Construction Law/Escalation

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Question
Dear Sir Salam

Thanking you for being helpful in the past.
Once again I need your prompt expert opinion and guidance for the amicable resolution of the matter stated below:-

We have recently processed the contractor claim of escalation in accordance with the criteria and formulae defined in GCOC Part-1 (FIDIC) vide clause-13.8, which has been returned unapproved with the observation stated below in detail:-

The escalation Payment Certificate was processed as per the given formulae:-
Price Adjustment Under Clause 70 of "COC-Part-1, Appendix-C To Bid" Formula As Given Below:-
Pn =a+b (Ln/Lo) + c (Bn/Bo) + d (Sn/So) +e (Dn/Do)

“a” was the fixed coefficient i.e 0.60, stated in the relevant table of adjustment data, representing the non-adjustable portion in contractual payments;

“b”, “c”, “d”, … were coefficients representing the estimated proportion of each
cost element related to the execution of the Works, as stated in the relevant
table of adjustment data; against Unskilled Labor = 0.1, Bitumen = 0.1, Billet Steel= 0.1 and HSD=0.1

At the initial stages during the first month contractor started construction execution at site and started the earth work related activities i.e Removal of Tree stumps, C&G & NGC and work done amount for the month Feb-2013 as per approved check requests record was Rs. 431998/-.
We then as per above stated formulae calculated the escalation which was precisely estimated to an amount of Rs. 4038/- for the month Feb-2013.

The client returned the EPC with the observation that “ as the contractor has just worked with earth work related activities thus in evaluation of escalation we shall ignore cost factor of “Steel & Bitumen and their factor shall not be entertained” and just “ Labour & HSD” will stand valid for escalation.” It means that the cost factor against the bitumen & Steel will remain invariable i.e 0.1, whereas the cost factor against the labor & HSD will be evaluated with regards to the said coefficient by addition and division of new rate by old rate and multiplying with the work done amount will stand valid amount for escalation.”

I tried to define them that the fidic doesn’t mean this but they asked me for the valid justifications under the provision of contract conditions/FIDIC which compelled me to consult you for an expert opinion.
You early response in this regard will enable me to satisfy the client at the earliest accordingly.
Regards
Ali Iqtidar Dara

Answer
Dear Dara sahib,
If i have correctly understood your info,it means that client think that the formula can be selectively applied with respect to nature of work items.The formula depicts a general trend for rise in prices for specified materials/items with interval of time and gives a multiplying factor to the contract work quantum in each interval.In my opinion the formula needs to be applied for all items as it has no linkage with quantum of each or either item quantity but to weightages and/or FBS  indices only.PEC made a similar corrections but most of the Engineer do not agree with it
Regards-liaqat hayat

Construction Law

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Liaqat Hayat

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I can answer questions based on FIDIC 4 and FIDIC 1999 [design-build] with particular reference to time extension , price adjustment and disputes. I am in particular more inclined for response to points pertaining to how claims should be framed and put up in case of technical or other contractual shortcomings. Regarding procurement matters I have spent over 5 years as procurement specialist for highway authority and dealt with numerous claims and disputes in the capacity of "The Engineer" .

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