Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
CONSTRUCTION &
CONSULTANCY CONTRACT
ByEngr. M. Mazhar-ul-Islam
Convener
PEC Act & Byelaws Committee
1
Terms – Escalation, Price Adjustments & Increase / Decrease.
Meaning – Adjustment of Contract Price for increase or decrease of
prices of adjustable materials / services.
It is compensation and not extra benefit to Contractor.
Adjusted periodically during contract period.
Basic formula: Price Adjustment = Quantity x (current rate – base rate).
FIDIC formula: Pn = A+b Ln + c Mn + d En + ……
Lo Mo Eo
To be built in the Bidding Documents.
2
Bidders quote price on prevailing market rates.
Cost of basic construction materials fluctuate unpredictably
in Pakistan.
Unlimited cost increase not foreseeable & cannot be built in
competitive bidding process.
Contractors can execute work only at right costs.
Legal contract not necessarily be executable unless
conductive mechanism equitable to the parties are included.
3
Results of non-adjustments: Project delay, disputes,
cancellation of contracts – resulting more cost for the
Employer.
Exclusions:
Variation Orders
Claims
Subsequent Legislation
Measurement of Quantities
4
Standard Bidding Documents for Civil Works: Clause 70.1 of
PCC.
Standard Bidding Documents for E&M Works: Clause 47.1 of
PCC.
Standard Form of Bidding Documents (Smaller Contractor)
Standard Contract for Consultancy (Time Based):
Clause 6.2(a) SC.
Standard Procedure & Formula for Price Adjustments.
5
BelowRs 30 million contract (below C-5 Ceiling)
not covered for Price Adjustment (PA).
Also
if original Contract Period less than 12
months, PA not applicable.
Procedure for Price Adjustments deemed to be
notified.
6
FORMULA
FOR
ESCALATION
7
Price Adjustment Formula
In 1999, FIDIC introduced a formula to
calculate major part of price hike
escalation risk. The purpose of introducing
the formula was to:
• propose a uniform and realistic method.
• acceptable to all parties.
• Should workable in all kind of
circumstances.
• Should not favor any particular party.
16
◦ The contractor will not be paid price adjustment
for the items supplied by the employer either free
of cost or at fixed prices.
◦ This document is applicable to all types of
contracts including lump sum contracts,
percentage over schedule contracts and items
rate contracts. However fixed price contracts are
excluded.
◦ According to this document the price adjustment
will only be paid in local currency (Pakistani
Rupees). However the contracting parties may
decide by mutual agreement regarding the price
adjustment is some other foreign currency.
17
◦ The cost elements, which have cost impact of 5 percent or
more, can only be selected for adjustment. However, HSD
and labor shall be included in the Price Adjustment formula
irrespective of their percentage in a particular project, if
these are applicable for that project.
◦ If any item on which price adjustment is admissible as per
contract and in a particular billing month that item is not
used, then the current date price and base date price ratio
will be considered as “one” for the price adjustment for that
particular month.
◦ Sometimes the cost indices are not available timely for
current months. FIDIC 1999 states that till the availability of
the cost index for current month the engineer may determine
the provisional index for the issue of Interim Payment
Certificate (IPC) or may use the index costs for the previous
month. When the cost index for that particular month is
available, the adjustment will be re-calculated accordingly.
18
Undertake rate analysis of rightly prepared BOQ’s
Consider all members of a family of escalatable items
Consider 5% & more weightages as escalatable elements
POL & labor shall always be considered even below 5%
Maximum adjustable portion shall not exceed 65% and
fixed portion not less than 35%
Sum of all weightages plus fixed portion must be unity
19
Cost Element Description Weightage Applicable Index
1 2 3 4
(i) Fixed Portion 0.350
(ii) Local Labor PICC
(iii) Cement – in bags PICC
(iv) Reinforcing Steel PICC
(v) High Speed Diesel PICC
(HSD)
(vi) Bricks PICC
20
Employers using this price adjustment provisions may
add or delete any elements as deemed appropriate to
the project.
21
Indices for “(ii)” to “(vii)” are taken from FBS. The base
cost indices or prices shall be those applying 28 days
prior to the latest day for submission of bids. Current
indices or prices shall be those applying 28 days prior
to the last day of the billing period.
22
Any fluctuation in the indices or prices of materials other
than those given above shall not be subject to
adjustment of the Contract Price .
23
Fixed portion shown here is for typical road project,
Employer to determine the weightage of Fixed Portion
considering only those cost elements having cost
impact of five (5) percent or more on his specific
project.
24
Pn = A + b Ln + c Mn + d En + ……
Lo Mo Eo
25
Pn is Price Adjustment Factor
A is constant, representing the nonadjustable portion
b, c, d, etc. are coefficients / weightages representing
portion of each cost element
Ln, Mn, En, etc. are the current cost indices of cost
elements for month “ n ”
Lo, Mo, Eo , etc. are base cost indices corresponding to
26
Source of indices shall be those listed in Appendix-C
as approved by Engineer.
As the basis of Price adjustment, Contractor shall
have submitted the tabulation of Weightages & Source
of Indices if different than Appendix – C.
27
Base cost indices or prices shall be those prevailing
on the day 28 days prior to the latest date of bid
submission.
Current indices or prices shall be those prevailing on
the day 28 days prior to the last day of the period to
which a particular monthly statement is related.
28
If at any time, current indices are not available,
provisional indices are determined by the Engineer will
be used subject to subsequent adjustments.
If an element is not used, ratio between base and
current rates should be considered unity
29
Clause 43 GC: Time for Completion – within Schedule
or extended Schedule pursuant to Clause 44 GC.
Clause 44 GC: Extension of Time for Completion – not
for fault of Contractor.
Clause 48GC: Taking over Certificate – by the Engineer.
30
Price adjustments admissible even for the extended
completion period.
If extension due to Contractor's fault, PA will be using
indices before or after the completion, favorable to the
Employer.
If extension pursuant to Clause 44 (No fault of
Contractor), PA as usual is allowed.
31
The Weightages of each of the cost factors shall be
adjusted at any stage of the project, if it is found
unreasonable, unbalanced or inapplicable in review of
the Engineer.
Weightages change for Instruction under clause
51(v.o.).
Such adjustments shall have to be agreed in such v.o.
32
“ PRICE ADJUSTMENT
IN
CONSULTANCY CONTRACT”
BY:
Engr. M. Mazhar-ul Islam
Convener
PEC Act & Bye-laws Committee
33
Applicable to Time Based assignment Contract only.
Generally increase in cost for services.
Exclusions:
Increase in ceiling
Cost of Additional work
Subsequent Legislation for other provisions
Modification of Contract under Clause 2.5 SC
Payment to be adjusted under Clause 6.2(a) SC.
Applicable for both Foreign & Local currency adjustments.
34
Option – 1
Billing rates for each person shall be adjusted in each July.
First adjustment in July following submission of final
proposal.
Revision Elements:
Annual increment
Increase due to promotion
Salary revision to Clause 5.3 SC or otherwise
35
Option – 2
Using the formula:
RI = RIo x II/IIo
Where:
RI is the adjusted billing rate
proposal
36
To be adjusted every 12 months using formula:
Rf = Rfo x If / Ifo
Where:
Rf is adjusted remuneration
Rfo is the remuneration payable
If is the official salary index in foreign country for the first
month for which adjustment is suppose to have effect
Ifo is the official salary index for the monthly date of
contract
37
THANK YOU
38