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Construction Law/Price escalation based on FIDIC


QUESTION: Our price adjustment formula (as given in particular conditions of contract) is,
pn= a+ b(LLn/LLo)+ c(FLn/FLo)+  d(LMn/LMo)+ e(FMn/FMo)+ f(FMDIn/FMDIo)
Where a,b,c,d,e are pre defined coefficients which are 0.2, 0.024, 0.056, 0.216, 0.126 and 0.378 respectively.
LL is local labor
FL is foreign labor
LM is local material
FM is foreign material
FMDI is foreign material (other than cast iron pipes)

All the relevant sources for indices are given in the particular conditions.

Please be noted that Local indices are in Sri Lankan rupees (SLR) and Foreign indices are given in Indian Rupee(IR). But the currency of contract is US dollars.

The FIDIC conditions of contract says that "in cases where the currency of index is not the relevant currency of payment (in our case), each index shall be converted into the relevant currency of payment at the selling rate established by the central bank of the country (it is Central bank of Sri lanka as per the definition of FIDIC), of this relevant currency on the above date for which the index is required to be applicable".

Please help me for the calculation. For the easiness, I am giving the following data.

For Base month
     LL is SLR 433.20
     LM is SLR 564.10
     FM is IR 127.7
     FMDI is IR 127.7
     1 USD= 132.04 SLR = 55.9824 IR

For the month "N"
     LL is SLR 469.80
     LM is SLR 583.30
     FM is IR 132.6
     FMDI is IR 132.6
     1 USD= 130.8277 SLR = 61.8688 IR

(Here i am attaching the calculation done by the contractor. But as per my understanding, they have use the exchange rate impact on the index +or - rather that converting the Indices for USD and i am thinking not to accept it. Please comment on this calculation as well).

Your early response in this regard is highly appreciated.

ANSWER: Dear Chamin
you did not show the FLo and FLn index
Please include so that I can do the calculation
Best Regards

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

QUESTION: I am sorry for that. As per the contract, no price escalation is applicable to foreign labor and hence FLo and FLn can be considered as 1.

Hope this will helpful to you.

ANSWER: Thanks Chamin for the information.
Please recheck the value of Coefficients. what you have adds up to 1.1 but it should be 1 for the simple reason that if there was no change prices, then the contract price shall remain unchanged.
please recheck and let me know

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

QUESTION: Please note that the coefficients are 0.2/0.024/0.056/0.216/0.126 and 0.378 which sumps upto 1. It is ok if u can show the calculation without vonsidering the coefficients. Basically i want to know the Xn/X0 ratio.

     LLo   LLn   Flo   FLn   LMo   LMn   FMo   FMn   FMDIo   FMDIn
  433.2   469.8         564.1   583.3   127.7   132.6   127.7   132.6
Convert to US   132.04   130.8277   1   1   132.04   130.8277   55.9824   61.8688   55.9824   61.8688
INDEX in US   3.280823993   3.590982644   1   1   4.272190245   4.458535922   2.281074052   2.143245061   2.281074052   2.143245061
ratio   1.094536815      1      1.0436183      0.939577152      0.939577152   
Co.   0.024      0.056      0.216      0.126      0.378   
  0.026268884      0.056      0.225421553      0.118386721      0.355160163   
Pn -a   0.781237321          
a   0.2          
Pn       0.981237321          
  Better see attachment
best regards  

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Wael Ghadban


Will respond to queries related to Engineering Contracts subject to FIDIC or other Conditions, tendering and contracting, project management, residential and commercial construction, and general Civil Engineering questions. Can answer most questions related to aviation and airports as related to the Airports, Facility management.


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