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Construction Law/mistake in price adjustment formulae

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Dear Florin NICULESCU
hello
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 in advance for sparing valuable time.
Deepak Sharma

Answer
Dear Deepak,


Thank you for your question.

Also thank you for providing the text of the clause you're referring to. As you did not indicate which Conditions of Contract are you using, it would have been impossible to answer without it.

I believe that rather answering your three points, one should rather look at how the error can be corrected.

I would suggest you rather resort to the Law of the Country, in which I assume exists the doctrine of "the true will of the Parties", i.e. although written Contract says something in writing, the actual intention of the Parties was different.

It is a pity that error was not spotted at tendering time, which may be a burden now, but there you go.

As there is nothing to make the formula coherent in the absence of that "R", you might be able to construe your case and demonstrate there was indeed an intention of the Employer to provide such price adjustment and that such formula should indeed apply to the value of works executed over a month, or whatever applicable period.

You can show the general practice under various types of internationally recognised Conditions of Contract, e.g. FIDIC, that that is indeed the case and that's how such formula works.

You will probably need to go through a lengthy and painful process, maybe even legal proceedings, but unfortunately, it is the price you have to pay for having missed that at tendering time.

I believe I can not give a better answer at the moment, but trust that will guide you on where to go. Legal support from a local lawyer may be recommendable.

Hope that helps, good luck!

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Florin NICULESCU

Expertise

Questions related to Civil Engineering Contracts, using FIDIC or other Conditions of Contract, concerning Procurement procedures and documents (pre-qualification, tendering and contracting) and Services/ Works Contracts implementation matters including Determinations, Payments, Time Extensions, VOs, Claims/Disputes. Additionally, questions related to dealing with International Financing Institutions. Can also answer questions in Romanian. Can not answer improperly formulated questions.

Experience

Over 20 years of experience in the field of design, works supervision, construction, management of aid funds and technical assistance for various types of contracts implementation, including severe conflictual contractual situations leading to Claims and disputes. Claims/ Contract management, Disputes adjudication, Arbitration.

Organizations
Member of Romanian Professional Association of Roads and Bridges; Listed on President's List of Adjudicators of Romanian Association of Consulting Engineers www.aric.org Former member of the Disputes Resolution Board Foundation (DRBF) of United States – nominee on DRBF President’s Disputes Board Members List www.drb.org and of DRBF Chapter for Eastern Europe http://dabdrb.googlepages.com Former member of Polish Association of Consulting Engineers (SIDiR) – nominee on SIDiR President’s Disputes Board Members National List http://www.sidir.pl/sidir/index.php?action=czlonkowie&a2=r Member of “AllExperts.com” volunteers pool http://www.allexperts.com/user.cgi?m=4&expID=85358&catID=914 Member of the "Constructions Disputes Resolution Services” International Panel of Construction ADR Specialists" of United States www.constructiondisputes-cdrs.com

Education/Credentials
- Graduate in 1994 the Construction Institute - Graduate of several FIDIC,Procurement and other courses - Graduate of first Disputes Board Members Mentoring Scheme (http://www1.fidic.org/resources/adjudicators/pupilage.html) - FIDIC Accredited Adjudicator

Past/Present Clients
- Several State organisations/Ministries , such as Ministry of Transport, National Admistration of Roads, Ministry of Regional Development (former Ministry of European Integration), Public Works and Housing, Central Contracting and Financing Unit in Romania and also in Turkey, Croatia and Macedonia - Numerous Western based private consultancy companies - full CV and other relevant information available at www.abinitio.ro

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