Expert: Emilian TRAISTA - 10/26/2010

Question
Dear Sir/Madam,


I shall be highly thankful for answer to following questions and also like to know what is FIDC:-

1. What is internationally accepted formula for Price Adjustment (Price Variation Component - PVC) in an international competitive bidding turnkey contract.

2. What should be the value of coefficients used in the PVC Formula? How its values are determined?

3. It is mentioned in the Contract that a, b, c etc shall be coefficients of major materials/items involved in the Ex Works/FOB component of the Contract Price.  What is the significance and meaning of “major materials/items INVOLVED”.  Does it mean that coefficient of actual metal used in an item/equipment will be considered for payment of PVC amount and other coefficients given in the formula will not be considered/used to calculate the PVC amount. Or all the coefficients given in the formula are to be applied in combination irrespective of the fact that certain metal has been used or not used in an item.

4. How many decimal points are to be considered in solving the equation for the given PVC Formula for our country India to work out the PVC amount?  What is the internationally accepted practice in this respect?

5. An amount of 15% advance was given at the time of placing the order and executing the Contract Documents.  Whether PVC will be payable on this portion of 15% advance already released to the Contractor?

6. What are the rules under INCOTERMS for the terms of Ex Works and FOB?

7. The Contract states that PVC is to be paid on the FOB component of the contract price. On what basis the FOB value is to be determined and what are the rules of INCOTERMS in this respect?  Whether a notional (estimated) FOB value quoted at the time of bid can be considered for calculating PVC amount as per PVC formula?  Or whether the amount shown in the Bill of lading/Bill of Entry/Manufacturer’s invoice will be considered as FOB Value.

8. It is mentioned in the contract that a, b, c and d will be coefficients in PVC formula, where a is for machinery and equipment, b is for fabricated steel plate, c is for foundry and forge shop products and d is for steel mill products.  The contractor has supplied a machine as a finished product.  Whether the coefficient only “a” (given for machinery) will be applied or all the coefficients a,b,c & d are to be applied in combination alongwith their respective indices. Whether the contractor is required to certify/declare in its claim that such and such metals/process are involved in manufacturing of the machine and hence PVC would be claimed for all the coefficients?
9. In another sub contract for supply of plant and equipment it is given in the contract that coefficient “a” is for basic metal and alloys and “b” is for copper. Whether the contractor is required to certify/declare in its claim that such and such metals are  involved in the item/equipment?  Whether PVC is to be given for specific metal used in an item or PVC is to be given for both the coefficients “a & b” irrespective of the fact whether both the metals are used in an item or not.

10. The contract stipulates that, “The price adjustment amount corresponding to advance payment shall be clubbed with the first progressive payment of that equipment.”  How this expression is to be interpreted?

I shall be obliged and remain personally thankful for an early and specific reply.

With warm regards and good wishes.
Cahndra.
91-9818680671


Answer
Dear Mr. Cahndra,

Thank you for your extensive questionnaire.

There are several issues in your questions which can be good subjects for a consistent series of workshops.
In the same time, in order to answer some of your very specific questions I need a lot more information about your contract and local contract culture.
It would be a great pleasure for me to give you complete answers to your questions, but I can only do this based on an extensive dialogue with you.
If you are interested in continue this dialogue, please send me a message directly at etraista@yahoo.co.uk.

Looking forward to receiving your message,

Please accept my best regards.

Yours sincerely,
Emilian Traista