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PRICE ADJUSTMENT

PRICE ADJUSTMENT. G.C. Tallur (Former Secretary, PWD) Advisor, IDS Cell Tuesday, July 12, 2005. Price Adjustment - Objectives. Reduce unforeseeable risks for contractors when preparing tenders; Safeguard the Employer against speculative weighting of tender prices;

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PRICE ADJUSTMENT

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  1. PRICE ADJUSTMENT G.C. Tallur(Former Secretary, PWD)Advisor, IDS Cell Tuesday, July 12, 2005 Advisor, IDS Cell

  2. Price Adjustment - Objectives • 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. Advisor, IDS Cell

  3. 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; Advisor, IDS Cell

  4. Price Adjustment – Existing Provisions • No provision in the KPWD Code; KTPP Act and Rules; • Clause 44 of KPWD tender document PWG-65 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; Advisor, IDS Cell

  5. 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; Advisor, IDS Cell

  6. 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; Advisor, IDS Cell

  7. 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; Advisor, IDS Cell

  8. 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 Advisor, IDS Cell

  9. 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. Advisor, IDS Cell

  10. 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. Advisor, IDS Cell

  11. 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. Lo = 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) Li = Average CPI for industrial workers for B’lore / Belgaum / Hubli / Mercara for the quarter(Labour Bureau, Ministry of Labour, GOI) PL = Percentage of labour component of the work Advisor, IDS Cell

  12. 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 Advisor, IDS Cell

  13. 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. So = 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) Si = The all India average WPI for steel (M.S. Bars and rods) for the quarter (Economic Advisor, Ministry of Commerce and Industry, GOI) PS = Percentage of steel component of the work Advisor, IDS Cell

  14. 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. Bo = The official retail price of bitumen at the IOC/HPCL/BPL or other depot at (nearest locations) 30 days before opening of Bids Bi = 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 PB = Percentage of Bitumen in the work Advisor, IDS Cell

  15. 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. Fo = The official retail price of HSD at the IOC/HPCL/BPL or other consumer pump at (nearest) 30 days before opening of Bids Fi = 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 PF = Percentage of Fuel & Lubricant in the work Advisor, IDS Cell

  16. 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. Po = 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) Pi = The all India average WPI for Heavy machinery and parts for the quarter (Economic Advisor, Ministry of Commerce and Industry, GOI) PP = Percentage of Plant and Machinery Spares component of the work Advisor, IDS Cell

  17. 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 Advisor, IDS Cell

  18. Percentages to govern the price adjustment for the Contract13 1. Labour – PL ….%2. Cement – PC ….%3. Steel – PS ….%4. Bitumen – PB ….%5. Fuel & Lubricants – PF14 ….%6. Plant & Machinery Spares – PP15 ….%7. Other materials – PM ….%Total 100%16 Note: 13 : Add / delete / change components as needed14 : May vary from 5% for normal to 10% for highly mechanized works15 : May vary from 15% for normal to 30% for highly mechanized works16 : Total should be 100 Advisor, IDS Cell

  19. THANK YOU Advisor, IDS Cell

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