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Construction Law/Interpretation of 70.2 Subsequent Legislation


The question is based on employer's interpretation of 70.2 as under:

"Para 70.2 is reproduced,which implies that Govt regulations applicable 28 days prior to tender bids opening would qualify to form basis of bid price.Bid Opening was held in April 2012.Contract was awarded on Sales Tax notification for 4% being referred consistently in your letter if of July 2013,which is postdated and therefore cannot form basis of contract price,and hence your claim is unjustified.In fact the sales tax rates were indeed reduced post date,therefore employer may actually be eligible for discount in contract price instead.

The bid was submitted excluding GST as GST was not applicable. However a new law on services tax was enforced on July 1,2011,whereby service component were subjected to sales tax to be charged,collected and paid to Govt.Before the award of contract,the employer and contractor agreed that taxes on services to be paid to government be absorbed in quoted price.The LOA was issued on 20.11.2013 when the rate of sales tax was 4%. It was subsequently increased by government to 5,6 and now 8%. The contractor filed claim for reimbursement of amount above 4% as the same was chargeable, recoverable from employer and payable to Government as per law of sales tax.

Kindly answer if the interpretation of 70.2 is correct.

Dear Mohammed Waseem,

Thank you for this question.

The new law pre-dated the base date for the tender and the Contractor will be deemed to have allowed for any effects of that law within his bid. If the law predicted incremental changes as you have indicated occurred then the Accepted Contract Price will be deemed to have included for same.

The date of the Letter of Acceptance is after the base date for the Tenders. A letter of award often is the first official, formal contract between the Parties. It is usually subsumed into the contract documents once the Contract Agreement is executed. If the LOA specifically varied the terms to change the base date, or vary the conditions which otherwise applied at the base date, then the changed terms will be effective.

You have indicated that the Employer and Contractor agreed that taxes would be absorbed into the quoted price. That is a vague statement and I would wish to see more to understand the level of (un)certainty. At face value it seems to be that the Parties agreed that any changes under the 2011 law would not affect the Contract Price.

I hope that this assists you.

Kind regards,
John Dowse

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John Dowse


Legal; contract interpretation; quantum; delay analysis. Practitioner in arbitration, adjudication and mediation.


Thirty-three (33) years experience in building and construction, at all levels both within contracting and consulting organisations. Practising arbitrator, adjudicator, and mediator. Faculty approved trainer for the Chartered Institute of Arbitrators. Lecturer on construction contract forms and dispute resolution practices.

Chartered Institution of Civil Engineering Surveyors Chartered Institute of Arbitrators Institute of Directors Society of Construction Arbitrators

Various UK and International construction and legal publications.

LLB (Hons), Pg Dip (Legal Practice), MCInstCES MCIArb MIOD Barrister

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