over the past 3-months.
“Steel reinforcements bars are retailing at an average of KSh.105 per Kg from around KSh. 80 per Kg 3 months ago. Tenders submitted with KShs. 120 per kg!!? I don’t know how contractors will manage that,” Felix Chebwai, a Quantity Surveyor on Twitter.
The price fluctuation is especially expected to affect building contractors with fixed-sum contracts who cannot apply for variation in contract prices under their contracts. In fixed-sum contracts, contractors are expected to adhere to their program of works.
“That ‘this is a fixed sum contract’ is doing contractors bad. Prices are changing every week,” said one Qs Kimani.
Contractors usually factor in expected price fluctuations in their price estimates, however, the recent fluctuations have risen beyond expected limits.
“The changes are usually expected but a sudden 35% increase you can never foresee that,” added Felix.
The increase of about KSh. 35 per Kg on the crucial construction material is expected to amplify costs, significantly reducing contractors’ potential profits. Unlucky contractors may well run into losses.
Specialist contractors who take the hit are especially in a bad shape, however, general building contractors may find compensating options from other areas.
According to Felix, a Quantity Surveyor, prices usually fluctuate in the region of 5% but price fluctuations over the last 3 months have been remarkably sharp (over 30%).
Prices are expected to drop in the second quarter of the year but the level of the drop is uncertain while the possibility of further increase remains.
Sustained price increases as seen are likely to spill over into house prices and rents in the medium-term, affecting households across the economy.