PART IV. BIBLIOGRAFIA
Taula 4.4. Relació de dimensions, blocs d’indicadors i indicadors
If, after the date 28 days prior to the latest date for submission of tenders for the Contract there occur in the country in which the Works are being or are to be executed changes to any National or State Statute, Ordinance, Decree or other Law or any regulation or bye-law of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or bye-law which causes additional or reduced cost to the Contractor, other than under Sub-Clause 70.1, in the execution of the Contract, such additional or reduced cost shall, after due consultation with the Employer and the Contractor, be determined by the Engineer and shall be added to or deducted from the Contract Price and the Engineer shall notify the Contractor accordingly, with a copy to the Employer.
Modifications
The modifications being introduced to Sub-Clause 70.2 can be summarized in the following table:
Modification
Selection
Criteria
Sources Total A d o p tion Organizati o n 1 Organizati o n 2 Organizati o n 3 Organizati o n 4 Organizati o n 5 Organizati o n 6 Organizati o n 7 Majority MRI = 3 (previously considered) 3 3 3 3 3 3 3Modification Description Organizations Adoption
Delete and replace this Sub-Clause
by fixing the Project Cost X X X X X 5
Delete this Sub-Clause X X 2
From the above table, all seven organizations introduced major modification to this sub- Clause. Five of the seven organizations consider fixing the Contract Price. Accordingly, the modification being put into further analysis considers the same.
Modifications to be analyzed
Delete the text of sub-Clause 70.2 and substitute with the following:
The Contract Price shall not be subject to any adjustment in respect of rise or fall in the cost of labour, materials or any other matters affecting the cost of execution of the Contract. The Employer shall not be liable for any fluctuation in the exchange rate
of any currency. The Employer shall not be liable for any fluctuation in the exchange rate of any currency.
A. Why the specific modification is being introduced?
The semi structured interview highlighted that the governing reason behind the said modification is to ensure that the Employer is absolved from any events and contractual grounds that may impact the Contract Price. In agreement, Responder O3 recorded that “Contract Price should not change”
B. What are the implications of such modification?
Throughout the semi structured interviews the following impacts were recorded:
The Contactor is unable to foresee the risk of cost increases that may transpire during the Contract period when such clause is deleted such as under this modification. A Price adjustment may indeed be required due to new government regulations that may, as an example, prohibit the importation of labor from certain country which would in turn force the Contractor to look somewhere else such as in other more expensive choices.
A Price adjustment may also arise as a result of the increase in visa fees imposed by the government or the fees for work permits.
Contractor would aim to recover his loss thru increasing his prices on Variations.
Contractor may employ cheaper labor or lower cost material to absorb his higher expenses, thus impacting the efficiency and the quality of the Works.
Contractor reduces the number of labor resources to cover for the increased costs and use the common excuse “unavailability of labor in the market”. This act will in turn impact the Finish date of the Works.
Contractor declares insolvency as a result of the excessive price adjustment that he is unable to bear.
Or simply, to circumvent the impact of such modification risk, the Contractor will increase his bid price along with the rest of the bidders to ensure that such risk is covered for. The recorded average impact on project cost from the seven organizations is around one percent 1.00 % increase in the tender price. Hence, the Employer will end up paying a higher price that may have been unnecessary since the regulation or price increases never transpired during the execution of the Works. In other words, bidders are likely to include this risk in their bid price, thus transferring the consequence of the cost increase onto the Employer despite that such increase
may never transpire during the Contract period. This means that the modification may cause an additional cost to the Employer that would not have arisen had the original clause been left intact.
C. What consequences of the modifications can be drawn?
In addition to the above cost impact, the main conclusion reached about this modification as a result from the semi-structured interviews is that this modification is a source of claim since a Contractor may claim for a price adjustment noting the peculiarity of the regulation which the Contractor may argue that it could not have been foreseen even after agreeing to such term. Hence, Contractor argues that the price adjustment applies under sub- clause 53.1 ‘Notwithstanding any other provision of the Contract…’ and therefore the effect of sub-clause. 70.2 may not override the provision of sub-clause 53.1. Therefore, the Contractor would submit a claim anyway for his unforeseen increased costs.
D. Any other proposition/ recommendation concerning the modifications being witnessed
The semi-structured interviews resulted in recommending to maintain the provision that allows the Contractor or yet the Employer to revisit the Contract Price. A case in point is if the material market cost is reduced as a result of say reduced oil prices which would allow the Employer to request the Engineer to provide his determination in this regard which may in turn result in a downward Price adjustment. Therefore, deleting such provision can deprive the Employer from claiming for such reduction.
E. Benchmarking the Sub-Clause Modification
The Guide to the use of this Standard Form in relation to Sub-Clause 70.2 considers that “
If contractors do not have to allow for price variations when preparing their
tenders, the
Employer will receive better and more competitive offers from reputablecontractors, and
will only have to meet such net variations in cost as actually occur”.
Hence the introduction of this modification does not allow for competitive offers, and impose an additional cost to the Employer that could be avoided given no change in Subsequent Legislation.F. Conclusion(s) about the Modification
As proven from the above analysis, this modification is not recommended as it transfers an unmanageable risk onto the Contractor which the Contractor will try to resist and escape in the ways mentioned in the previous section.
Proposed Modification- Guideline(s) for this sub-Clause
5.20 Analysis of Major Modification Number 19