Claims

Outcomes
Learn
• Why Construction companies often do not submit claims
• Common Reasons for rejection of claims
• Types of variation claims
Overview

What is a claim?
► A request for a benefit which a claimant believes or contends he is entitled to

► Demand for something considered one’s due

Overview

What is a claim? Contractual/

Legal Obligation

Breach of
Obligation

Damage to
Other Party

Claim
Construction Claims-underlying Principle

Unique nature of claims

► Each claim raises specific issues.

► Only a contract gives entitlement to contractual claim.

► Actual entitlement different under different forms of contracts.

► Claim under the law gives entitlement to “extra contractual”

claim.
 Parties to a Claim
► Any of the contracting parties
► If party does not have contract but does work (eg Subcontractor- Employer)?
Types of Claims
• EOT claims
• Only Time
• Prolongation costs
• Loss of profit
• Loss of Opportunity
• Variations
• Additional items
• Substitute items
• Extra items
• Omissions
Types of Claims
• Disruption Claims

• Acceleration claims
Forms of Claims

► Excusable delay
a. Non compensable
b. Compensable

► Inexcusable delay-non compensable

Forms of Claims-excusable

What is Excusable claim?

Delays LEADING TO CLAIMS that are unforeseeable and beyond the control of the contractor.

Two types:
► NON COMPENSABLE- this delay normally encompasses such things as strikes- unusually severe
weather, acts of god, fires, floods, etc..
► Compensable
Forms of Claims-excusable

Non compensable when & what entitled?

► Contractor TO demonstrate- unusually severe weather actually delayed the critical path
work on the project. Number of days of unusually severe weather may have effect for 5-6
days.

► Entitlement to only EOT. No compensation.

Forms of Claims-excusable

What is compensable claim?

► COMPENSABLE claims-that are unforeseeable and beyond the contractor's control, but for which
the contractor is entitled to not only a time extension but also additional compensation.
Forms of Claims-excusable

Compensable delay

► Normally caused by the client/government:

 Direct change
 Delay in fulfilling inherent obligations
 A suspension of work, or
 Any of the constructive changes-change in contractor’s
performance requirements by action or inaction
(amounting to direction to contractor).
Forms of Claims-excusable

Compensable delay-when & what entitled?

For a contractor to request both a time extension and compensation for it, he must
demonstrate that the client was the cause of that delay & consequent financial loss.
Or
It should be mentioned as an Employer Risk Event in the contract
Forms of Claims-inexcusable

Entitlement?
► For an inexcusable delay, the contractor receives neither a time
extension nor additional compensation;

► In fact, the owner may be entitled to liquidated damages or actual

damages.
 Types of Delays

► ECD- Excusable, Compensable

= Client Risk Event
= EOT + Prolongation costs+ No LD
► END- Excusable , Non-Compensable
= Delay Event not caused by contractor or Employer
= EOT + NO Prolongation cost + No LD
► NND- Non- Excusable, Non-Compensable(Inexcusable)
= Contractor Risk Event
= No EOT + No prolongation cost + LD
Purpose of EOT
The benefit to the Contractor
of an EOT is to relieve the Contractor of liability for damages for delay (usually LDs) for
any period prior to the extended contract completion date and allows for
reprogramming of the works to completion.
The benefit of an EOT for the Employer is
that it establishes a new contract completion date, prevents time for completion of the
works becoming ‘at large’ and allows for coordination / planning of its own activities.
 EOT
• PURPOSE OF EOT
• RELIEVE CONTRACTOR OF LIABILITY FOR DAMAGES FOR DELAY
• ALLOW FOR REPROGRAMMING OF WORK/RESETTING OF MILESTONES
• GET ESCALATION FOR MATERIAL , LABOUR , FOL
• OBTAIN PAYMENT ON INTERIM BILL
• EST NEW CONTRACT COMPLETION DATE
• PREVENTS TIME FOR COMPLETION OF WORKS BECOMING ‘TIME AT
LARGE’
• APPLICATIONS FOR EOT AS CLOSE AS POSSIBLE TO DELAY EVENT
• EOT ENTITLEMENT FOR THOSE DELAYS WHERE EMPLOYER HAS TAKEN
RESPONSIBILTY (EMPLOYER RISK EVENT)AND WHICH IMPACT THE CRITICAL
PATH OR THOSE BEYOND CONTROL OF CONTRACTOR
 EOT claims
What is an EOT claim
• In which contractor claims for extension of time of his contract
duration and additional costs (if applicable) due to the delays which
were not his responsibility
• EOT claims arise form critical delays only
• Non-critical delays give rise to ?
Disruption claims
 EOT claims
Pts to be considered
• Is the delay due to a cause that was /wasn’t specified in contract
documents
• Some specific delay events in contract-
• restricted working hours,
• complying with security requirements
• Is the delay on critical path/impacting the task on the critical path
• Items not on critical path may become critical if delayed, may become critical
• Consider lead times of SCM
 EOT claims
Pts to be considered
• Is the delay an unexpected event?
• Delay cannot be claimed for complying with normal statutory obligations
and good practice known at the time of pricing the project
• Delay must be outside contractor’s control
• Delay must be for an event that hasn’t been specifically excluded in the
contract document
• Employer must be aware of obligations the contractor claims they haven’t
fulfilled.
• Delay is not due to actions of subcontractor
• Delay cannot be due to shortage of material
• If these are available elsewhere(even at a higher price)
 EOT claims
Pts to be considered
• Delay should on approved construction schedule
• Delay must be something contractor cannot reasonably foresee
 SCL DELAY AND DISRUPTION PROTOCOL
CONCURRENCY

CONCURRENCY
• TRUE CONCURRENCY AS DEFINED BY SCL PROTOCOL : TWO OR MORE EVENTS OCCURING AT
THE SAME TIME WHERE PARTIES TO THE CONTRACT ARE EACH RESPONSIBLE INDEPENDENTLY
FOR DIFFERENT EVENTS AND WITH EQUAL EFFECT ON CRITICAL PATH- RARE CASE.
• OTHER CASES
• DELAYS BY CONTRACTOR AND EMPLOYER OVERLAP
• EVENTS AT DIFFERENT TIMES BUT EFFECTS FELT AT SAME TIME
• IF EMPLOYER’S EVENT OCCURS AFTER COMMNENCEMENT OF CONTRACTOR’S DELAY UT
CONTINUES IN PARALLEL
• DELAY DUE TO EMPLOYER OCCURING DURING A PERIOD WHEN DELAY IS ALREADY OCCURING
FOR A CAUSE WHICH DOES NOT GIVE RISE TO ENTITLEMENT , THEN PROLONGATION COSTS
CANNOT BE RECOVERED
• PRINCIPLE – CONTRACTOR CANNOT RECOVER DAMAGES FOR DELAY IN CIRCUMSTANCES
WHERE EXACTLY THE SAME LOSS WOULD HAVE OCCURRED DUE TO CAUSES WHICH ARE THE
RESPONSIBILTY OF THE CONTRACTOR. “THE BUS WAS GOING THERE ANYWAY:
• CONVENTIONAL APPROACH – EOT ONLY IF EMPLOYER RESPONSIBLE EVENT HAD AN EFFECT
WHICH LASTED MORE THAN CONTRACTOR RESPONSIBLE DELAY

• HOW TO HANDLE CONCURRENCY?

 MALMAISON APPROACH

THE MALMAISON APPROACH

“...IT IS AGREED THAT IF THERE ARE TWO CONCURRENT CAUSES OF DELAY, ONE
OF WHICH IS A RELEVANT EVENT, AND THE OTHER IS NOT, THEN THE
CONTRACTOR IS ENTITLED TO AN EXTENSION OF TIME FOR THE PERIOD
OF DELAY CAUSED BY THE RELEVANT EVENT NOTWITHSTANDING
THE CONCURRENT EFFECT OF THE OTHER EVENT.

• ENTITLES CONTRACTOR TO EXCUSABLE NON-COMPENSABLE DELAY

 SCL DELAY AND DISRUPTION PROTOCOL
EOT:PREVENTION PRINCIPLE, TIME AT LARGE , CONCURRENCY

• BASED ON DELAY AFFECTING CRITICAL PATH

• CONTRACTOR ENTITLED TO FULL EOT FOR EMPLOYER’S DELAY – MITIGATION OF
CONTRACTOR’S DELAY-MALMAISON APPOACH
• DOMINANT CAUSE, EG, CONTRACTOR DELAY 21 JAN TO 25 FEB DUE TO LACK OF SKILLED
LABOUR, EMPLOYER ORDERS VARIATION –EFFECT 01-14 FEB (SEE EFFECT ON CRITICAL PATH)
• APPORTION RESPONSIBILTY
• DEGREE OF CULPABILTY IN EACH CASE OF DELAY
• SIGNIFICANCE OF EACH FACTOR CAUSING DELAY
• LENGTH OF DELAY CAUSED BY EACH CAUSATIVE EVENT
• WHICH IS MOST IMPORTANT?
• ‘BUT FOR’ TEST- BUT FOR EMPLOYER’S BREACH , WOULD THE CONTRACTOR HAVE SUFFERED
DELAY
• CYDEN HOMES - ANY DELAY CAUSED BY A RELEVANT EVENT WHICH IS CONCURRENT WITH
ANOTHER DELAY FOR WHICH THE CONTRACTOR IS RESPONSIBLE SHALL NOT BE TAKEN INTO
ACCOUNT.
 EOT claims
Concurrent Delays
• Contractor’s material arrive 3 days late,
• Employer to issue drawings on 2nd day –delayed by 10 days late
• EOT?
• Common sense /apportionment approach- 8 days
• Dominant cause approach – 10 days
• But – For approach – 8 days
• Malmaison approach – 10 days
 Concurrent delay:CPWD
5.3 In case the work is hindered by the Department or for any reason / event,
for which the Department is responsible, the authority as indicated in Schedule ‘F’
shall, if justified, give a fair and reasonable extension of time and reschedule the
mile stones for completion of work Such extension of time or rescheduling of
milestone/s shall be without prejudice to any other right or remedy of the parties
in contract or in law; provided further that for concurrent delays under this sub
clause and sub clause 5.2 to the extent the delay is covered under sub clause 5.2
the contractor shall be entitled to only extension of time and no damages.
 EOT claims
• Painting required to commence on D+30. Lead time for procurement
9 days.
• Employer to provide specifications by D+21.
• Employer does not provide on D+21. Contractor slows down work on
brick wall and diverts resources elsewhere. Impact on EOT and how to
tackle
• Give notice to Employer that you are diverting resources and need lead time
to 2 days more
 Force Majeure
• War, hostilities, Rebellion, civil war
• Riot , commotion, strike, lockout
• Explosive material, contamination etc
• Natural catastrophe
4 pt test
• Beyond a party’s control
• Party could not have reasonably provided for before entering into the
contract
• Having arisen , the party could not have reasonably avoided or overcome
• Is not substantially attributable to the Employer
 Force Majeure
• Warning of nation-wide transport strike next week
• Contractor to prove that he could not have stockpiled critical items on
site
 Entitlement to EOT
• Late issue of drawings by Employer
• Late access to site
• Partial access to site
• Prove intention to do work
• Insist on Employer giving timeline
• Scope increase
• Unforeseen site conditions
• Unforeseen weather conditions
• Changes in legislations
 Factors to consider for EOT claims
• Approved construction schedule
• Input Delay event
• See impact on critical path
• Is that enough?
• Revised schedule may put certain activities into unsuitable seasons-
excavation pushed into monsoon season due to delayed access to site
• Discontinuities and underutilisation – eg re-est of large cranes
• May change resource peaks and troughs eg lack of labour during
Diwali season
 Factors to consider for EOT claims
• Some specialist equipment / subcontractor may not be available
• Early delivery of material
• Storage issues
• Double handling
• Damage
• Thefts
• Holidays- eg concrete pouring before Diwali /Xmas and only curing
during Diwali- catered for as holiday break
02 Feb 22
Reasonable Duration for Additional Tasks: Case Example1
• New Office building under construction
• Entrance lobby – 5 floors high void- concrete roof slab temporarily
supported from ground floor. Slab had achieved design strength, but due to
mistake in design calculation, deflection was noticed in the newly
completed concrete roof. Engineer redesigned and decided to give two
additional structural walls to support the roof(Ground to 5th floor). Sp
work for slab had to stay till two walls were complete. Construction of
lobby was on critical path
• Issues related to EOT
• How much to build each wall?
• Can both walls be built simultaneously?
• If contractor claimed 15 days and took 12 days?
• If contractor claimed 15 days and took 18 days?
• Prospective or retrospective EOT?
Reasonable Duration for Additional Tasks: Case Example1
• Additional resources and cost required to have minimum delay?
Example – availability of crane to lift material to required elevation-
can become limiting factor
When deciding on additional time, consider:
• Resources available and impact on rest of project
• Appropriate technology and methods
• Alternate solutions
• Justification of duration
• Cost vs Time – make Employer aware
Reasonable Duration for Additional Tasks: Case Example 2

Employer changes building’s roof from steel structure to concrete slab.

Assume both take same time to construct. What other factors will you
consider for EOT ?
• Concrete slab needs support while it gains strength- sp props may
restrict work site, flexibility and efficiency
 EOT
• Does EOT automatically lead to compensation?
• If due to employer delay , the contractor is prevented from completing the
works as planned by him which was before overall completion date? Will
he get EOT?
• If EOT application not made, will he get EOT?
• What will Employer do if contractor does not present full information
about events of EOT
• If Engineer does not decide on EOT for a prolonged period?
 Prolongation Claims
• Additional costs due to delay
• Should be Employer’s Risk Event
• Eg-
1.Employer orders stoppage of work due to safety violations by
contractor
2. Flooding due to heavy rains – stoppage of work
3. Employer does not give access to part site
• Contractor needs to prove he had resources ready to work
 Prolongation Claims
• Direct costs- Work site and Field office
• Idle labour
• Idle machinery
Indirect costs
• Increased duration of loan from bank
• Head office OHs
• Loss of opportunity
Workshop on Prolongation
costs
DISRUPTION
 DISRUPTION

• LOSS OF PRODUCTIVITY TO CONTRACTOR’S NORMAL METHODS RESULTING IN LOWER

EFFICIENCY
• WHAT IS PRODUCTIVITY

• PRODUCTIVITY = PRODUCTION OUTPUT /RESOURCE INPUT

4m of 4” pipe /manhour
• PRODUCTIVITY RATIO= ACTUAL PRODUCTIVITY/PLANNED PRODUCTIVITY
3m per hr/4m per hr = 0.75

WHY IS PRODUCTIVITY IMP?

 DISRUPTION

EXAMPLE
LABOUR - 40%
MATERIAL - 40%
INDIRECT COSTS - 10%
OH - 5%
PROFIT - 5%
TOTAL -100%

12.5% OVERRUN ON LABOUR COMPONENT

LABOUR - 45%
MATERIAL - 40%
INDIRECT COSTS - 10%
OH - 5%
PROFIT - ??
12.5% OVERRUN ON LABOUR CONTENT WIPES OUT ALL PROFIT
 DISRUPTION
• MOST STD FORMS OF CONTRACT DO NOT EXPRESSELY DEAL WITH
DISRUPTION

• FIDIC MENTIONS “DISRUPTION” ONLY IN TWO CLAUSES

• 1.9 – DELAYED ISSUE OF DRAWINGS
• CL 8.6- DELAYS CAUSED BY AUTHORITIES

• CHANGES CAUSE DISRUPTIONS

• METHODS OF QUANTIFYING LOST PRODUCTIVITY

• PROJECT PRACTICE BASED
• INDUSTRY BASED
• COST BASED METHODS
 MEASURED MILE ANALYSIS

• COMPARES IDENITCAL TASKS IN IMPACTED AND NON

IMPACTED PERIODS OF PROJECT

• EXTRAPOLATION OF ACTUAL WORKS SPENT

• ACTUAL CONTRACT PERFORMANCE RATHER THAN INTITAL

ESTIMATE USED
•
• COMPARES ACUTAL PERFORMANCE ON SITE WITH ACTUAL
PERFORMANCE
MEASURED MILE ANALYSIS
 Loss of productivity Claim

Week 1 2 3 4 5 6
Zone A(Mh) planned 2000 2000 2000
Zone A production (Ton) 10 10 10
Zone A productivity 200 200 200
Zone B(Mh) planned 2000 2000 2000
Zone B production (Ton) 10 10 10
Zone B productivity 200 200 200
Zone A performed(Mh) 2100 2000 2200
Zone A production Tons 10 10 10
Zone B Performed (Mh) 3000(site access 3000 (site access blocked 2800
blocked by by Employer) (Rainfall)
Employer)

Rate – Rs 120 per Mh

 Loss of productivity Claim

Performed Zone A – 210Mh/Ton

Performed Zone B- 300+300+220(rainfall loss of productivity not claimable – hence normalized)/ 20 = 273.3
Mh/Ton

273.3- 210 = 63.3Mh/Ton

Qty affected = 30 Ton
Total cost- 63.3 x 30 x 120 =227880
Example Measured Mile Calculation Comparison of Unit Cost for Impacted and
Non‐impacted Areas40
The Contractor planned to perform all of the cross taxiway paving on an uninterrupted basis,
and to use paving machines for all of the concrete paving except for the fillet areas, which
were to be done by hand pours.
Because of the engineer's changes in the taxiway lighting and a requirement to put
pavement‐sensing devices in the concrete for a long‐range pavement wear study, the work on
the south taxiways was performed on a sporadic and intermittent basis. In fact, much of it
was performed on a hand basis rather than using the large concrete slip form paving spread.
This caused a substantially greater cost of performing the work on the south taxiways than
could be reasonably anticipated.
The work on the north taxiways was performed under normal conditions, since the changes
were all made prior to the start of work on the north taxiways and the pavement wear study
would not be conducted on the north taxiways. Runway's cost as a result of these changes can
be calculated by comparing the unit cost of labour for the north taxiways (which were
essentially non‐impacted) with the unit cost of labour for the south taxiways (which were
substantially impacted). Both the north and south taxiways were performed during normal
paving periods under good weather conditions. The same labour force and the same equipment
(with the exception that the slip form paving spread could not always be used due to the
change) was used on both areas. However, the unit labour cost on the north taxiways, which
were non‐impacted, was approximately half of the cost incurred on the south
 EX:On the above information and the following simplistic analysis, the Contractor is entitled
to be paid --- in additional costs that it incurred, as illustrated in the following formula:
Actual North Cross
Taxiway Production
Actual South Cross
Taxiway Production
Hours 10,116.00 51,969.00
Square Metres Produced 102,256.00 281,746.60

Calculate additional labour costs assuming per hour cost of labour is Rs 120
On the above information and the following simplistic analysis, the Contractor is entitled to
be paid …..in additional costs that it incurred, as illustrated in the following formula:
Actual North Cross
Taxiway Production
Actual South Cross
Taxiway Production
Hours 10,116.00 51,969.00
Square Metres Produced 102,256.00 281,746.60
Hours/Square Metre .099 .184
Increase in Unit Labour Rate 0.086
Quantity Affected by Blockout and Light Change 281,746.60
Increased Rate 0.086
Manhour Increase Due to Change 24230.20
Labour Cost per Manhour 120
Total Additional Labour Cost 2,907,624.91
Workshop – Calculating Disruption Costs- Example
Variation Claims
 Variation Claims

• Additional item
• Substitute item
• Extra item
• Change in specifications
• Change in sequence
• Omissions
• Changes in law
• Changes in contract conditions
• Changes in working conditions
• Force Majeure/Neutral Events
• Any other instructions issued by Employer
 Negative Variations

Results in decrease on price and /or Time

• Scope of work
• Restriction?
• Lower specifications
• Different product
• Employer provides an item
• Restriction?

Can you have negative variations for-

• More favorable weather conditions
• Better ground conditions
• Contractor completing project in less time than specified in contract
• Contractor using an alternative tech/methodology

Some contracts may entitle contract to loss of profit for negative variations
 Nil Impact Varaitions

Should you submit a nil impact variation?

• Provides certainty to Employer

• Improves relations
 Rate Variations

Submitting revised rate for an item

• Qty More than upper limit prescribed in contract
• Qty less than percentage prescribed in contract?
• Item to be installed in different manner
• Example
• Floor tiles changed to diagonal pattern – more cutting , more difficult for labour
 Variation Claim

Example – Contractor has given rate of 2800 per m2 for formwork for retaining wall
Qty – 576m2 – 24 bays – 3 m high
Engineer issued variation order reducing retaining wall to 16 bays- 384 m2 after shuttering had been ordered but before
work commencement on retaining wall. Contractor informed Engineer that in pricing the item he had allowed for a
purpose built steel shutter 8x3 m at capital cost of 600000
Assume – 8% site OHs and 10% HOOH and Profit
BoQ rate- based on 576 m2 = 2800
Less 10% HOOH and profit =
(2800/110) X 100 = 2545
Less 8% site OH =
(2545/108) X 100 = 2356
Material – purpose built steel shutter – 600000 /576 =1042
Remaining costs – labour, plant, erection , cranage= 1314
Calculating for variation
Labour, plant , erection , cranage – 1314
Material – purpose built shutter
Contractor entitled to recover full cost = 600000/384 = 1563
Total – 2877
Add 8% site OH = 3107
Add 10 % HOOH and profit = 3418 /m2
 Variation costs

• Labour costs and labour associated costs

• Construction material costs
• Actual material
• Transportation
• Handling
• Storage
• Packaging
• Wastage
• Fixing
• Taxes
• Construction Equipment
• Hire/lease costs
• Mobilization and demobilization
• Insurance
• Fuel and lubricants
 Variation costs

• Demolition
• Labour, machinery
• Loading and transportation
• Protection of nearby works
• Services
• Supervision and management costs
• Subcontractor and suppliers costs
• Additional drawings preparation and vetting costs
• Temporary works
• Additional security
Acceleration Claims
 Acceleration Claims
• On Employer’s instructions
• Completing same work in shorter time
• Employer grants EOT and then asks contractor to complete in original
time period
• Contractor delayed due to Force majeure?
• Contractor delayed due to own fault?
• Employer refuses contractor’s requests for EOT?
 Acceleration Claims
• Ensure new schedule is submitted and accepted by the Employer
• Failure to achieve new completion date may lead to LD even if the
project is completed before the original scheduled date of completion
• Submit both original and accelerated schedule
How is acceleration achieved?
• Working longer shifts
• Working on holidays
• Using more equipment
• Using better or larger equipment
• Changing construction methodology(eg use of precast components)
• More labour
• Different material- rapid hardening cement
 Acceleration Claims
Cost to include
• Mobilization of additional equipment, people, transport, non-
productive time
• OHs for additional equipment and employees- shelters, garages,
lighting
• Overtime costs
• Loss of productivity due to
• Congested work areas
• Employees working longer shifts
• Disruption in continuity of work
• Additional costs to change methods of construction
• Subcontractor and supplier costs
• Additional supervision and management costs
Claims for contractor termination
Termination Due to Contractor’s Fault
Employer’s Entitlement
• Encashment of Performance Guarantee
• Using Retention money of contractor
• Risk and Cost for completion of balance work
• Any losses and damages suffered by the Employer
• Delay damages
• Confiscation of contractor’s material and tools and plant at site
Termination for Convenience
When done:
• Employer no longer desirous of balance work
• Balance work incapable of execution
• Can the Employer do TFC anytime?
• What if Employer wants to execute balance work later on?
Termination for Convenience
Claim of Contractor
• Cost of works executed
• Any other cost or liability reasonably incurred in expectation of
completion of work
• Cost of removal and equipment and return to contractor’s ordinary
place of business
• Cost of repatriation of staff and labour
• Loss of profit?
Escalation Clause
Escalation Clause
• For increase /decrease of cost of items
• During the period of construction
• From last date of submission of tender
• Upto completion date of work
• Contractor submits bids considering rates of items on day of
submission of tender
• Employer fixes last date of tender submission
• Basis considered by Employer
• Last date of tender submission even if contractor had submitted earlier
 Escalation Clause
• Works contracts has 100s of items
• Only limited Nos considered individually
• Rest may be grouped
• Some may not be considered
Major components
• Labour
• Skilled , unskilled , semiskilled
• Steel
• Rft bars
• Structural steel
• FOL
• Bitumen
• Sand, aggregate
 Escalation Clause

Type of labour Wages plus DA- Oct 19 Dec 19

Unskilled 13584 13896 1.023
Semiskilled 14958 15296 1.023
Skilled 16468 16858 1.024

Escalation considered for all types of labour based on unskilled variation %.

 Escalation Clause
Steel
• Fe 500
• Fe 600
• Manufacturer
• Dia of bars,
• Rates at site or factory?
 Escalation Clause
Cement
• OPC 43
• OPC 43
• PPC
• Manufacturer
• Rates at site or factory
 Escalation Clause
Where is Price fluctuation taken from:
• WPI – Office of Economic Affairs
• CPI – RBI
• CPWD
• Basic rate- cost as delivered on site
 Escalation Clause
Price Escalation Formula (CPWD)
Pk= W * (X/100) *(Ki-Kio)/Kio
Pk = Variation in cost of item
W= cost of work done
X= component of item
Ki= Price index of item for work done on the date as mentioned in
contract
Kio= Price index of item on last day of date of receipt of tender
 Escalation Clause
Price Escalation Formula (CPWD)
V = P X Q X ((CI – CIo)/CIo))
V = Variation in material cost i.e. increase or decrease in the amount of rupees to be paid or
recovered.
P = Base Price of material as issued under authority of DG, CPWD or concerned Zonal Chief Engineer
and as indicated in Schedule "F". For Projects and Original Works
Q = Quantity of material brought at site for bonafide use in the works since previous bill excluding
any such quantity consumed in the deviated quantity of items beyond deviation limit and extra
/substituted item, paid/to be paid at rates derived on the basis of market rate under clause 12.2.
CIo = Price index for cement, steel reinforcement bars structural steel and POL as issued by the DG,
CPWD and corresponding to the time of base price of respective material indicated in Schedule 'F'.
For other items, if any, provided in Schedule 'F', All India Wholesale Price Index for the material as
published by the Economic Advisor to Government of India, Ministry of Industry and Commerce and
corresponding to the time of base price of respective material indicated in Schedule 'F’.
CI = Price index for cement, steel reinforcement bars, structural steel and POL as issued under the
authority of DG, CPWD for period under consideration. For other items, if any, provided in Schedule
'F', All India Wholesale Price Index for the material for period under consideration as published by
Economic Advisor to Government of India, Ministry of Industry and Commerce.
 Escalation Clause
Generic formula for calculation
WD x % component given in tender X % change in WPI
WD = 10000
Steel component = 40%
Base price index= 100
Price index for this qtr= 120
Cost variation to be given :
10000 x 0.4x 0.20 = 800

Example – Excel sheet

 Escalation Clause
Another method
= Wt of component X Difference in rate
Wt of steel used in project- =1000
Rate last qtr= 55
Rate this qtr= 50
Additional Cost to be given to contractor
1000 x(55-50) = 5000
 Escalation Clause
The base date for working out such escalation shall be the last stipulated date of receipt of tenders including extension, if
any.
(ii) The cost of work on which escalation will be payable shall be reckoned as below :
(a) Gross value of work done up to this quarter : (A)
(b) Gross value of work done up to the last quarter : (B)
(c) Gross value of work done since previous quarter (A-B): (C)
(d) Full assessed value of Secured Advance (excluding materials Covered under Clause 10 CA) fresh paid in this quarter : (D)
(e) Full assessed value of Secured Advance (excluding materials Covered under Clause 10 CA) recovered in this quarter : (E)
(f) Full assessed value of Secured Advance for which escalation payable in this quarter (D-E): (F)
(g) Advance payment made during this quarter: (G)
(h) Advance payment recovered during this quarter: (H)
(i) Advance payment for which escalation is payable in this Quarter(G-H): (I)
(j) Extra items/deviated quantities of items paid as per Clause 12
Based on prevailing market rates during this quarter: (J)
Then, M = C+F+I-J
N = 0.85 M
Cost of work for which escalation is applicable:
W=N
 Escalation Clause
The compensation for escalation for other materials (excluding cement, reinforcement bars, structural steel, POL or
other materials covered under clause 10 CA) shall be worked as per the formula given below:-
Adjustment for civil component (except cement, structural steel, reinforcement bars, POL and other materials covered
under clause 10CA) / electrical component of construction 'Materials’
Vm = W X (Xm/100) X (MI-MIo/ MIo)
Vm = Variation in material cost i.e. increase or decrease in the amount in rupees to be paid or recovered.
W = Cost of Work done worked out as indicated in sub-para (ii) of Clause 10CC.
Xm = Component of 'materials' (except cement, structural steel, reinforcement bars POL and other materials covered
under clause10CA) expressed as percent of the total value of work.
Ml = All India Wholesale Price Index for civil component/electrical component* of construction material as worked out
on the basis of All India Wholesale Price Index for Individual Commodities/ Group Items for the period under
consideration as published by Economic Advisor to Govt. of India, Ministry of Industry & Commerce and applying
weightages to the Individual Commodities/Group Items. (In respect of the justified period extended under the
provisions of clause 5 of the contract without any action under clause 2, the index prevailing at the time of updated
stipulated date of completion considering the effect of extra work (extra time to be calculated on prorata basis only as
cost of extrawork x stipulated period/tendered cost, shall be considered.) If updated stipulated date of completion as
calculated on pro- rata basis does not cover full calendar month then indices will be considered or restricted to previous
month.
Mlo = All India Wholesale Price Index for civil component/electrical component* of construction material as worked out
on the basis of All India Wholesale Price Index for Individual Commodities/Group Items valid on the last stipulated date
of receipt of tender including extension, if any, as published by the Economic Advisor to Govt. of India, Ministry of
Industry & Commerce and applying weightages to the Individual Commodities/Group items.
 Escalation Clause
The compensation for escalation for labour shall be worked out as per the formula given below:-
VL = W X (Y/100) X (LI-Lio/Lio)
VL : Variation in labour cost i.e. amount of increase or decrease in rupees to be paid or recovered.
W : Value of work done, worked out as indicated in sub-para (ii) above.
Y : Component of labour expressed as a percentage of the total value of the work.
LI : Minimum wage in rupees of an unskilled adult male mazdoor, fixed under any law, statutory rule or order as
applicable on the last date of the quarter previous to the one under consideration.
LlO : Minimum daily wage in rupees of an unskilled adult male mazdoor, fixedunder any law, statutory rule or
order as on the last stipulated date of receipt of tender including extension, if any.
 Escalation Clause
The compensation for escalation shall be worked out at quarterly intervals and shall be with respect to the cost
of work done as per bills paid during the three calendar months of the said quarter.
The index (MI/FI etc.) relevant to any quarter/period for which such compensation is paid shall be the
arithmetical average of the indices relevant to the three calendar months.
Provided always that:-
(a) Where provisions of clause 10CC are applicable, provisions of clause 10C will not be applicable but
provisions of clause 10CA will be applicable.
(b) Where provisions of clause 10CC are not applicable, provisions of clause 10C and 10CA will become
applicable.
 Escalation Clause
• Gen done on qtrly basis
Issues
• Local market fluctuations
• Ascertaining that labour actually getting escalated rates- what if main
contractor subcontracted small work on measurement basis
• Rates vary as per manufacturer
• Some contracts – Price variation clauses not there for some items
 Escalation Clause
Qs. Calculate escalation applicable Bricks for Qtr ending Jun 2021 based on following data:
Gross value of work done in Qtr ending Jun 21- INR 20,00,000
Gross value of work done in Qtr ending Mar 21- INR 9,50,000
Secured Advance paid during Qtr ending Jun 21- INR-2,00,000
Materials paid for in secured advance incorporated I work during the qtr ending Jun21- INR 1,50,000
Advance payment made during qtr ending Jun21- 3,00,000
Advance payment recovered during qtr ending Jun 21- INR 75,000
Assume OH and profit as 12.5% . Assume cost percentage of bricks incorporated in work as 8%
Date of receipt of tender - 31 March 2020
WPI of Brick based on 2011 indices
Mar 2011- 100
Mar 2020- 115
Jun 2021- 120
 Escalation Clause
A = 20,00,000
B= 9,50,000
C= 10,50,000
D= 2,00,000
E= 1,50,000
F= 50,000
G= 3,00,000
H= 75,000
I= 2,25,000
J=0
 Escalation Clause
M = C + F + I –J = 10,50,000 + 50,000 + 2,25,000 – 0 = 13,25,000
N = 0.875 M = 11,59,375
W= 11,59,375
Xm = 8%
MI= 120
MIo = 115
Vm = W X (Xm/100) X (MI-MIo/ MIo)
Vm = 11,59,375 x(8/100) x(120-115/115) = 4032
Thank you