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Construction Law/Price Adjustment (Escalation)


Dear Sir,
       Hope you are fine. i am working as QS and facing problem regarding escalation.Bid of our project was approved for civil works in 2007. According to tender documents contractor is entitled for escalation on labor and diesel on the total work done of an IPC.

After 5 years in 2012 Electrical BoQs were revised. An addendum were also included in the revision of Electrical BoQs. All items in addendum were new items and contractor was submitted rate analysis of these items on the prevailing market rates.

Revised Electrical BoQs were included as addendum in electrical works in the original BoQs and were approved on May 05, 2012 by the competent authority. In the revised electrical BoQs, the contractor submitted rate analysis on the prevailing market rates with revised electrical BoQs and consultant also verified the same. As the addendum items were based on the prevailing market rates which are not tender rates.

1.the question is can contractor eligible for escalation claim on the addendum items work done ?

2. if contractor eligible for escalation on addendum items work done which base rate applies(base rate at the time of tender 2007 or base rate at the time of approval of addendum 2012)?
Best Regards,
Syed Afzaal Shah.

Dear Mr Syed Afsal,
whenever a contractor gives any rate analysis he normally factors (or expected to include)the fluctuations in the labour and fuel costs for next one year. in your case, there are two BOQs with rate analysis submitted at two different times. But I hope the terms of contract (escalation clause) is not changed and still remains intact. As long as this clause is not removed from contract, the contractor becomes eligible to claim escalation on that basis for both BOQs. BUT, the applicability of escalation (the period of work done and the period of claim)is the matter to be determined by the Engineer.
The best way is to treat the two BOQs separately for ease of administration (especially when this type of escalation clause is there in the contract)
ideally and logically, you can claim escalation for items in BOQ 1 (given in 2007)executed from 2008 onwards and for items in BOQ 2 (given in 2012) executed from 2013 onwards.
For items in BOQ 1, the base rate to be 2007 and for BOQ 2, the base rates of 2012 are to be considered while computing.
I hope I have answered both the questions
---r sivaraman

Construction Law

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