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Construction Law/Price Adjustment under FIDIC 1999-RED Book

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Question
I am working on a FIDIC 1999 based MDB Conditions of Contract. Our Dear Sir,
Contract Specify 60% amount to be adjusted under sub-clause 13.8. The BoQ contains a bill on General Items which includes Insurances that are paid as a lumpsum item at the start of the Contract. Is there any price adjustment for such lumpsum items like Insurances?
In this sub-clause, it is stated that “Pn” to be applied on Contract Value. Please also explain that which of the amounts to be considered in "Contract Value"?

Regards,
Umer Shabbir

Answer
Dear Umer Shabbir,

Clause 13.8 is meant to be a rather crude instrument not a a precise definition of the effect of inflation.  The intention is to transfer part of the risk of inflation in costs to the Employer.  Part of the risk, in this case 40%, remains with the Contractor.  

The contract value in this instance refers to the net value of the IPC for the given period.  Pn is applied to the value of each IPC.  Thus if insurance is paid as a lump sum at the start of the contract, there is no inflation effect.  If it is paid in stages with each IPC, then it becomes part of the value of the IPC and is inflation indexed.  

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Peter M. Elliott

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First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol www.eotprotocol.com before submitting a question.

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Value . . .
It's unwise to pay too much, but it's unwise to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.
. . . John Ruskin (1819 - 1900)
"We are too poor to buy something cheap"
.Romanian Proverb 2002
A lean compromise is better than a fat lawsuit. George Herbert (English poet 1593-1633)
I said it in Hebrew, I said it in Dutch,
I said it in German and Greek:
But I wholly forgot (and it vexes me much)
That English is what you speak!" Hunting of the Snark - Lewis Caroll
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The joy of food lasts but an hour, of sleep but a day, of a woman, but a month, but the joy of a building lasts a lifetime. Syrian proverb.
Comments and observations leading to improvements in the translation of FIDIC Red & Yellow books into Romanian prior to approval by FIDIC (reference 'Preface to the Romanian edition')

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