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Price adjustment and escalation
The document discusses price adjustment and escalation clauses that are commonly used in construction contracts in India. It provides the following key points: - WPI (Wholesale Price Index) is used for goods, while CPI (Consumer Price Index) can be used for both goods and services. - Price adjustment formulas use indices with suffixes - O for base index and I for current index. - Components like cement, fuel (POL), and labor have separate adjustment formulas based on relevant price indices from sources like the Ministry of Commerce. - Examples are provided for calculating price escalation for cement using consumption quantities and cost indices from different months. - An overview of escalation clauses used by government
Price adjustment and escalation
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- 2. WPI (Whole Sale Price Index) Is applicable only on Goods CPI(Cost Price Index) Is applicable for both Goods and Services
- 3. • Overhead andProfit are presumably taken as ineligible Last date of that calendar month,which date preceedes the Bid due date by at least 28 days Interim Payment Certificate Base Index Current Index for 3 month prior to month to which IPC relates Project Index Overview Any Alphabet with suffix O is known as base index in price adjustment formula Any Alphabet with suffix I is known as Current index in price adjustment formula
- 4. Adjustment for ‘Cement’component: Adjustment for 'POL' (fuel and lubricant) component: Adjustment for 'labour' component: consumer price index for industrial workers for the State for the month under consideration as published by Labour Bureau, Ministry of Labour, Reserve Bank of India,Ministry Of Commerce and Industry wholesale price index for material is released on 14th of every month (next working day, if 14th is holiday), as published by the Ministry of Industrial Development, Reserve Bank of India The official retail price of HSD at the existing Consumer pumps at nearest depot centre oil the 15th day of the month under consideration., Indian Oil Corporation Some CPWD formula for price adjustment
- 6. Cement Escalation Example Sl.No. Bill date Theoretical Consumption of cement in MT (qc) Total quantity of cement Cost Index (CI) for Average Cost Index/Ap plicable cost index (CI) CIo Variation in cement Cost in Rs. Vc=PcXQcX(CI- CIo)/CIo RemarksBill Under Consideratio n Month Quantity Cumulativ e Quantity Month Cost Index for this month 1 2 1st R.A Bill May-18 9.50 9.50 Mar-18 45.00 45.00 Mar-18 101.79 101.79 80.36 11400 Total qty. 45 MT Received in March 2016 & consumed in March 2016 = 9.50 MT. Balance qty. 35.50 MT c/f in next bill Month of Base Price of cement (Pc) : 4500 (June-2015) 4500x9.5x(101.79- 80.36)/80.36
- 7. Overview of theescalation clauses presently used in construction contracts adopted by various government departments / agencies in India
- 8. Escalation formulae usedin construction contracts adopted by various government departments/ agencies in India
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