# Construction Law/FIDIC clause 13.8.5

Question
QUESTION: Dear Mr. Elliot,

I am working as a Contracts Manager in road projects of Ethiopia. My question is as follows:

In cl 13.8.5, it is mentioned that if the 'currency of index' is not the relevant currency of payment....and so on. Now, if the base index of Foreign labour is mentioned as LPI (Labour Price index) of any foreign country,how can it be converted into payment currency as INDICES and CURRENCY are completely two different things. INDICES are just a status of Labour price and no way related to currency of that country. So, in my view, no currency adjustment is necessary in case of Indices given as Base Index. Please confirm.

The intention of the clause is to remove the effect of currency fluctuations. Indices are ratios between the current cost and the cost at the time of valuing the work.  Likewise, you can have a currency index, which is the ratio between the current exchange rate and the exchange rate at the time of valuing the work.  For example if the projects is in Ethiopia, with payment in Euros, and the Contractor has chosen the labour index in Nigeria because all his labour comes from Nigeria, then the labour index in Nigeria would be adjusted for fluctuations in the exchange rate between Euros and Naira to give a rate for the payment currency.

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

QUESTION: Dear Mr. Elliot,

Your point is very much clear to me. But, my question is something different. Say, during bidding of a project in Ethiopia, for Labour Index, "Labour Price Index" of India has been given as Base Index on the day of bidding. Please note that it's a "Labour Price Index" and not Labour wages of Unskilled labour.

Now, in that case, will the clause 13.8.5 be applicable? As Labour Price Indices is just a statistical weightage data, it can not be related with Currency. Rather, Labour Price Index is being calculated considering Wholesale Price Index and also the quantitative and qualitative status of labour force and their consumer status. So, as the LPI is just a statistical value, how can it be related with the currency of payment and how it can be adjusted using exchange rates, as Statistical values can not be changed by dividing with exchange rates of currency.

Regards

Tapas

I have asked this question of some experienced colleagues.  Hopefully, they will be able to provide guidance.  When I have more information, I will respond.  I would say that you multiply the ratio of current of payment and currency of index at the base date and the current date, but I await guidance.

#### Peter M. Elliott

##### Expertise

First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol www.eotprotocol.com before submitting a question.

##### Experience

Value . . .
It's unwise to pay too much, but it's unwise to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.
. . . John Ruskin (1819 - 1900)
"We are too poor to buy something cheap"
.Romanian Proverb 2002
A lean compromise is better than a fat lawsuit. George Herbert (English poet 1593-1633)
I said it in Hebrew, I said it in Dutch,
I said it in German and Greek:
But I wholly forgot (and it vexes me much)
That English is what you speak!" Hunting of the Snark - Lewis Caroll