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Presentation on Contract Management : Practices and Prospectives

EOT & PRICE ADJUSTMENT IN NEPALESE CONTEXT CONTRACT
AGREEMENT AND CONDITIONS OF CONTRACT (FIDIC, PPMO)

Presentation · December 2022

DOI: 10.13140/RG.2.2.22416.89608

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Samir Bhattarai
Pokhara University
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 Presentation on
Contract Management : Practices and
Prospectives

EOT & PRICE ADJUSTMENT IN NEPALESE CONTEXT

CONTRACT AGREEMENT AND CONDITIONS OF CONTRACT (FIDIC,

PPMO)

BY
SAMIR BHATTARAI
MSC. CONSTRUCTION MANAGEMENT
POKHARA UNIVERSITY
Contract
 Offer
 Acceptance
 Consideration
 Intention to create legal relation
 Contract shall be:
1. Fair
2. Clear, consistent & retrievable
3. Foresight

Once contract is signed, parties are to follow contract terms. There is no going back.
 EOT (Extension of Time)
 There is always written “Intended Completion date” in contract.
 The Engineer (Consultant) can recommend but has no power to grant Extension of
Time to the Contractor.
 Time extension issue, which was to be controlled within the frame of contract,is taken
up in PPR (Public Procurement Regulation) and its ammendments.

Work Schedule (Contract Duration) and EOT. How duration is fixed in a contract ??
(CPM/PERT method and DOR guidelines)
Figure : Cumulative cost vs Time
 Extension of intended/initial completion date of contract due to delays is EOT.
 EOT is granted mainly when
❑ VO ( Variation Order) is issued.
❑ Compensation event occurs like:
1. Site positioning.
2. Employer requests to change schedule.
3. Delay by client to give specification and drawings.
4. Client wastes in unnecessary tests.
5. Unforeseen site conditions (Ground conditions).
6. Delayed due to other Contractor and Publid authorities.
7. Delayed Advanced Payment (Mobilization).
8. Effect of employers’s risk.
 Delays:
❖ Excusable Delay
❖ Unexcusable Delay

Excusable Delay: Delay beyond the fault of either the contractor or the owner; or not
caused by contractor negligence for which Time compensation is to be provided.

Delays caused by:

 Engineer
 Owner
 Either Party
Delayed caused by Delayed caused by owner Delayed caused by either
Engineer party

1. Defective plans/ 1. Failure to provide a 1. Act of God.

drawings and project site.
specifications.

2. Failure to provide 2. Late notice to proceed. 2. Epidemics

drawings on schedule.

3. Delay in review or 3. Failure to provide proper 3. Unusual weather

approval of shop drawing. financing,late payment. condions (Force majeure).

4. Delay in change orders. 4. Failure to provide owner 4. Strikes

furnished
materials/components.
5. Stop-Work order 5. Interfering with or
suspension. obstruction of work.
 LD if no EOT
❖ LD is not a penalty.
❖ LD is a loss/damage, which the employer has to incur due to delay in completion of the
project. LD is paid by the contractor if the delay is due to their fault.
❖ Bonus maynot be applicable in all cases but if the employer gets benefits due to early
completion bonus clause has to be injected.

 Liquidated Damage – Practice in Nepal

❖ 0.05% of contract price per day is LD rate applied. (maximum 200 days)
❖ 10% ofcontract price is the maximum limitation of LD after which no remedy in contract
is explained except adopting a course of termination.
❖ Interim LD may be injected. (Like milestones in D&B contract) if contract is carefully
drafted.
❖ EOT is found granted in most of the cases in adhoc basis, hence LD is taken as
misfortune in a contract.
EOT in Practice in Nepal
 EOT is easy comparative to cost and quality variations.
 EOT, in many cases is decided considering time required for the
completion of the Project-which is wrong.
 EOT is encouraged to issue with the condition ofno additional cost
burden.
 EOT required for payment even if the Contractor pays delay
damage.
Price adjustment- understanding
 During bidding the Contractor usually takes the references of market
prices of 28-30 days prior to bid submission date.
 In the quoted rate price fluctuation risk is to be taken by the
Contractor-if price non-adjustable contract is proposed.
 Price fluctuation risk is compensated and thus the Bidder does not
consider it in preparation of price bid- price adjustable contract.
Price adjustment coefficients
 A appropriate range of coefficients would be proposed in the bid.
 Bidders to fill the appropriate coefficients within the range.
 For Nepalese rupees appropriate NRB index could be proposed.
 For foreign currency internationally accepted indexes may be
proposed by the bidders.
Formulae for Price Adjustment
 Pn= A+b*Ln/Lo+c*Mn/Mo+d*En/Eo+ etc
❑ where Pn- is the price adjustment factor to be applied.
❑ A is constant usually 0.15
❑ b,c,d – coefficient representing the estimated portion of each
cost element (labour,materials,equipment)
❑ Ln,Mn,En – are the current cost indices for month n (NRB indices)
❑ Lo,Mo,Eo – are the base cost indices (NRB indices).
❑ www.nrb.org.np
Price Adjustment coefficients
 A appropriate range of coefficients would be proposed in the bid.
 Bidders to fill the appropriate coefficients within the range.
 For Nepalese rupees appropriate NRB index could be proposed.
 For Foreign currency,internationally accepted indexes may be
proposed by the bidders.
Price Adjustment Table:
 Base prices based formulae
-price non-adjustable contract
 If the cost of materials increase/decrease unexpectedly in excess of
10% than adjustment for beyond 10%
 P= { R1- (Ro-1.10)} *Q
❑ where , P is price adjustment amount
❑ R1- present price of construction materials.
❑ Ro- base price of the construction materials.
❑ Q- quantity of materials consumed.
Price adjustment practices
 Reluctant to apply price adjustment factor in the beginning of
construction.
 Price adjustment in some cases not paid until mobilization amount is
fully utilized.
 Price adjustment current coefficients not applied for EOT period.
 25% of contract amount as limit of price adjustment.
 Error in choice of indexes.
 NRB index applied for USD payment.
 Information in the bid to limit application of PA as a whole in price
adjustment contract.
 No payment of price adjustment paid,if filled coefficients are not
provided by the Contractor.
Issue for discussion on PA
 Is the price adjustment a previlage to the Contractor?
 What to do if coefficient not filled in by the Contractor?
 What if Employer’s range not provided?
 What if in the bidding document it is mentioned that price
adjustment will not be considered if coefficients are not filled in.
 Can we fix coefficients in the contract even if it is not provided by the
bidder?
Contract Agreement:
 A contractual agreement is a legally binding agreement between two parties.
The contract's terms and conditions will require the parties to either do or refrain
from doing specific actions. A contractual agreement is legally enforceable if it
meets these specific requirements:
• Offer and Acceptance: One party must make an offer, and the other party must
accept that offer.
• Mutual Consent: Offer and acceptance must occur mutually and without
coercion.
• Consideration: Consideration means that something of value is exchanged
between the parties, whether money, goods or services.
• Competence: Parties entering the contract must be legally competent. Parties
cannot be under the influence of drugs or alcohol, mentally deficient, or a minor.
• Legal Purpose: The contract cannot require any unlawful action.
Contract Agreement Sample :
 FIDIC COC:
 FIDIC stands for 'Fédération Internationale des Ingénieurs - Conseils', which is
best translated from French as The International Federation of Consulting Engineers.
 FIDIC represents the consulting engineering indus-try both globally and domestically.

 What Is a Condition in a Contract?

A condition in a contract is an event or act that obligates a party to perform an action
or render a performance as specified in the contract. Basically, it's a certain
qualification that's placed on a promise.

To show:
FIDIC | Construction Contract (Red Book) Edition
FIDIC | Construction Contract MDB Harmonised Edition
 PPMO:
 Public Procurement Monitoring Office (PPMO) has the vision to establish a
centralized e-Government Procurement (e-GP) System for nation wide public
procurement management

Functions:
 Advise on public procurement matters for public procurement proceedings.
 Establish and maintain websites dedicated to public procurement management.
Develop and Issue the Standard Bidding Documents for Civil Works, Goods and
Consultancy.

To show :
Tender Documents (All package by PPMO)

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