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Construction Law/Price adjustment (non-adjustment portion)- Followup

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Question
QUESTION: Dear Arshad,

I have a question with regard to the following stipulation in GC 13.8 of FIDIC Red/Yellow Book.

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“a” is a fixed coefficient, stated in the relevant table of adjustment data, representing the non-adjustable portion in contractual payments.
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What is this “non-adjustable portion”?

Is it overhead cost? If it is, I wonder why it is not adjustable. Overhead cost shall cover flight cost of the foreign workers for instance, and flight cost is affected by price escalation.

Or does it mean certain items which are specified as “non-adjustable” in B/Q?

Thank you very much for your reply in advance.

ANSWER: Dear Mr. Chi,

The  non-adjustable portion represents the insurances(made at the start of the Contract),withholding Tax,contractor's profit & overhead cost and alike other items specified in BoQ which have been considered in the Engineer's estimate as non-adjustable items.

Thus,it does not include only the overhead cost.Flight cost of the foreign staff which is usually covered in the overhead cost ,is adjustable in their wages rates to certain extent.Moreover, Price adjustment formula does not fully cover each and every thing of the BoQ and the contractor have to consider risks of such items while offering the Bid.

Regards
Engr.Arshad Mahmood

---------- FOLLOW-UP ----------

QUESTION: Dear Mr. Arshad Mahmood,

Thank you very much for your answer. I have two further questions as follows:

1) I still do not understand overhead cost is adjustable or non-adjustable. Is it non-adjustable in general but a part of it could be adjustable by including it in wages rates, as you explained about flight cost?

2) Why is only withholding tax non-adjustable among various kinds of tax?

Best regards,
Chi

Answer
Hello Mr.Chi,

First of all ,I would like to remind you that in this forum,you are obliged to rating the Expert while  having your answer.You did not bother to do that.Anyhow, here is the answer of your current Question:
1) Please note and read the contents of the Sub-clause 13.8 which explicitly states that  full compensation for any rise or fall in Costs is not covered by the provisions of this or other Clauses, the Accepted Contract Amount shall be deemed to have included amounts to cover the contingency of other rises and falls in costs.
2) I have not said that only withholding tax is non-adjustable,Non-adjustable portion of price adjustment formula generally includes overheads,contractor's profit ,Taxes,and other lumpsum items like insurances etc.

Regarding your stance of claiming /adjustment of increase of flight charges,it  may be claimed by the Contractor  under clause 20.1 or under subsequent legislation,if the prevailing law of the land cover such increase. Hope I have the answered.

Regards

Engr.Arshad Mahmood

Construction Law

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Arshad Mahmood

Expertise

I may answer to the questions relating to FIDIC 4th as well as FIDIC 2010 MDB Harmonized version,price adjustment ,Variations,Eot and Cost claims,EPC Contract,Bidding Document,consultancy Contracts,certification,Standard Forms, Dispute resolution; and others pertaining to Contract implementation.

Experience

Contract management and Contract Administration, using FIDIC Conditions of 4th Addition as well as Fidic 1999 Red, Yellow and Silver Books including MDB Harmonized Edition 2010. Particularly in the area of Procurement of Contracts, Certification,Price Adjustment, variations,disputes management, EoT and Cost Claims; and other contractual issues arises from time to time during currecy of the Contracts.

Organizations
Member -Pakistan Engineering Council Member -Pakistan Engineering Congress Member -FIDIC Organisation

Publications
Joint Venture and Consortium Agreements for Pakistan Engineering Council,Pakistan

Education/Credentials
BSc Civil Engineering; Basic Management course; Hydro power Projects; and various other on Job Trainings

Awards and Honors
Commendation Certificate for the excellent management qualities and dedication at Ghazi Barotha Hydropower Project; and Certificate of Excellent work performed during Survey Camp.

Past/Present Clients
Water and Power Development Authority (WAPDA),Associate Consulting Engineer(ACE) and National Engineering services Pakistan(Pvt.) Limited (NESPAK)

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