Construction Law/Price Adjustment
QUESTION: In the Contracts based on FIDIC conditions, Price Adjustment formula involves base cost indices and current cost indices.
The relevant clause of the Contract is as follows -
The base cost indices or prices shall be those prevailing on the 28 days prior to the latest date for submission of bids. Current indices or prices shall be those prevailing on the day 28 days prior to the last day of the period to which a particular Interim Payment Certificate is related. If at any time the current indices are not available, provisional indices as determined by the Engineer will be used, subject to subsequent correction of the amounts paid to the Contractor when the current indices become available.
In one such Contract the date of base indices is 04.07.2006 and as per the conditions of the Contract, the base indices are Wholesale Price Index prevailing on that day which at the time of bidding were WPI based on base year 1993-94 with base as 100. In Sep, 2010 new series of WPI based on base year 2004-05 with base as 100, were launched ( which were made effective from 10th Sep, 2010 by the office of Economic Advisor to Govt. of India ).
Initially the Price Adjustment was calculated with base indices based on 1993-94 as base year. The base year for current indices were taken as follows -
(i) With 1993-94 as base year for the I.P.C.s up to Sep, 2010.
(ii) With 2004-05 as base year with appropriate linkage factor for the I.P.C.s from Oct, 2010 onwards.
Now the Contractor has raised claim for revised Price Adjustment, calculation being as follows -
(i) Base indices to be considered as WPI based on 2004-05 base year with base as 100. The justification is that the base year 2004-05 precedes the base date i.e. 04.07.2006. So, the prevailing indices on that should be those with base year 2004-05.
(ii) Current indices for the entire work, to be considered as WPI based on 2004-05 base year with base as 100.
Please, advice what is the correct method of calculation of Price Adjustment in such case.
ANSWER: Dear Ashok
Thanks for question and it is my pleasure to reply. Your question regarding price adjustment under FIDIC conditions ; for calculation of price adjustment of various components under agreement is that price index should be adopted which are as per latest series with related multiplying factor. In one contract adoption of various series not allowed. You should have to adopt series 2004-05 series for WPI published by office of Economical Advisor Govt of India.
I hope this will help to you.
With best regards
---------- FOLLOW-UP ----------
Thank you for the reply. You have mentioned that in one contract, adoption of various series not allowed. Is this the provision of Contract Laws. If so, please specify the same.
Welcome for further follow up for clarification;The genera guideline is that we have to adopt latest available Base indices and the current indices should be corresponding to that series for contract agreement in question.
I hope this will help to you,otherwise you are most welcome for further follow up for clarifications.
with best regards