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Construction Law/Fidic IV 1987-92. escalation


Mr. Khan will you please explain whether a cost element will be considered in an IPC in case that element is not executed during the period of the IPC. I have been told that in such case the ratio of current price and the base price is taken as unity in the formula for computing the value of Pn. Is this ok


Dear Izza Majeed

Thank you for your question. There is a lot of confusion regarding this issue. Please note that the formula used is to compute the factor Pn which is then multiplied with the work done during the period n. The elements selected for this formula are such that a certain percentage of the contract value is considered variable (around 60 to 65%) while the remaining portion remains fixed. This means that to satisfy this requirement, all elements must be considered and therefore entered in the formula even if these are not covered in that IPC otherwise the percentage for variable component will not be achieved.

It will become clear from an example where only excavation is covered in an IPC. Now this does not cover any cost element and therefore if we use the ratio of current prices and base prices as unity then no compensation will be paid for that IPC. This means that the amount of this IPC will not be included in the amount of variable portion which will ultimately result in reducing the percentage of variable portion and therefore such an approach is not justifiable. This will ultimately lead to a scenario where in case of increase in prices of the cost elements, the contractor will suffer a loss while in case of a decrease in prices, the Employer will be at loss.

I understand that from the above example it is clear that all the cost factors are to be used in the formula whether the IPC include a cost element or not and that these are to be valued at the current (prevailing) prices.

I hope this answers your question. However if some point is still not clear then you can contact me in the follow up question.

Abdul Majid Khan  

Construction Law

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Abdul Majid Khan


I am interested in questions related to time Extension, Liquidated Damages,variations, price adjustments,payments, disputes and Dispute Board under FIDIC IV, FIDIC 1999 and FIDIC 2006 Harmonized Documents.


I have been heading the Construction Management Division and Contract Divisions of National Engineering Services Pakistan (PVT) Limited, NESPAK, the largest Consulting Engineering Firm in Pakistan, for more than seven years and two years respectively. I have also worked as "The Engineer" on a number of projects. I have been working in Saudi Arabia for about seven years on a road projects. Additionally I worked as Arbitrator and am member of few Dispute Boards in individual capacity on Asian Development Bank funded projects.

Inland and in Middle East. I have worked with National Engineering Services Pakistan (Pvt) Limited (NESPAK)as my Employer for more than 27 years in Pakistan. In Saudi Arabia I worked for Rashid Engineering, Consulting Engineers during 80s. After retirement I provided advisory services to NESPAK on technical and contractual matters to its various divisions and lately I was appointed as Advisor to Managing Director NESPAK on Technical and Contractual matters. Currently I work as Free Lance Contract Specialist on Fidic Form of Contracts.

I am a graduate with a B.E (Civil Engineering) degree. My year of graduation is 1970.

Awards and Honors
A few appreciation Letters and Honorariums during my service in NESPAK. I remained member of Administrative Committee and Board of Management of NESPAK. I had been part of the Management Committee in the absence of Managing Director.

Past/Present Clients
Most of the Clients used to be Government Departments, Corporations and Authorities. In Saudi Arabia the Client was Ministry of Communications. As Arbitrator and Dispute Board (DB) member, I provide services to various Government Departments and Contractors.

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