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# Construction Law/Contrcat Price Adjustment

Question
Dear Peter,
I have seen your previous response on this forum regarding the application of clause 13.8 of the FDIC red book on correction of contract price adjustment indices to the currency of payment. You aptly explained how to decide which of the the 2 ratios Txn/Txo or Txo/Txn  when determining the price correction. However, your explanation only presents a solution when the base and current indices are monetary quantities. In some cases however, the indices are given as just linear numerical quantities  for instance 115. Application of the above 2 formuli result in either disproportionate increase or decreases in the index which when applied do not provide any resemblance to actual costs of inputs at the given time. How do you convert the base index (not base  price) to the currency of payment.

Dear Cuthbert,

I am not sure that I understand your question, but I will have a go at answering.

Every item in the formula is dimensionless as it is a ratio of what was at the start with what is now.  So it could be the ratio of the cost of labour now with the cost of labour at the start.  It is not intended that the formula should cover the variation in any particular rate.  It is intended to split the pain of inflation and changing exchange rates, but some times there are unexpected winners and losers.  The formula tries to be realistic without being too complicated.

#### 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