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Construction Law/Source of Base Price for Price Adjustment


Assalam O Alikum Sir!

I am working at an irrigation project at DIK PK executed under EPC FIDIC 1999. We have Price ajustment clause as per PEC documents. It is like direct reimbursement in Base rate and Current Rate. In contract documents source of Base Price for Structural Steel is mentioned as "Metropolitian Steel KHI". We hired a sublet contractor for gates of regulatory strs who used steel items from different souces to manufacture the gates. The Employer has no objection on the quality of gates and ALL realted tests were performed and were OK. The Employer paid amount of Gates Milestone But the Employer is not approving Price adjustment on gates on the plea that Contracor used steel items from different sources say Mughal steel, Pak steel, Khan hardwre etc and failed to provide Invoice of Metropolitian Steel. We told him that Selection of Brand is our choice as long as the material has passed ALL related testing. He has not to impose any Brand on us. Plz further note that in our contract source of base price for cement is DG cement but we used Lucky cement and the Employer paid price adjustment on invoices of Lucky cement. At that time he did not raise any objection while approving adjustment in price adjustment of cement. But for steel gates at end of project, he is not accepting the same logic and saying that you purchased steel from many souces and I have to approve a lot of sources of steel and I have to face an Audit para for approving so many souces of steel. So I am not approving any source except Metropolitian. Plz guide us. With many thanx. M Ishaq Bhatti

Dear Ishaq Bhatti

Thanks for the question. I will summarize your question as follows:

"The Base Price for structural steel in your contract is from "Metropolitan Steel Karachi" while your Sub Contractor has used steel from other approved sources for this purpose. Now the Employer is reluctant to pay you Price Adjustment on this item with the plea that you have not used steel from Metropolitan Steel Karachi.

This is a good question as there is lot of confusion on this issue whether material to be used at site must be from the source mentioned in the Contract for Base price or the contractor can use material from any approved source following the specifications and get price adjustment on the bases of Base Price mentioned in the Contract. The answer is yes in this case.

For an explanation, I will refer to PEC documents where reference for base prices is generally given to the Monthly statistical Bulletin issued by the Bureau of Statistics Government of Pakistan. Here the base price for steel is generally referred to "1/2 inch diameter mild steel bar" for price adjustment purposes for all types of steel used on the Project. You will see that here the referred Base Material is not even the material to be used on the Project. Another similar example is the base price of Portland Cement which is applicable for all type of cements being used on the Project for the purpose of Price Adjustment. The point I want to emphasize is that the base price need not be always the same material to be used on the project but it is commonly that price which can easily be determined and should have relevance to the material and importantly agreed by the Parties i.e the Employer and the Contractor.

Your Employer need not worry for using the base price mentioned in the Contract as long as he is sure that the work is carried out as per specifications and approved material.

I hope the question is answered. If there are further clarifications needed then please do not hesitate to ask.


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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