Construction Law/Price Adjustment

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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 day 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,

Thank you for your question.

From the scenario you have narrated, i could see that your contract was very clear as to what the base date should be (28days before the latest date for submission of bids) and which you have indicated as 04/6/2006. It therefore follows that, the right indices would be the ones  prepared or and published at the date for such time prevailing (closest) to the base date.

Now there are two things that could happen. They are as follows:
1.Either the indices prevailing at such base date are already prepared or and published or
2. Not prepared and or published as in such base date.

Good a thing, your contract (as indicated by you) is expressly clear. It explains that; if the indices are not available (whether because they have not been prepared and or published), then a provisional indices of any date (including the one before the base date could be used pending such time that those indices prevailing at such time (or closest) of the based date.

The administration of any claim based on the indices would therefore mean that; indices of 1993-1994 that may have been used would represent - a provisional determination and not final determination of the entitlements. It means; at any time after establishing the provisional determination, if the indices prevailing (closest) at the based date is published; the provisional shall be revised accordingly. This means the 2004-2005 indices would then be used to revise the provisional determination on the claim base on 1993-1994 indices.

Hope this helps?

Thanks.
Femi

Construction Law

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Femi Alofe

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I can answer all questions relating to the followings: 1. Contract Administration - variations, contract clauses interpretation, all post contract procedures, valuations and certificates questions, extension of time issues and prolongation cost matters. 2. Contract Practice - Any questions regarding forms of contract like JCT, FIDIC & other Bespoke forms. 3. Quantification, measurements and Estimating questions 4. Contracts and construction law questions and dispute resolutions problems. 5. All FIDIC Conditions of contracts

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Out of my 24 years experience in construction industry, i have the following specific experience: 1. Contract Administration - 15 years in contract administration with over 10yrs in Managerial positions covering africa and the middleeast. 2. Contract Practice - 15 years experience with over 10yrs in Managerial and expert positions covering africa, north america and the middleeast. 3. All pre-contract procedures, Tendering, Quantification, measurements and Estimating questions - 20 years experience. 4. Contracts and construction law questions and dispute resolutions problems - 15 years experience with over 10yrs in Managerial and expert positions and 5 years expert witness and active practice in arbitration proceedings covering africa and the middleeast.

Organizations
1. FAIQS - Fellow, Australian Institute of Quantity Surveyors, Australia 2. FRICS - Fellow, Royal Institution of Chartered Surveyors, UK 3. CCP - Certified Cost Professional AACEI, USA 4. PQS - CIQS, CANADA 5. ACIArb. - CIArb, UK 6. MNIQS - NIQS, NIGERIA 7. RQS - QSRBN, NIGERIA

Publications
1. AACEI RP on Estimating, 2010

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1. B.Tech (QS) 2. RICS professional course, CEM - UK 3. MSc , UK NARIC 4. Professional Doctorate ( to commence 2016)

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1. Larsen & Toubro Ltd, Dubai UAE 2. Larsen & Toubro (oman) LLC 3. Archi + Web consortium, Abuja Nigeria 4. George Dike & Associates, Minna Nigeria 5. Public works Authority (Ashghal), Doha Qatar

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