5/12/2023

What is a Contract

Price Fluctuation of the Works Contracts

in the Construction Industry
12.05.2023

Ch.QS Deepa Samaraweera

AIQS.SL, MIIESL, Chartered Quantity Surveyor  Legal or illegal
Former Assistant Director (Advisory Services) – CIDA
Former Assistant Project Director (Procurement & Contract
Administration) – SCDP, Ministry of Urban Development
1 2

Formation of a contract:
Invitation to offer

Tender Notice/RFP
WORKS CONTRACT
Making an offer

Bid/Proposal Submission The Employer (Client)

Acceptance of an offer The Engineer (Consultant)

The Contractor
Letter of Acceptance

4
3

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Contractual Relationship (Works) Factors Considered in a Contract

Employer
 Quality

Engineer Contractor  Time

 Cost
Nominated Sub-
Contractors Sub-Contractors

6
5

COST VARIATION OF CONSTRUCTION WORKS PRICE VARIATION OF CONSTRUCTION INPUTS

Due to: What are Inputs ?

 Physical Variation (Scope Change)  Material

 Quantity Exaggeration  Labour

 Price Variation of Construction Inputs  Plant

7 8

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Percentage Increase of Prices of Inputs in Percentage Increase of Prices of Inputs in

year 2011 and 2012 year 2016 and 2017

2011 2012 2016 2017

16 40
16
14 35
Percentage

Percentage
15

10 14
12 30 5
12
10 25 0

-5 10
8 20 -10
8
6 15 -15

-20 6
4 10 -25
4
2 5 -30
2
-35

Fuel
Plant

Sand
Labour

Steel

Bitumen
Cement
0 0 0
Bitumen
Cement

Bitumen
Sand

Cement
Plant

Sand
Labour

Fuel
Steel

Plant
Labour

Fuel
Steel

Sand

Bitumen

Fuel
Plant
Labour

Cement

Steel
9 10

Percentage Increase of Prices of Inputs in Cost contribution of Inputs for type of construction
year 2021 and 2022 Building Water supply Road
from Jan 21 to Dec 21 from Jan 22 to Dec 22
Cement 10% Cement12% Bitumen 14%
Percentage Increase

Sand 3% Sand 3% Sand 1.5%

90.0 85.3

80.0
300.0 Steel 12% Steel 22% ABC 15%
248.4
70.0 250.0 Fuel 0.5% Fuel 2% Fuel 6%
60.0

50.0
50.3 200.0 …….. …….. …….
40.0 33.9 150.0 …….. …….. ……..
30.0

20.0 15.8
12.6
100.0 80.7
68.3
56.3
…….. …….. ……..
10.2 10.0 54.1
10.0 50.0
15.7 17.8
0.0
Labour Plant Cement sand Steel Bitumen Fuel
0.0
Labour Plant Cement sand Steel Bitumen Fuel
Labour 22% Labour 28% Labour 8%
Plant 1% Plant 3% Plant 10%
100% 100% 100%

11
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How do the contractors bare the additional cost

No body can predict the future cost variation due to price variation of inputs ?

Pass the additional cost back to the client

Two main effective factors for cost variation in construction How do they do ?

Case 1 If price escalation clause is not included in Agreement

 Price variation of inputs
By adding Mark Up at bidding stage

 Input percentages Case 2 If price escalation clause is included in Agreement

Ignore adding Mark Up at bidding stage just forward the Bid

13 14

Case 1 If price escalation clause is not included in the Agreement Case 1 If price escalation clause is not included in the Agreement
Adding Mark Up at bidding stage
Adding Mark Up at bidding stage
Can the contractor predict additional mark-up for
fluctuation? In competitive bidding

 It is only the contractor’s guess  If contractor adds very high mark up - may not be selected

 If contractor adds very low mark up

 There is no methodology available or - may be selected
not adding any mark up

15 16

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Case 1 If price escalation clause is not included in the Agreement Case 2 If price escalation clause is included in the Agreement

If a contractor is selected with low mark up or not included at all

The contractor will forward the bid without thinking of future price
With unpredictable price variations contractor will loose the profit in variations on inputs
the job and has to face critical cash problems as

Ultimately the client will also suffer The contractor will be paid the price variation

How ?
Neither the contractor nor the client will suffer
Due to cash problems of the contractor, the work will get delayed
or
Sometimes the work will be suspended and re-tendering may occur

17 18

How is the contractor benefited by price How is the Employer benefited by price
fluctuation clauses? fluctuation clauses?

 At bidding stage the contractor could submit a more  The Employer can select a more realistic bid
realistic bid, without adding an arbitrary mark-up for
escalation
 At implementation, reimbursement to the
contractor is limited only for the expenditure
 At implementation, contractor is reimbursed for
expenditure due to price variation due to price variation

19 20

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PRICE VARIATION REIMBERSMENT METHODS PRICE VARIATION REIMBERSMENT METHODS

a) Conventional Method

 Conventional Method
b) Formula Method

 Formula Method

21 22

PRICE VARIATION REIMBERSMENT METHODS PRICE VARIATION REIMBERSMENT METHODS

CONVENTIONAL METHOD ICTAD formula in Sri Lanka
- Fluctuation is paid only for specified inputs
- Computations are based on actual quantities of such -Fluctuation is paid directly only on major inputs
inputs during each valuation period which are computed and indirectly to minor inputs also
- Price variation is calculated using price difference of - Computations are based on value of work done and cost
base price and current price during that period percentage of major inputs
- Price variation is calculated using base indices and current
Drawbacks
indices of those inputs
• Reimbursement is limited to specified inputs Advantages
• Risk of prediction of other inputs still with the contractor  Reimbursement for the fluctuation of all the
• Tedious calculations (Computation of quantity of specified inputs have to Inputs ensured
be done for each Interim Valuation)  Easy calculations
• Disagreement may occur between Contractor & Engineer  Less documents needed
• Many documents need to be kept  Less disputes
23 24

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ICTAD FORMULA

F = 0.966 (V – Vna)  Px (Ixc – Ixb)

100 Ixb

V = Valuation of work for the period

(work done + 80% materials at site) from interim
Vna = Value of non-adjustable elements for Statement
the period
Px = Input percentage from the Tender Document
Contract Document
Ixb = Base Index
Ixc = Current Index from CIDA statistical Bulletin
25 26

Px - Input Percentage
V - Valuation of work Vna - Non adjustable element

 Valuation of work done for the
period concerned
and
 80% material at site
“Non adjustable element means”: “Input Percentage means”:
The value of work done under the
items which are not considered for
price escalation The percentage cost contribution of major materials, plant and
labour to the contract. The total contribution of the major inputs
1. Fixed sum items executed at early will be considered as 90%.
stages (Most of Preliminary items)

2. Extra work items valued based on

current prices The computation of input proportions is based on the costing of
major input items required for the proposed construction. The
3. Provisional sum items costs will be calculated using the prices that prevailed at the time
of bidding. Input proportions of a particular input will be
4. Work done under day work rates
computed as the ratio between the cost of the input and the cost
of all inputs.
27 28

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What are the Indices

Indices can be define as the vehicle used to
transform information related to some period of
time to a another period of time
Mathematically:
Definition – Month
For the purpose of current indices the Month is defined
as the time period between the first and the last day of
any month in the Gregorian calendar inclusive of the
first and the last day.

Current Index = Current price X 100

Base price
30
5:41 PM

Computation of price adjustment using ICTAD

Formula
Ixb - BASE INDICES Px x ( IXc - IXb)
IXb
Ixb is the base index of the input:

“Base Index” of a particular input shall be the index for the

August 31, 2021 July, 2021
input, prevailing for the Month, one Month prior to the Month September 1, 2021 August, 2021
on which the last date for submission of Bids falls.
September 30, 2021 August , 2021
Any day Oct, 2021 September, 2021

31
8:09 PM

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Ixc - CURRENT INDICES Computation of price adjustment using ICTAD

Formula
Px x ( IXc - IXb)
* month 1 (where
Definition – Month; IXb Start Date /
Applicable current Indices Commencement
For the purpose of current indices the month is defined as the Date falls)
time period between the first and the last day of any month in the
Gregorian calendar inclusive of the first and the last day.
Month 1* Month 2 Month 3 Month 4 Month 5 Month 6
Case a Claim 1 Claim 2 Claim 3 Final
In the case of first monthly statement, the current indices for the Final
Case b Claim 1 Claim 2
purpose of calculation of price adjustment shall be taken as the
Case c Claim 1 Claim 2 Claim 3 Final
indices prevailing on the Month where the Start Date falls. For
any other monthly statement or for the statement at completion the 5:41 PM
current indices shall be taken as the indices prevailing for the Claim 3
Claim 1 Claim 2 Final Claim
Month, where the first date of the current valuation period falls. Case a Month 1 Month 2 Month 3 Month 6
Case b Month 1 Month 3 Month 4
33 Case c Month 1 Month 2 Month 2 Month 3

PREPARATION EXAMPLE FOR COMPUTATION

OF PRICE FLUCTUATION
OF

PRICE FLUCTUATION CONTRACT DATA

CLAIM USING Total Contract Sum - Rs. 45,650,000

Date of Closing Bids - 5th January 2012
ICTAD FORMULA Date of commencement - 4th April 2012
Contract Period - 14 months

35 36

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INFORMATION PROVIDED UNDER VARIATION CLAUSE IN

INFORMATION PROVIDED UNDER VARIATION THE CONTRACT DOCUMENT
CLAUSE IN THE CONTRACT DOCUMENT
2. INPUT PROPOTIONS
Input Percentage
1. Non-adjustable Elements
M4 Cement 12.8
M7 Metel 3.0
Following Trades are not entitle for the Price Fluctuation. M8 Sand 2.5
a. Items under preliminaries (A1.1, A1.2,….A1.10). M9 Bricks 4.4
M13 Reinforcement 5.1
b. Provisional Sum items. M16 Asb.Rf.Sheets 7.5
M18 Sanitary (Local) 1.5
- Air Conditioning M20 PVC Pipe 1.0
- Fire Fighting & Alarm System M22 Timber 18.5
- Lighting Protection System M27 Wall Paint 2.5
M32 Floor Tiles 3.2
c. Variations or Extra Items using current prices and M38 Elec. Fittings 3.0
current rates. L1 Skilled Labour 14
L3 Unskilled Labour 11
37 TOTAL 90 38
==

Vna current
Particulars of Valuation SUMMARY OF INTERIM BILL (no 1)
1.0 Cumulative value of preliminary Bill = 30,000.00
Claim No.1 Claim No.2 Claim No.3 Claim No.4 2.0 Cumulative value of BOQ work
End of Jun. End of Jul. End of Aug. End of Nov. 2.1 Earth work = 50,000.00
Period of valuation
2012 2012 2012 2012 2.2 Concrete work = 200,000.00
Value of Cumulative …. ……………. = ………….
work (Rs.) 1 ,000,000 2,500,000 3,750,000 8,000,000 2.8 Finishes = 150,000.00
3.0 Cumu… extra work using BOQ rates = 45,000.00
Value of
Cumulative non-adj. 50,000 50,000 90,000 120,000
4.0 Cumu…extra wk. using current rates = 20,000.00
Ele. (Rs.) Sub total 1 = 1,000,000.00
80% cost of mat.at site 5.0 Material at site ( 80% ) = 100,000.00
for the period (Rs.) 100,000 120,000 110,000 150,000 Sub total 2 = 1,100,000.00
V current
39 40

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CALCULATION OF  Px (Ixc – Ixb) = ?

COMPUTATION OF VALUE OF V AND Vna
Ixb

VALUATION NO. 1
SPECIMEN CALCULATION SHEET
V = 1,000,000 + 100,000
Px (Ixc-Ixb)
= 1,100,000 INPUT Px Ixb Ixc
Ixb

Vna = 50,000

41 42

APPLICABLE MONTH FOR CURRENT INDICES

M8 SAND `
YEAR JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

2011 2012 1990 96.5 96.5 94.8 96.5 93.1 93.1 100.3 100.3 104.7 102.5 107.9 113.8
Month Dec Apr Jun Jul Aug Sep Oct Nov
1991 , 1992 . 1993 ,1994 , 1995 , 1996 , 1997 , 1998 , ....…
2009 1595. 1 1598. 0 1598. 0 1599. 5 1613. 8 1708. 4 1709. 1 1709. 1 1709. 1 1713. 5 1724. 3 1717. 1
2010 1717. 1 1696. 5 1696. 5 1704. 8 1741. 2 1741. 2 1758. 7 1746. 4 1758. 7 1769. 0 1772. 1 1772. 1
Month of
Clm.1 Clm2 Clm.3 Clm.4 2011 1776. 2 1780. 3 1780. 3 1785. 9 1791. 0 1791. 0 1791. 0 1796. 1 1796. 1 1803. 2 1841. 3 1891. 5
Valuation 2012 1914. 2 1979. 7 1996. 4 2027. 5 2050. 1 2060. 5 2069. 8 2104. 3 2160. 9 2227. 4 2243. 7 2251. 0
2013 2251. 0 2262. 4 2271. 2 2282. 6 2308. 7
Current
Index Clm.1 Clm.2 Clm.3 Clm.4 M13 REINFORCEMENT STEEL
YEAR JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
applicable 1990 99.4 99.4 99.4 99.4 99.4 99.4 98.4 99.4 97.8 103.4 101.9 102.8
1991 , 1992 . 1993 ,1994 , 1995 , 1996 , 1997 , 1998 , ....…
Work 2009 460. 1 460. 1 460. 1 460. 1 460. 1 460. 1 460. 1 460. 1 460. 1 460. 1 460. 1 460. 1
2010 460. 1 460. 1 467. 7 471. 0 472. 6 472. 6 472. 6 472. 6 472. 6 472. 6 472. 6 472. 6
done for 1.0 1.5 1.25 4.25
2011 492. 1 516. 1 516. 1 516. 1 516. 1 516. 1 516. 1 516. 1 516. 1 516. 1 516. 1 528. 2
the period 2012 528. 2 558. 0 558. 0 558. 0 558. 0 558. 0 558. 0 558. 0 558. 0 558. 0 558. 0 558. 0

43 44

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SPECIMEN SHEET FOR THE PROJECT

CLAIM NO. 1
Ixb Ixc Px (Ixc-Ixb)
INPUT Px Input % Base Index Current Index
Dec-11 Ixb
Input No Name of Input Dec-11 Apr-12 Px(Ixc-Ixb)
M4 Cement 12.80 302.2 Px Ixb Ixc Ixb
M7 Metal 3.0 185.7 M4 Cement 12.80 432.2 441.4 0.27
M7 Metal (3/4") 3.00 295.7 315.0 0.20
M8 Sand 2.5 1097.7 M8 Sand 2.50 1891.5 2027.5 0.18
M9 Bricks 4.4 650.1 M9 Brick 4.40 902.8 960.0 0.28
M13 Renf. 5.1 277.5 M13 R/f steel 5.10 528.2 558.0 0.29
M16 Asbestoes roof 7.50 368.2 408.7 0.82
M16 Asb. Sheets 7.5 182.1 M18 San. Local 1.50 279.5 279.5 0.00
M18 San. Local 1.5 243.7 M20 PVC pipes 1.00 657.0 778.0 0.18
M20 PVC Pipes 1.0 385.7 M22 General timber 18.50 924.4 933.9 0.19
M27 Wall paint 2.50 566.1 645.7 0.35
M22 Timber 18.5 618.5 M32 Floor tiles 3.20 199.2 199.2 0.00
M27 Wall Paint 2.5 370.7 M38 Elect. Fittings 3.00 182.8 188.9 0.10
M32 Floor Tiles 3.2 132.7 L1 Skilled labour 14.00 370.4 395.8 0.96
L3 Unskilled labour 11.00 415.4 433.2 0.47
M38 Elec. Fittings 3.0 120.0 90.00 Sum 4.30
L1 Sk. Labour 14.0 243.0
L3 Un Sk. Labour 11.0 274.3
90.0
45 46

COMPUTATION OF VALUE OF V AND Vna

COMPUTATION OF PRICE FLUCTUATION
CLAIM NO. 1
VALUATION NO. 2
F = 0.966 (V – Vna)  Px (Ixc – Ixb)
Vcurrent = 2,500,000 + 120,000 = 2,620,000
100 Ixb Vprevious = 1,100,000

= 0.966 (1,100,000 – 50,000) * 4.30 V = 2,620,000 – 1,100,000 = 1,520,000

100
= 43,614.90 V na current = 50,000
V na previous = 50,000
Price fluctuation for claim no. 1 = Rs. 43,614.90
==========
Vna = 50,000 – 50,000 =0
47 48

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CLAIM NO. 2
Input % Base Index Current Index
Input No Name of Input Dec-11 Jul-12 Px(Ixc-Ixb) COMPUTATION OF PRICE FLUCTUATION
Px Ixb Ixc Ixb
M4 Cement 12.80 432.2 478.50 1.37 CLAIM NO. 2
M7 Metal (3/4") 3.00 295.7 320.70 0.25


M8 Sand 2.50 1891.5 2069.80 0.24
M9 Brick 4.40 902.8 983.30 0.39 F = 0.966 (V – Vna) Px (Ixc – Ixb)
M13 R/f steel 5.10 528.2 558.00 0.29
M16 Asbestoes roof 7.50 368.2 439.80 1.46
M18 San. Local 1.50 279.5 279.50 0.00 100 Ixb
M20 PVC pipes 1.00 657.0 778.00 0.18
M22 General timber 18.50 924.4 950.50 0.52
M27 Wall paint 2.50 566.1 645.70 0.35
= 0.966 (1,520,000 – 0) * 6.90
M32 Floor tiles 3.20 199.2 214.60 0.25
M38 Elect. Fittings 3.00 182.8 192.60 0.16
L1 Skilled labour 14.00 370.4 395.80 0.96 100
L3 Unskilled labour 11.00 415.4 433.20 0.47
90.00 Sum 6.90
= 101,314.08

Price Fluctuation for Claim No. 2 = Rs. 101,314.08

49 ======== 50

COMPUTATION OF VALUE OF V AND Vna CLAIM NO. 4

VALUATION NO. 4 Input % Base Index Current Index

Input No Name of Input Dec-11 Sep-12 Px(Ixc-Ixb)
Px Ixb Ixc Ixb
M4 Cement 12.80 432.2 478.5 1.37
Vcurrent = 8,000,000 + 150,000 = 8,150,000 M7 Metal (3/4") 3.00 295.7 330.8 0.36
Vprevious = 3,860,000 M8 Sand 2.50 1891.5 2160.9 0.36
M9 Brick 4.40 902.8 1043.8 0.69
M13 R/f steel 5.10 528.2 558.0 0.29
V = 8,150,000 – 3,860,000 = 4,290,000 M16 Asbestoes roof 7.50 368.2 439.8 1.46
M18 San. Local 1.50 279.5 279.5 0.00
M20 PVC pipes 1.00 657.0 778.0 0.18
M22 General timber 18.50 924.4 974.6 1.00
V na current = 120,000 M27 Wall paint 2.50 566.1 661.5 0.42
V na previous = 90,000 M32 Floor tiles 3.20 199.2 222.0 0.37
M38 Elect. Fittings 3.00 182.8 196.7 0.23
L1 Skilled labour 14.00 370.4 395.8 0.96
Vna = 120,000 – 90,000 = 30,000 L3 Unskilled labour 11.00 415.4 433.2 0.47
90.00 Sum 8.15
51 52

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COMPUTATION OF PRICE FLUCTUATION

CLAIM NO. 4 ICTAD
F = 0.966 (V – Vna)  Px (Ixc – Ixb)
SIMPLIFIED
100 Ixb
PRICE FLUCTUATION FORMULA
= 0.966 (4,290, 000 – 30,000) * 8.15

100 FOR CONTRACTS : LESS THAN Rs. 10 Million

= 335,385.54

Price fluctuation for claim No. 4 = RS. 335,385.54

========
53 54

SIMPLIFIED FORMULA

Itb - BASE COMPOSITE INDICES

F = 0.869 (V – Vna) * ( Itc – Itb)
Itb

V = valuation of work for the period
(work done + 80% materials at site)
Vna = Value of non-adjustable elements
for the period
“Base Composite Index” shall be the index for the type of
work, prevailing for the calendar month, one month prior to the
date set for submission of Bid.
from interim
statement

Itb = Base Composite Index

from ICTAD
statistical Bulletin
Itc = Current Composite Index
55 56

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Itc - CURRENT COMPOSITE INDICES

Definition – Month;
For the purpose of current indices the month is defined as the ICTAD
time period between the first and the last day of any month in the
Gregorian calendar inclusive of the first and the last day.
SIMPLIFIED
In the case of first monthly statement, the current Composite
Indices for the purpose of calculation of price adjustment shall be PRICE FLUCTUATION FORMULA
taken as the indices prevailing on the Month where the Start Date
falls.

FOR CONTRACTS : LESS THAN Rs. 10 Million

For any other monthly statement or for the statement at
completion the current Composite Indices shall be taken as the
indices prevailing for the Month, where the first date of the current
valuation period falls.

57 58

SIMPLIFIED FORMULA

ICTAD F = 0.869 (V – Vna) * ( Itc – Itb)

Itb
SIMPLIFIED
V = valuation of work for the period
PRICE FLUCTUATION FORMULA (work done + 80% materials at site)
from interim
Vna = Value of non-adjustable elements statement

FOR CONTRACTS : LESS THAN Rs. 10 Million for the period

Itb = Base Composite Index

from ICTAD
statistical Bulletin
Itc = Current Composite Index
59 60

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Itc - CURRENT COMPOSITE INDICES

Itb - BASE COMPOSITE INDICES
“Base Composite Index” shall be the index for the type of
work, prevailing for the calendar month, one month prior to the
date set for submission of Bid.
Definition – Month;
For the purpose of current indices the month is defined as the
time period between the first and the last day of any month in the
Gregorian calendar inclusive of the first and the last day.
In the case of first monthly statement, the current Composite
Indices for the purpose of calculation of price adjustment shall be
taken as the indices prevailing on the Month where the Start Date
falls.

For any other monthly statement or for the statement at

completion the current Composite Indices shall be taken as the
indices prevailing for the Month, where the first date of the current
valuation period falls.

61 62

CONTRACT DATA

COMPUTATION OF Total contract sum = Rs. 4,300,000.00

Date of closing bids = 5th April 2021
PRICE FLUCTUATION CLAIM Date of commencement of work = 4th July 2021
INFORMATION PROVIDED UNDER FLUCTUATION
CLAUSE IN THE CONTRACT DOCUMENT
USING
1. Type of work – Non Residential Building.
2. Non adjustable elements are as follows.
SIMPLIFIED FORMULA  Items under preliminaries (A1.1, A1.2 …..A1.8)

 Variation of extra items using current prices.

63 64

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SUMMARY OF INTERIM BILL (no 1) Vna current

Particulars of Valuation
1.0 Cumulative value of preliminary Bill = 20,000.00
Claim No.1 Claim No.2 Claim No.3 Claim No.4 2.0 Cumulative value of BOQ work
End of Aug End of Sep End of Oct End of Jan 2.1 Earth work = 40,000.00
Date of Claim
2021 2021 2021 2022 2.2 Concrete work = 100,000.00
Value of Cumulative …. ……………. = ………….
work (Rs.) 700,000.00 1,700,000.00 2,550,000.00 3,050,000.00 2.8 Finishes = 130,000.00
3.0 Cumu… extra work using BOQ rates = 25,000.00
Value of
Cumulative non-adj. Ele. 30,000.00 30,000.00 50,000.00 60,000.00
4.0 Cumu…extra wk. using current rates = 10,000.00
(Rs.) Sub total 1 = 700,000.00
80% cost of mat.at site 5.0 Material at site ( 80% ) = 40,000.00
for the period (Rs.) 40,000.00 35,000.00 60,000.00 0.00 Sub total 2 = 740,000.00
V current
65 66

APPLICABLE CURRENT MONTH FOR INDICES YEAR MONTH HOUSING BUILDING SUPPLY &
DRAINAGE
1990 Monthly average 100.0 100.0 100.0
Month 2021 2022 2020 January
1991 to 2019 December
842.4 773.0 698.5
Mar Jul Aug Sep Oct Nov Dec Jan February
March
839.5
837.4
771.5
770.3
698.2
696.3
April 837.4 770.3 696.3
May 836.5 768.9 695.7
June 840.5 778.8 701.0
Month Clm.1 Clm2 Clm.3 Clm.4 July 840.8 779.1 701.0
August 841.0 779.2 701.0
of September
October
842.7
842.7
780.9
780.9
701.3
701.3
Valuation November
December
842.7
848.4
780.9
785.2
701.3
742.0
2021 January 849.8 790.3 753.2
Current Clm.1 Clm.2 Clm.3 Clm.4 February 856.8 793.9 754.6
March 869.6 802.4 791.1
Index April
May
872.7
879.1
804.7
817.4
791.2
797.8
applicable June
July
922.0
926.2
850.6
865.0
871.5
910.0
August 938.0 884.1 955.1
September 949.9 904.2 1009.8
Value V 0.740 0.995 0.875 0.440 October 976.3 927.3 1051.9
November 1040.5 985.4 1099.8
(Rs.M) 2022
December
January
1067.1
1086.0
1004.5
1021.5
1104.3
1109.4

Value Vna
(Rs.M) 0.030 0 0.020 0.010
TABLE 5: MONTHLY COST INDICES FOR TYPES OF CONSTRUCTION
67 68

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CLAIM NO 2
CLAIM NO. 1

V = (1,700,000+35,000) – (700,000+40,000) = 995,000

V = 740,000
Vna = 30,000 – 30,000 = 0
Vna = 30,000
Itb = 802.4 (March 2021)
Itb = 802.4 (March 2021)
Itc = 904.2 (September 2021)
Itc = 865.0 (July 2021)
F = 0.869 (V – Vna) x (Itc – Itb)
F = 0.869 (V – Vna) * (Itc – Itb)
Itb
Itb
= 0.869 x (995,000 – 0) x (904.2 – 802.4)
= 0.869 * (740,000 – 30,000) * (865.0 – 802.4) 802.4
802.4 = Rs. 109,698.25
= Rs. 48,135.06 Value of Price Fluctuation for Claim No. 2 = Rs. 109,698.25
Value of Price Fluctuation Claim No. 1 = Rs. 48,135.06
69 70

CLAIM NO 3
CLAIM NO 4

V = (2,550,000+60,000) – (1,700,000+35,000) = 875,000 V = (3,050,000+0) - (2,550,000+60,000) = 440,000

Vna = 50,000 – 30,000 = 20,000 Vna = 60,000 – 50,000 = 10,000
Itb = 802.4 (March 2021) Itb = 802.4 (March 2021)
Itc = 927.3 (October 2021) Itc = 985.4 (November 2021)
F = 0.869(V – Vna) x (Itc – Itb) F = 0.869(V – Vna) x (Itc – Itb)
Itb Itb
= 0.869 x (875,000 – 20,000) x (927.3 – 802.4) = 0.869 x (440,000 – 10,000) x (985.4 – 802.4)
802.4 802.4
= Rs. 115,653.13 = Rs. 85,221.35
Value of Price Fluctuation for Claim No. 3 = Rs. 115,653.13 Value of Price Fluctuation for Claim No. 4 = Rs. 85,221.35

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Coverage
ISSUES
• Why pay price fluctuation?
& • Features of different formulas
• Valuation of works – Materials delivered to site
APPROPRIATE USE OF • Deciding on non adjustable element
• Computing input Percentages
PRICE FLUCTUATION FORMULAS • Deciding Base and Current Indices
• Foreign and Local currencies
• Change of scope
• Work Done after Time for Completion

73 74

ICTAD PRICE FLUCTUATION AS PER NPA GUILDELINES

Reference “Government Procurement Guidelines – 2006”

PRICE ADJUSTMENT
FORMULA Clause no.

5.4.2 In any contract for Works, exceeding a period of three

months, the price variation formula for the SLR
Procedural and Documentation component shall be included in the bidding document
and the contract agreement. Price variation formula
Requirements developed by ICTAD shall be used.

5.4.3 For Foreign Funded Projects, if it is a requirement of the

Ch.QS Deepa Samaraweera Foreign Funded Agency, that price adjustments shall be
made for the foreign currency component. Such
Assistant Project Director (Procurement)
recommended formula may be used for the foreign
SCDP, Ministry of Megapolis & Western currency component. However, in such cases the ICTAD
Development
formula shall be used for the SLR component.
75 76

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The ICTAD Standard Bidding Documents and the relevant Clause nos. As per Standard Bidding Document for Procurement of Works ICTAD/SBD/02 –
related to Price Adjustment
Clause 13.7 13.7 The amounts computed from the formula given under this sub-
clause in respect of the rise or fall in the cost of labour, Material,
Publication No Contract Limit Clause Nos. on the Price Adjustment Price
Plant and other inputs to the Works, shall be added to or deducted
Adjustment
from the payment to the Contractor if the contract Price is subjected
ICTAD/SBD/03 – Minor Upto Rs.10mn Clause 13 in Instructions to Bidders to adjustments due to fluctuation of prices and stated in the Contract
Contracts Clause 13 in Schedule Data.
Clause 10.10 in Conditions of Contract
Clause 10.10 in Schedule (a) The adjustment to the Contract price in respect of Changes in
Cost shall be determined from
ICTAD/SBD/01 – Between Clause 13.4 Instructions to Bidders following formula :
Procurement of Works Rs. 10mn to Clause 13.4 in Bidding Data F = 0.966 (V - Vna)  Px (1xc - 1xb)
Rs. 100mn Clause 47 in Conditions of Contract 100 All inputs 1xb
Clause (47.1) in Contract Data Where:
F = Price adjustment for the period concerned.
V = Current valuation of work done for the period.
ICTAD/SBD/02 – Major Above Rs. 100mn Clause 14.4 in Instructions to Bidders
Vna = Value of non adjustable element or value of work not
Contracts Clause 14.4 in Bidding Data considered for price variation.
Clause 13.7 in Conditions of Contract Px = Input percentage of input named X.
Clause 13.7 in Contract Data 1xc = Current indices of input X.
ICTAD/SBD/04 – Design & All Clause 13.4 in Instructions to Bidders 1xb = Base indices of input X.
Build Contracts Clause 13.4 in Bidding Data
No other adjustment of the Contract Price on account of fluctuations
Clause 13.7 in Conditions of Contract of inputs shall be made, notwithstanding the fact that the Contractor
77
Clause 13.7 in Contract Data has to pay additional amount under special circumstances. 78

(b) The “Input Percentage” means the percentage proportionate contribution of
any input in terms of cost of the construction totaling to 90% and based on
the prices prevailing on one month prior to submission of the Bid and listed
under Clause numbered 13.7 in Contract Data.
(c) The “Non adjustable elements” means,
(i) The work done under the BOQ items that shall not be considered for
valuation of price adjustment which are listed under Clause 13.7 in
Contract Data.
(ii) Extra work or additional work carried out by the Contractor on orders of
the Engineer and are valued under Clause 13.3 and are valued under
Clause 12, based on the new rates prevailing at the time of execution.
(iii) Works done under Day works rates and Provisional Sum items.
(d) The “Current Valuation” means the certified gross value of work executed
during the current valuation period and will include the 80% of the invoiced
value of materials the Contractor has delivered to site but were not consumed
for the physical work done.
(e) The “Indices” means the monthly indices published by Institute for
Construction Training and Development for different Inputs.
79
(f) For the purpose of determining the applicable indices the Month is defined as
the time period between the first and the last day of any month in the Gregorian
calendar inclusive of the first and the last day.
(g) “Base Indices” means the indices for the inputs ,prevailing for the Month, one
Month prior to the Month on which the last date for submission of Bids falls.
(h) In the case of first monthly statement, the “Current Indices” for the purpose
of calculation of price adjustment shall be taken as the indices prevailing on
the Month where the Start Date falls. For any other monthly statement or for
the statement at completion the “Current Indices” shall be taken as the
indices prevailing for the Month, where the first date of the current valuation
period falls.
(i) If the Contractor fails to complete the Works within the time for completion
prescribed under Clause 8.2 or 8.4 the price adjustment for the work
performed after the due date of completion as described above shall be
made using the current indices prevailed at the due date for completion.
(j) The weightings for each of the Inputs of cost given in this Clause shall be
adjusted if, in the opinion of the Engineer, they have been rendered
unreasonable, unbalanced or inapplicable as a result of varied or additional
work already executed or instructed under Clause 3.3 or for any other
reason. 80

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Page 75, Section 5 – Contract Data of ICTAD/SBD/02 ICTAD/SBD/03 – Standard Bidding Document for Minor Works

(13.7) The Contract Price is / is not subjected to price adjustment Clause 10.10 • Unless otherwise stated in Schedule, prices shall be
adjusted for fluctuations in the cost of inputs;
Price
Weightings of Inputs
Adjustment
OPTION A
Indices No. Input Name Input Percentage
The adjustment to the Payment Certificates in respect of
……………………. ……………………. …………………….
Changes in Cost and Legislation shall be determined from
……………………. ……………………. ……………………. following formula:
……………………. ……………………. …………………….
……………………. ……………………. ……………………. F= 0.966 (V – Vna)  Px (1xc - 1xb)
Total 90% 100 All inputs 1xb
Where:
F = price adjustment for the period concerned
Non adjustable element shall be: V = current valuation of work done for the period.
BOQ Item Numbers : ..............., ............, ............., ............., Vna = value of non adjustable element, or value of work
............, ..........., ..........., .........., ..... not considered for price variation.
Px = input percentage of input named X.
1xc = current indices of input X.
81 1xb = base indices of input X. 82

Clause 10.10 of Schedule is shown below;

Clause 10.10 The Contract [specify “is” or “is not”] subject to price adjustment in
OPTION B accordance with Sub-Clause 10.10 of the Conditions of Contract
Price
Adjustment The price adjustment shall be computed in accordance with Option14
The adjustment to the Payment Certificates in respect of
[specify “A” or “B”] under Sub-Clause 10.10.
Changes in Cost and Legislation shall be determined from
following formula : Non adjustable element shall be:
BOQ Item Numbers : ..............., ............, ............., ............., ............,
..........., ..........., .........., .....
F = 0.869 (V – Vna) * (1tc - 1tb)
1tb OPTION A ;
Where: Weightings of Inputs
Indices No. Input Name Input Percentage
F = price adjustment for the period concerned ……………………. ……………………. …………………….
V = current valuation of work done for the period. ……………………. ……………………. …………………….
Vna = value of non adjustable element, or value of work not ……………………. ……………………. …………………….
Total 90%
considered for price variation.
1tc = current indices for type of construction work OPTION B:
1tb = base indices of type of construction work Type of Construction :
................................................................................
foot note
14 For contracts estimated to cost Rs. 10m or more specify Option A; and for
83 contracts not exceeding Rs. 10m specify Option B. 84

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