A Study on the price escalation system in public construction contracts in Turkey

Ercan, Muhammed
The construction industry has a major role in the development of Turkish economy. The construction sector contributes 6-8 % of the gross domestic product of Turkey. At the same time, public investments comprise an important portion in the Turkish construction sector. Medium to large construction projects generally take over a year for completion and cost of materials and labor that are used as resources in construction projects often increase during implementation of construction projects. On the other hand, construction projects are executed according to the pre-confirmed contract value and contract agreement in principle. Thus, due to the cost increases in construction inputs, most contractors have to bear considerable extra burden which causes major problems and disputes during administration of the contract. To cope with these types of problems, most countries regulated the escalation clause in the law or conditions regarding construction contracts. Escalation Clause regulates adjustments to the contract amount, due to the changes in prices. The purposes of this study are (i) to study the current price escalation decree in Turkey, (ii) to understand the escalation clauses presently used in construction contracts adopted by various Government agencies in Turkey, (iii) to investigate the arguing points related to the price escalation decree and problems related to price adjustment applications, (iv) to provide suggestions to improve the current price adjustment system; through questionnaires directed towards representatives from contracting parties. The results show that; the most important problem related to the price adjustment applications is varying price adjustment implementations of different government agencies. The most important problems related to the price escalation decree are; unpredictable increases in exchange rates that bring contracts to an incomplete state, and the indices used for the price adjustment payment that do not exactly reflect the market conditions. The most important suggestions to improve the price escalation system are; the practices of the contracting authorities should be united in terms of putting the price adjustment clause into the contract, in order to simplify the calculation of price adjustment calculations and to avoid differences in implementation, a web-based Price Adjustment Calculation Module which is open to the use of administration and contractors should be established on the website of the Public Procurement authority, and construction indices that are specific to construction project type and take into account the construction sector inputs should be created and used in price adjustment (Building Cost Index, Road Cost Index, etc.).   


The route map of turkish international contracting services – lessons learnt and recommendations for the
Sakın, Aydın; Birgönül, Mustafa Talat; Dikmen Toker, İrem; Department of Civil Engineering (2011)
International contracting services of the Turkish construction companies started at the beginning of 1970s have great importance on Turkish construction sector and Turkish economy. With increasing and decreasing annual amounts from 1970s to the present date due to several economic, political and social factors; international contracting services showed a tremendous increase compared to the 1972 level. In the 38-years period between 1972 and 2010, Turkish contractors completed a lot of projects in different ...
Development of an IT-based tool for portfolio assessment and management for construction companies
Bilgin, Gözde; Dikmen Toker, İrem; Özorhon Orakçal, Beliz; Department of Civil Engineering (2019)
Development in the construction industry has leaded most of the construction companies to undertake more complex projects than before, which are generally executed concurrently. Therefore, project management routines of the companies may not support effective management of multi-projects. Project portfolio management approach has been suggested to meet requirements for coordinating multi-projects to meet strategic objectives under limited resources. Since project portfolio management requires a comprehensiv...
Investigating the relationship between the recent investments on construction sector and some economic indicators of Turkey
Aydın, Aykut; Özdemir, Özlem; Department of Business Administration (2016)
Construction industry is believed to constitute a significant part of the economic development and there are quite noteworthy studies that analyze the relationship between construction industry investments and economic development. This study attempts to find out this causal relationship by using Toda and Yamamoto Augmented VAR model for Granger Non-causality. In addition, two separate models are used in order to detect the effects of specific construction activities such as residential, commercial and indu...
Corruption and internal fraud in Turkish construction industry
Önder, Oytun; Gündüz, Murat; Department of Civil Engineering (2011)
The purpose of this thesis is to develop an understanding about internal fraud and corruption problem in Turkish construction industry. During the research, the reasons behind the internal fraud and corruption problem, types of internal fraud and prevention methods for internal fraud and corruption were investigated and various recommendations were developed. Moreover, fraud risk awareness questionnaire was implemented to understand the likelihood occurrence of internal fraud types in construction sector an...
The Evaluation of construction projects realized with public private partnership model in Turkey
Ürel, Osman Can; Birgönül, Mustafa Talat; Dikmen Toker, İrem; Department of Civil Engineering (2015)
Public–private partnerships (PPPs) are increasingly used in the public facilities and services provision with the growing economic development experienced in Turkey. However, there is an urge for more and better workable and efficient improved practices in future PPP projects. This research considers six types of common public projects in Turkey that are often delivered by the PPP method, including highway, airport, harbor & marina, custom facility & custom gate, industrial facility & urban infrastructure a...
Citation Formats
M. Ercan, “A Study on the price escalation system in public construction contracts in Turkey,” M.S. - Master of Science, Middle East Technical University, 2017.