Download Price Adjustment

PRICE ADJUSTMENT
G.C. Tallur
(Former Secretary, PWD)
Advisor, IDS Cell
Tuesday, July 12, 2005
12-07-2005
Advisor, IDS Cell
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Price Adjustment - Objectives




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Reduce unforeseeable risks for contractors when
preparing tenders;
Safeguard the Employer against speculative
weighting of tender prices;
Reduce claims/litigations from contractors for
increase in cost of inputs during execution of work;
Reduce subjectivity in sanction of claims and
introduce transparency;
Compensate the contractor in a reasonable amount
for increases in the prices of inputs in a transparent
manner during execution of contract and at the same
time benefit the Employer for any possible decreases
in the prices of inputs.
12-07-2005
Advisor, IDS Cell
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Price Adjustment – Factors which
determine the insertion of PA Clause

The period of completion and the accuracy
with which the rate of inflation (and
consequently the prices of labour and
materials) could be judged and tender prices
quoted by the tenderer;
 The availability of indices and the labour
involved in the computations due to insertion
of PA Clause;
 The competence of the officers who are in
charge of execution of the work and hence
implement the PA Clause;
12-07-2005
Advisor, IDS Cell
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Price Adjustment – Existing
Provisions
No provision in the KPWD Code; KTPP Act
and Rules;
Clause 44 of KPWD tender document PWG65 provides for PA;
Clause applicable only for contracts where:
The stipulated period of completion is more than
two years;
The tendered cost of the work exceeds:
Rs. 5 M in case of communication and building works;
Rs. 10 M in case of Irrigation works;
12-07-2005
Advisor, IDS Cell
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Price Adjustment – Existing
Provisions (contd)

The amount payable to the contractor and
valued at the rates specified in Schedule B
attached to the contract shall be increased or
decreased in accordance with the rise or fall
in the indexed costs of labour, materials,
fuel,lubricants, electricity and other inputs to
the works as determined by the formulae as
prescribed in this Clause;
12-07-2005
Advisor, IDS Cell
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Price Adjustment – Existing
Provisions (contd)

PA shall not be applicable on the value of the
work carried out during the initial 12 months
of contract period;
 PA shall not be applicable to additional,
altered, or substituted items of work or extra
quantities executed by the contractor in
respect of which rates are computed on the
basis of SOR or market rates etc. prevailing
at the time of execution of such
items/quantities are payable in terms of
Clause 13 of Conditions of Contract;
12-07-2005
Advisor, IDS Cell
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Price Adjustment – Existing
Provisions (contd)

PA shall apply only for work carried out within
the stipulated time including time extension
granted by EE and shall not apply to the work
carried out beyond the stipulated time for
reasons attributable to the contractor;
 PA shall be applicable on the value of the
work done during each quarter period of the
year;
 Cost of materials supplied by the government
at fixed prices shall be excluded from the
scope of PA;
12-07-2005
Advisor, IDS Cell
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Price Adjustment – Existing
Provisions (contd)

Compensation factor in the PA formulae is
0.75;
 Contractor
to
indicate
appropriate
index/publication of the government or public
organization;
 PA components (Labour, Materials, Fuels)
expressed as percentage of total value of
work done for the purpose of sub-criteria is to
be given in the TD
12-07-2005
Advisor, IDS Cell
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Revised Provision of Price
Adjustment (PA)

G.O. No. FD 59 PRO.CELL 2004, dated
26-11-2004 issued.
 PA for all works of whose amount put to
tender (APT) is Rs. 100 lakhs or above and
period of completion 12 months or more.
 PA admissible from the date of opening of
tenders (original or extended).
 No PA for goods & equipment.
 For cables, transformers, generators and
motors PA to be included with approval of
HOD / MD.
12-07-2005
Advisor, IDS Cell
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Revised Provision of Price
Adjustment (PA) (Contd..)

PA applicable from commencement to end of
period of work or extension granted.
 PA to be determined each quarter.
 R = Total value of work done during the
quarter. It includes advance for materials
paid during the quarter.
Less advance
recovered during the quarter. It excludes
work done under variations for which PA (if
any) to be worked out as agreed.
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Advisor, IDS Cell
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PA for Labour Component
VL=
0.85 X PL / 100 X R X (Li – Lo) / Lo Where,
VL =
Change in cost of work during the quarter due to
changes in labour rates.
Average CPI for industrial workers for B’lore /
Belgaum / Hubli / Mercara for the quarter
preceding opening date of tenders (Labour
Bureau, Ministry of Labour, GOI)
Average CPI for industrial workers for B’lore /
Belgaum / Hubli / Mercara for the quarter(Labour
Bureau, Ministry of Labour, GOI)
Percentage of labour component of the work
Lo =
Li =
PL =
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Advisor, IDS Cell
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PA for Cement Component
VC=
0.85 X PC / 100 X R X (Ci – Co) / Co, Where,
VC = Change in cost of work during the quarter due to
changes in cement rate.
Co = The all India average WPI for OPC (Grade may
be changed) for the quarter preceding opening
date of tenders (Economic Advisor, Ministry of
Commerce and Industry, GOI)
Ci =
The all India average WPI for OPC for the
quarter (Economic Advisor, Ministry of
Commerce and Industry, GOI)
PC = Percentage of cement component of the work
12-07-2005
Advisor, IDS Cell
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PA for Steel Component
VS=
0.85 X PS / 100 X R X (Si – So) / So, Where,
VS =
Change in cost of work during the quarter due to
changes in steel rate.
The all India average WPI for steel (M.S. Bars
and rods) for the quarter preceding opening
date of Bids (Economic Advisor, Ministry of
Commerce and Industry, GOI)
The all India average WPI for steel (M.S. Bars
and rods) for the quarter (Economic Advisor,
Ministry of Commerce and Industry, GOI)
Percentage of steel component of the work
So =
Si =
PS =
12-07-2005
Advisor, IDS Cell
13
PA for Bitumen Component
VB=
0.85 X PB / 100 X R X (Bi – Bo) / Bo, Where,
VB =
Change in cost of work during the quarter due to
changes in bitumen rate.
The official retail price of bitumen at the
IOC/HPCL/BPL or other depot at (nearest
locations) 30 days before opening of Bids
The official retail price of bitumen at the
IOC/HPCL/BPL or other depot at (nearest
locations) for the 15th day of the middle calendar
month of the quarter
Percentage of Bitumen in the work
Bo =
Bi =
PB =
12-07-2005
Advisor, IDS Cell
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PA for Fuel & Lubricant
Component
VF=
0.85 X PF / 100 X R X (Fi – Fo) / Fo, Where,
VF =
Change in cost of work during the quarter due to
changes in Fuel & Lubricants rates.
The official retail price of HSD at the
IOC/HPCL/BPL or other consumer pump at
(nearest) 30 days before opening of Bids
The official retail price of HSD at the
IOC/HPCL/BPL or other consumer pump at
(nearest) for the 15th day of the middle calendar
month of the quarter
Percentage of Fuel & Lubricant in the work
Fo =
Fi =
PF =
12-07-2005
Advisor, IDS Cell
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PA for Plant and Machinery
Spares Component
VP=
0.85 X PP / 100 X R X (Pi – Po) / Po, Where,
VP =
Change in cost of work during the quarter due to
changes in plant and machinery spares rates.
The all India average WPI for Heavy machinery
and parts for the quarter preceding opening
date of Bids (Economic Advisor, Ministry of
Commerce and Industry, GOI)
The all India average WPI for Heavy machinery
and parts for the quarter (Economic Advisor,
Ministry of Commerce and Industry, GOI)
Percentage of Plant and Machinery Spares
component of the work
Po =
Pi =
PP =
12-07-2005
Advisor, IDS Cell
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PA for Other materials
VM=
0.85 X PM / 100 X R X (Mi – Mo) / Mo, Where,
VM = Change in cost of work during the quarter due to
changes in the rates for local materials other
than cement, steel, bitumen & Fuel & Lubricants
Mo = The all India average WPI for all commodities for
the quarter preceding opening date of Bids
(Economic Advisor, Ministry of Commerce and
Industry, GOI)
Mi = The all India average WPI for all commodities for
the quarter (Economic Advisor, Ministry of
Commerce and Industry, GOI)
PM = Percentage of other material component (other
than cement, steel, bitumen & Fuel & Lubricants)
of the work
12-07-2005
Advisor, IDS Cell
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Percentages to govern the price
adjustment for the Contract13
1.
2.
3.
4.
5.
6.
7.
Labour – PL
Cement – PC
Steel – PS
Bitumen – PB
Fuel & Lubricants – PF14
Plant & Machinery Spares – PP15
Other materials – PM
Total
….%
….%
….%
….%
….%
….%
….%
100%16
Note:
13 : Add / delete / change components as needed
14 : May vary from 5% for normal to 10% for highly
mechanized works
15 : May vary from 15% for normal to 30% for highly
mechanized works
16 : Total should be 100
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Advisor, IDS Cell
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Advisor, IDS Cell
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