Construction Law/Price Adjustemnt

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Question
Dear Mr. Peter M.Elliott,

We have a construction Contract (construction of water supply and sewerage systems)  in Azerbaijan with FIDIC Red Book. The contract payment currency is USD. In the tender period as well as in the Contract Table A (local currency) thought as not applicable and local currency is not fixed. Only Table B is applicable in accordance to our Contract. For information let me inform you that twice in 2015 in Azerbaijan was devaluation. Before devaluation 1 USD= 0.78 AZN and after two devaluation now 1 USD is 1.6 AZN. When we have submit our Bid proposal 1 USD was 0.78 AZN and when we get advance payment 1 USD was 1.05 AZN and during 9 months USD growth up to 1.6 AZN.
In the Table B for the cost indices shall be referred an information issued by the State Statistical Committee (SSC) of the Republic of Azerbaijan. In the inflation table issued by the SSC inflation rate shown 108.1 maximum.  But in reality values are much higher. Because, after both devaluation the material price in the local market was increased in accordance to USD exchange rate. In another hand 50% of the materials were procured from abroad such as from Turkey, China, Germany, Denmark and etc. Nevertheless the Engineer claims all differences coming through exchange rate. For example during 9 month total value of our IPCís (excluding 10% of advance payment) were 10.5 million USD and the Engineer is claiming for 3 million USD which is 28% of entire payment. The Engineer did not apply any formula for exchange rate. Just claiming on differences, thatís it. As a contractor our overhead profit is 15 % of Contract value. It means that we have to find additional source in order to pay them back 13% additional money. We thought that any adjustment due to changes in currency exchange rates is not applicable.
We kindly ask your help to deal with us how this issue should be regulated by the FIDIC contract. Does the Engineer right in his claim?

Thank you in advance and best regards,

Answer
Dear Anar,

I am not sure that I understand your question. Are you using FIDC 4, FIDIC 99 or FIDIC MDB?  You say the currency of payment is USD, but you do not say if there is a fixed or variable rate for the contract.  Is AZN the currency of valuation?

In general, you would not have a claim just for changes in exchange rates without some additional information.  Unless there is something in the Contract, devaluation is a Contractor risk.

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Peter M. Elliott

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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
Match your presentation to the reader!
The joy of food lasts but an hour, of sleep but a day, of a woman, but a month, but the joy of a building lasts a lifetime. Syrian proverb.
Comments and observations leading to improvements in the translation of FIDIC Red & Yellow books into Romanian prior to approval by FIDIC (reference 'Preface to the Romanian edition')

Organizations
Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

Education/Credentials
B Sc(Hons) in Civil Engineering

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