Effect of Material Price Fluctuation on Construction Industry: A Case Study of Tokha Municipality, Nepal

Abstract

Material price fluctuation is one of the most persistent challenges facing the construction industry in developing economies, yet municipal-level evidence from Nepal remains scarce. This study examines the effect of construction material price fluctuation on project performance in Tokha Municipality, Kathmandu, by comparing government-fixed district rates with prevailing supplier rates for seven major materials  cement, reinforcement, sand, aggregate, stone, bricks, and plywood over six fiscal years (2077/78–2082/83). A mixed-methods approach was adopted, combining secondary rate and project-completion records with a questionnaire survey of 79 stakeholders, supplemented by interviews, field observations, and focus-group discussions, and the data were analyzed using the Relative Importance Index (RII), paired-sample t-tests, and Pearson correlation analysis. The results show that supplier rates persistently exceeded district rates, with the difference statistically significant for six of the seven materials at the 5% level; cement was the only exception. Stakeholders ranked cost overrun (RII = 0.88) and time overrun (RII = 0.86) as the most severe effects of price fluctuation, and correlation analysis revealed a very strong negative relationship between average price fluctuation and yearly project completion (r = −0.949, R² = 0.90), indicating that approximately 90% of the variation in municipal project completion is attributable to material price fluctuation, which peaked at 20.27% in FY 2082/83 when completion fell to 51.87%. The findings underscore the need for regular updating of district rate schedules, a functional price-adjustment mechanism, and systematic market price monitoring to safeguard the timely completion of municipal construction projects.