Is Uganda’s budgeting system to blame?

Construction projects in Uganda often exceed their initial budgets, raising concerns about whether procurement laws allow for price adjustments or if underestimated budgets are to blame. For instance, the Ministry of Finance’s Budget Execution Circular (2024/2025) cautioned government ministries, departments, and agencies (MDAs) about the distortion of the development budget due to the changing scope of ongoing projects. 

A recent High Court ruling upheld a 20 percent increase in the renovation contract price for the National Theatre, despite arguments that it exceeded the allowable limit under procurement regulations. The court clarified that the increase was legitimate based on the actual work completed.Uganda’s procurement laws, such as the Public Procurement and Disposal of Public Assets Authority (PPDA) Act of 2003 and subsequent regulations, permit contract price changes under specific conditions. 

The 2023 PPDA regulations allow for price adjustments ranging from 1 percent to 25 percent of the original contract to accommodate unforeseen costs. While these laws provide flexibility, they may not be the primary reason for frequent cost escalations. The budgeting process typically involves MDAs or hired consultants gathering market price information to create an estimated budget, known as the engineer’s estimate or reserve price. 

This budget often includes a contingency amount of 5 percent to 10 percent for unexpected costs. Bids are then invited, with contractors expected to submit proposals within 10 percent of the reserve price. Negotiations may occur if bid prices are contentious, as permitted by the PPDA regulations.

For long-term projects, procurement laws also allow for price adjustments based on consumer price indices from the Uganda Bureau of Statistics or the Bank of Uganda. Given this structured process, one might expect stable project prices. However, significant changes often occur during execution, primarily due to the preparation of the Bills of Quantities (BoQ).

The BoQ details all work items required for the project, including descriptions, quantities, unit prices, and total costs. While some items are straightforward, others are complex and require considerable time and resources to estimate accurately, leading to potential underestimation of initial budgets. If the reserve prices and contract prices are grossly underestimated, substantial price changes can arise during project execution, as seen in the National Theatre renovation project.

To address these issues, MDAs should enhance their capacity to develop accurate reserve prices. This could involve investing in training for technical officials, adopting more precise cost estimation methods, and improving oversight during the budget preparation process. By ensuring more accurate initial budget estimates, project costs can stabilise, avoiding significant changes during execution and improving the efficiency of public infrastructure projects.

Stabilising project prices is crucial for the timely completion of infrastructure facilities, which are vital for sustaining and improving the quality of life in Uganda. By addressing the root causes of budget instability, whether in procurement laws or budget estimates, Uganda can enhance its infrastructure development and ensure efficient use of public funds.

The author, Mr Angello Murekye is the managing director at SAKM Engineering Ltd.
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