Construction Law/mistake in price adjustment formulae
In one of the contract agreement and contents of agreement, the Contractor shall be entitled for price adjustment occurring due to increase or decrease in rates and price of labour, materials, fuels and lubricants. In order to carry out the price adjustment the principles and procedures contained under Clause 47.1 of the standard bidding document shall be followed. Based on such principles and procedures, the payment shall be made as per formula given in contract data which is part of standard bidding document.
The relevant portion of clause 47.1 which is necessary to indicate error which has crept in is reproduced hereunder:-
“47. Price adjustment
47.1 Contract price shall be adjusted for increase or decrease in rates and price of labour, materials, fuels and lubricants in accordance with following principles and procedures and as per formula given in the contract data.
(a) The price adjustment shall apply for the work done from start data given in the contract data upon end of the initial intended completion date of extension granted by the engineer and shall not apply to the work carried beyond the stipulated time for reasons attributable to the contractor.
(b) The price adjustment shall be determined during each month from formula given in the contract data.
(c) Following expression and meaning are assigned to the work done during each month, for labor component as below:
(i) Price adjustment for increase or decrease in the cost due to labour shall be paid in accordance with following formula.
VL = 0.85 X P1/100 X (Li – Lo)/Lo
in place of VL = 0.85 x P1/100 x R x (Li – Lo)/Lo in the copy of agreement.
VL = increase or decrease in the cost of work during the month under consideration due to changes in rates for local labour.”
R = total value of work during the month. It would include the amount of secured advance granted, if any, during the month, list the amount of secured advance/covered, if any during the month. It will execute value for works executed under variation for each price adjustment will be worked separately based on the terms mutually agreed.”
The reproduced portion of clause 47.1 makes it abundantly clear that, variable ‘R’ is necessary to carry out price adjustment. It is further clear from the aforesaid portion that, ‘R’ means total value of work performed during the month or a relevant period. It is pertinent to mention here that, the Price Adjustment can only be derived on the basis of value of work which has already been performed, which is root variable to derive the amount to be adjusted.
Another fact which establishes that, the missing ‘R’ is typographical error
is the precedence of meaning of “R” prior to formula for Labor.
In the above situation due to typographical mistake the authority is not
ready to pay price adjustment for labour component to the contractor
which is 25% of total of price adjustment. Please advise me;
1. Whether the contractor is eligible or not to receive the payment of labour component against price adjustment clause?
2. Can the authority deny to the contractor for such payment which is due the typing mistake in the contract document?
3. Can contractor ask to the authority for such mistake in labour component formulae to distribute the component part to make balance 75% as 100%?
Thanks for your support
Thanks for your question.
Let me start by saying that, there is no room for mistake as a defense or remedy support in contract. When a situation that is similar to such arises in contract, what the jury, judges, arbitrator or any person or body giving a determination or judgement regarding such is 'the intent' of the contracting parties as at such period of entering into the contract. Such intent is either derived from the contract set up procedure and forensic analysis through a through examination of the correspondence, tender and price negotiations particularly the unit rates and the sum total of the agreed price.
Now to your question no 1, the above procedure when concluded by a competent expert or professional or resolution process, will determine if the contractor can be considered for the Labour price adjustment or not.
On your question no 2, yes, it possible that the authority denies the contractor's application for the Labour price adjustment on the ground that, it was a deliberate and conscious formular included in an under the contract which was never intended to include any granting for Labour price adjust.
I believe, question no 3 is already answered by the above.
Hope this helps you?