189

APPENDIX 1

QUESTIONNAIRE SURVEY

QUESTIONNAIRE SURVEY ON ANALYSIS OF COST ESCALATION

IN INDIAN CONSTRUCTION INDUSTRY

M. Ramachandran, Research Scholar, Structural Engineering Division, Dept.

of Civil Engineering, Anna University, Chennai – 600 025

Introduction

In India, Construction Industry has a key role to play in both

economic growth and poverty reduction. This industry consumes about 40 to
50% of the national five year plan outlay and contributes to nearly 20% of
GDP. The construction Industry in India is the second largest industry, next to
agriculture in terms of employment. Constructed facilities often take a long
time, some times a few years, to complete. Continuous increases in the cost of
materials and cost of labour have raised serious problems on the efficacy of
works contracts. In India, the performance record in successful implementing
of infrastructure projects in India has not been encouraging. Cost escalation is
part and parcel of the construction projects in India. Hence, thus identification
and evaluation of factors affecting cost escalation in building construction
projects in India becomes necessary for undertaking a systematic study.
 190

The primary goal of the present questionnaire is to identify the most

significant factors and factor categories affecting cost overrun and cost
escalation in building construction projects and identify the type of problems
posed by cost escalation payment in the building construction contracts in
India. We recognize that you are a professional with rich experience in
construction industry and your responses will be very valuable for this study.

Confidentiality

We guarantee confidentiality of all the responses and will use them

only for research proposes. Individuals (respondents) will not revealed or
identified in the report.

PART- A

Personal Data (about the respondent)

A1 Name : ________________________________

A2 Designation : ________________________________

A3 Name of the organization : ________________________________

with full address and ________________________________
Phone No. ________________________________
________________________________
A4 Experience in handling : ________________________________
contract works (in
years)
A5 e-mail id ________________________________

A6 Type of contracts mostly handled (Tick the appropriate box)

 CPWD forms of contract  MES forms of contract

 Others (Please specify) __________________________________

 191

Organizational Data (About your organization)

A7 Status (Tick the appropriate box)

Owner Contractor Architect

Engineering Consultant Others (Please specify)

A8 Please give extent of your participation in Indian building projects

(Tick the appropriate box)

Very high (>20 projects) High (15-20 projects)

Moderate (10-15 Projects) Low (< 5projects)

A9 How old is your organization. (Tick the appropriate box)

Less than 5 years 5-10 years 10-20 years

More than 20 years

Project Data

Please respond to the questions given below with reference to the projects
executed by your organization in the last three years

A10 Cost of average individual work /project

 Less than Rs.50 Lakhs  Rs.50 Lakhs to 1.0 Crore

 Rs.1.0 to 5.0 Crores  Rs.5.0 to 10.0 Crores
 10 to 25.0 Crores  More than 25 Crores

A11 Period of completion of average individual work as given in the

tender, in months

 Less than 6 months  6 to 12 months  12 to 24 months

 24 to 36 months  More than 36 months
 192

Please indicate your response based on your overall project

experience
Disagree Agree

Moderately

Moderately
Strongly

Strongly
Slightly

Slightly
Neutral
Question

A12 Cost escalation has a major

impact on the quality of the
project produced
A13 Cost escalation has a major
impact on the project completion
time
A14 Cost escalation is a major source
of dispute
A15 There is a need to improve the
existing escalation clause in
Indian contracts

PART-B

In India, Cost over runs are common in construction projects. To

identify and evaluate the causes of cost escalation, factors relating to the
various participants involved in project execution have been identified and
categorized under Client, Architect, Structural Engineer, Contractor, and
External factor. The factors were identified under each category. Please
indicate your response based on your experience in handling of construction
project.

Very Very
low medium high
low high
Client – related factors
B1 Number of change / extra
work orders
B2 Slow decision making
B3 Delay in contract award
B4 Delay in handing over of site
 193

Very Very
low medium high
low high
B5 Unrealistic schedule
B6 Cash flow during construction
Architect related factors
B7 Deficiencies in cost estimate
and specification prepared
B8 Incomplete Architectural
drawings
B9 Delay in work approval
B10 Variation orders
B11 Poor information and
dissemination
B12 Inadequate supervision
Structural Engineer –
related factors
B13 Incomplete structural
drawings
B14 Structural design variations
B15 Inadequate supervision
B16 Late issuance of instruction
B17 Poor services and design
information
Contractor – related factors
B18 Planning and scheduling
deficiencies
B19 Non-availability of sufficient
professionals and Managers
B20 Non-availability of sufficient
amount of skilled labour
B21 Financial difficulties
B22 Low bid
B23 Lack of coordination between
project participants
 194

Very Very
low medium high
low high
External factors
B24 Bad weather
B25 Strike
B26 Productivity
B27 Environmental impact
B28 Site conditions
B29 Price escalation

B30 Various participants are involved in project execution such as Client,

Architect, Structural Engineer and Contractor..In addition there are
various external factors. According to you, which of the most
important participants in the project is responsible for delays and cost
over runs? Compare your preference pair wise and tick below.
Pairwise Comparation scale (to be used for all pair wise Analytic
Hierarchy Process (AHP) responses that follows)

Numeric
Verbal Scale Explanation
value
1 Equal important to both elements Two elements contribute
equally
3 One is moderately more important Experience and judgement
favor
5 One is strongly more important Strong favor
7 Very strong importance over the Very strong dominance
other
9 Extreme importance over the other Indisputable dominance
2,4,6,8 Intermediate values Compromise between two
levels
 195

Example: If I strongly prefer chemistry over physics, then the rating

according to this pair wise is indicated below:

Physics 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Chemistry
Chemistry is strongly preferred than Physics

Client 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Architect

Client 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Structural
Engineer

Client 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Contractor

Client 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 External
factor

Architect 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Structural
Engineer

Architect 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Contractor

Architect 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 External
factor

Structural 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Contractor
Engineer

Structural 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 External
Engineer factor

Contractor 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 External
factor

B31 What is most important participants in the projects that causes of

cost over run? Please rank them from 1 to 6

1 Client
2 Architect
3 Structural Engineer
4 Contractor
5 External factor
 196

PART-C

To identify and evaluate the significant factors contributing to cost

escalation in building construction projects. Factors related to major material
components (Cement, Steel, Brick, Sand, Stone Aggregate and Timber) have
been identified and are listed given in Table. Please indicate your response
from 1 to 5 point scale based on your experience in handling of building
construction project in India.

Very Very
Low Medium High
Label low high
1 2 3 4 5
C1 Inflation
C2 Exchange Rates
C3 Environmental
Protection Cost
C4 Freight and
Transportation Cost
C5 Demand and
Supply
C6 Government
Polices and
Reguations
C7 Taxes
C8 Interest Rate
C9 Power Tariff
C10 Raw Material Input
Cost
C11 Labour Cost
C12 Technology
Upgradation Cost
C13 Price Increase by
the Manufacturer
Considering
Market Condition
 197

C14 Continuous increase in the prices of material has raised serious

problem on the efficacy of works contracts. To identify and evaluate
the potential factors that contribute to cost escalation, major cost
components of project has been identified. According to you, which
are the most important component that is responsible for cost
escalation in a project? (Compare your preference pair wise and tick
below)

Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Steel

Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Brick

Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Sand

Coarse
Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9
aggregate

Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

Steel 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Brick

Steel 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Sand

Coarse
Steel 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9
aggregate

Steel 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

Brick 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Sand

Coarse
Brick 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9
aggregate

Brick 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

Coarse
Sand 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9
aggregates

Sand 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

Coarse aggregates 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

 198

C15 Rate the following based on their impact on cost escalation in

building Please rank them from 1 to 6(1 is maximum contribution)

1 Cement
2 Steel
3 Brick
4 Sand
5 Coarse aggregates
6 Timber

PART –D

D1 The questions below are related to the escalation clauses used in the
construction contracts in India. Please give your response with
respect to the escalation clause that you have work experience with.
My responses are with respect to the following escalation clause:

 CPWD  MES

 Others (please attach a sheet giving the clause or please write the
clause in the space below)

What extent does the

Less than 50%

compensation as per the

More than
90-100%
50-60%

60-70%

70-80%

80-90%

100%
existing price escalation clause
reflect the ACTUAL price
escalation for the following
components :
D2 Cement
D3 Steel
D4 Other Materials /Materials
D5 Labour
D6 POL
 199

Very Low

Very high
Medium
High
Low
D7 Satisfaction level with regard to Time for
consideration of escalation clause in the
contract
D8 Satisfaction level of escalation clause in
the contract

D9 In your opinion give the appropriate time for consideration of

escalation clause in the contract based on your project experience.

 More than 3 months  More than 6 months

 More than 12 months  More than 18 months
 All projects irrespective of time  Others(please specify)

Please indicate your response based on your overall project experience

Disagree Agree
Strongly

Strongly
Moderat

Moderat
Slightly

Slightly
Neutral
ely

ely

1 2 3 4 5 6 7
D10 WPI is not suitable
for calculating
compensation for
escalation of the
contruction projects
D11 Building cost index
is more appropriate
index for
calculating
escalation payment
for the construction
projects
 200

D11 Please give the appropriate values for coefficients used in the
escalation formula for cement, steel, material, labour and POL, which
denote their percentage contribution in terms of costs of the over all
work based on your project experience.

You may take any FOUR construction projects you have recently
executed.

Details of project Cement Steel Material Labour POL

(1) (2) (3) (4) (5) (6)
1
% % % % %
2
% % % % %
3
% % % % %
4
% % % % %

D12 What are the factors influencing the rise in price of construction
materials like steel, cement, bricks, coarse aggregate and sand?

_________________________________________________________

_________________________________________________________

_________________________________________________________

_________________________________________________________

D13 What are your suggestions for controlling the price of construction
materials like steel, cement, bricks, coarse aggregate and sand ?

_________________________________________________________

_________________________________________________________

_________________________________________________________

_________________________________________________________
 201

D14 What are the factors influencing the increase in wages of labours?

_________________________________________________________

_________________________________________________________

_________________________________________________________

_________________________________________________________

D15 What are your suggestions for controlling the price of labours?

_________________________________________________________

_________________________________________________________

_________________________________________________________

_________________________________________________________

D16 Do you wish to give any suggestion with regard to cost escalation
clause to improve satisfaction levels of both owner and contractor?

_________________________________________________________

_________________________________________________________

_________________________________________________________

_________________________________________________________

THANK YOU VERY MUCH FOR YOUR VALUABLE CONTRIBUTION

TO OUR STUDY
 202

DEFINITION

Cost escalation Cost escalation in building construction used in the

context of this study, is the increase in the cost of any
construction elements of the original contract or base
cost of the a project due to passage of time.

Cost Overrun Cost overrun in building construction used in the

context of this study, is the increase in the cost of a
project due to factors affecting the original cost
estimate and final cost of a project.

Escalation The total annual rate of increase in cost of the work or

its sub-elements. The escalation rate includes the
effects of inflation plus market conditions and other
similar factors. .

Market Market conditions are the consequence of supply and

Conditions demand factors which determine prices and quantities
in a market economy and which are separate from
inflation.

Market conditions include things like: competitive

environment during bidding and contracting; the labor
market; resource availability; etc

Inflation A persistent tendency for prices and money wages to

increase. Inflation is measured by the proportional
changes over time in some appropriate price index .. ;
A dictionary of Economics.John Black. Oxford
University Press, 2002.

An increase in the volume of money and credit relative

to available goods and services resulting in a
continuing rise in the general price level; Merriam –
Webster/online
 203

APPENDIX 2

ESCALATION CLAUSES USED IN CONSTRUCTION

CONTRACT IN INDIA

CENTRAL PUBLIC WORKS DEPARTMENT WORKS

PRICE VARIATION CLAUSE

CLAUSE10C: Payment on Account of Increase in Prices / Wages

due to Statutory Order (s)

If after submission of the tender, the price of any material

incorporated in the works (not being a material supplied from the Engineer -
in-Charge 's stores in accordance with Clause 10 thereof) and/or wages of
labour increases as a direct result of the coming into force of any fresh law, or
statutory rule or order (but not due to any changes in sales tax / VAT) and
such increase in the price and/or wages prevailing at the time of the last
stipulated date for receipt of the tenders including extensions if any for the
work, and the contractor thereupon necessarily and properly pays in respect of
that material (incorporated in the works) such increased price and/or in
respect of labour engaged on the execution of the work such increased wages,
then the amount of the contract shall accordingly be varied and provided
further that any such increase shall not be payable if such increase has become
operative after the stipulated date of completion of the work in question.
 204

If after submission of the tender, the price bf any material

incorporated in the works (not being a material supplied from the Engineer-
in-Charge's stores in accordance with Clause 10 thereof) and/or wages of
labour is decreased as a direct result of the coming into force of any fresh law
or statutory rules or order (but not due to any changes in sales tax/VAT) and
such decrease in the prices and/or wages prevailing at the time of receipt of
the tender for the work. Government shall in respect of materials 'incorporated
in the works (not being materials supplied from the Engineer-in-charge’s
stores in accordance with Clause / hereof) and/or labour engaged the date of
coming into force of such law statutory rule or order be entitled to deduct
from the dues of the contractor, such amount as shall be equivalent to the
difference between the prices of the materials and/or wages as prevailed at the
time of the last stipulated date for receipt of tenders including extensions if
any for the work and the prices of materials and/or wages of labour on the
coming into force of such law, statutory rule of order.

The contractor shall, for the purpose of this condition, keep such
books of account and other documents as are necessary to show the amount of
any increase claimed for reduction available and shall allow inspection of the
same by a duly authorized representative of the Government, and further
shall, at the request of the Engineer-in-charge may require any documents so
kept and such other information as the Engineer-in-charge may require.

The contractor shall, within a reasonable time of his becoming

aware of any alteration in the price of any such materials and/or wages of
labour/give notice thereof to the Engineer-in Charge stating that the same is
given pursuant to this condition together with all information relating thereto
which he may, be in position to supply.

CLAUSE 10 CA : Payment due to variation in prices of materials

after receipt of tender.
 205

If after submission of the tender, the price of materials specified in

Schedule F increases/ decreases beyond the price(s) prevailing at the time of
the last stipulated date for receipt of tenders (including extensions, if any) for
the work, then the amount of the contract shall accordingly be varied and
provided further that any such variations shall be effected for stipulated
period of Contract including the justified period extended under the
provisions of Clause 5 of the Contract without any action under Clause 2.

However for work done/during the justified period extended as

above, it will be limited to indices prevailing at the time of stipulated date of
completion or as prevailing for the period under consideration, whichever is
less.

The increase/decrease in prices shall be determined by the All India

Wholesale Price Indices of Materials as published by Economic Advisor to
Government of India, Ministry of Commerce and Industry and base price for
materials as issued under the authority of Director General (Works), CPWD
as valid on the last stipulated date of receipt of tender, including extension if
any and for the period under consideration. In case, price index of a particular
material is not issued by Ministry of Commerce and Industry, then the price
index of nearest similar material as indicated in Schedule 'F' shall be
followed.

Payment due to Increase/Decrease In Prices/Wages after. Receipt of

Tender for Works

The amount of the contract shall accordingly be varied for all such
materials and will be worked out as per the formula given below for
individual material:-
 206

Adjustment for component of individual material

where, V = Variation in material cost i.e,' increase or decrease in the

amount in rupees to be paid or recovered.

P = Base Price of material as issued under authority of DG(W),

CPWD valid at the time of the last stipulated date of receipt
of tender including extensions, if any. ,

Q = Quantity of material used in the works since previous bill.

Cia = All India Wholesale Price Index for the material as

published by the Economic Advisor to Government of India,
Ministry of Industry and Commerce as valid on the last
stipulated date of receipt of tenders including extensions, if
any.

CI0 = All India Wholesale Price Index for the material for period
under consideration. 'as 'published by Economic advisor to
Government of India, Ministry of Industry and Commerce.

(In respect of the justified period extended under the provisions of

clause 5 of the contract without' any action under clause 2, the
index prevailing at the time stipulated date of completion or the
prevailing index of ,the period under consideration, whichever is
less, shall be considered.); .

Provided always that provisions of the preceding Clause 10C shall

not be applicable in respect of Materials covered in this Clause.
 207

CLAUSE 10 CC : Payment due to Increase / Decrease in Prices /

Wages after Receipt of Tender for works

If the prices of materials (not being materials supplied or services

rendered at fixed prices by the department in accordance with clause 10 and
34 thereof) and/or wages of labour required for execution of the work
increase: the contractor shall be compensated for such increase as per
provisions detailed below and the amount of the contract shall accordingly be
varied, subject to the condition that that such compensation for escalation in
prices and wages shall be available only for the work done during the
stipulated period of the contract including the justified period extended under
the provisions of clause 5 of the contract without any action under clause 2.
However, for the work done during the justified period extended as above, the
compensation as detailed below will be limited to prices/wages prevailing at
the time of stipulated date of completion or as prevailing for the period under
consideration, whichever is less. No such compensation shall be payable for a
work for which the stipulated period of completion is equal to or less than the
time as specified in Schedule F. Such compensation for escalation in the
prices of materials and labour, when due, shall be worked out based on the
following provisions:-

(i) The base date for working out such escalation shall be the last
stipulated date of receipt of tenders including extension, if any.

(ii) The cost of work on which escalation will be payable shall be

reckoned as below :

a) Gross value of work done upto this quarter: A.

b) Gross Value of work done upto the last quarter: B.
c) Gross value of work done since previous quarter (A-B): C.
d) Full assessed value of Secured Advance fresh paid in D.
this quarter:
 208

e) Full assessed value of Secured Advance recovered in E.

this quarter:
f) Full assessed value of Secured Advance for which F.
escalation is payable in this quarter (D-E)
g) Advance payment made during this quarter: G.
h) Advance payment recovered during this quarter: H.
i) Advance payment for which escalation is payable in I.
this quarter (G-H)
j) Extra Items/deviated quantities of items paid as per J.
Clause 12 based on - prevailing market rates during this
quarter:
Then, M = C + F + I - J
N = 0. 85 M
k) Less cost of material supplied by the department as per K.
Clause 10 and recovered during the quarter
l) Less cost of services rendered at fixed charges as per L.
Clause 34 and recovered during the quarter

Cost of work for-which escalation is applicable:

W = N-(K+L)

(iii) Components of cement. steel, materials, labour, P.OL, etc. shall be

pre-determined for every work and incorporated in the conditions
of contract attached to the tender papers included in Schedule 'E'.
The decision of the Engineer-in-Charge in working out such
percentage shall be binding on the contractors.
 209

(iv) The compensation foe escalation for cement, steel, materials and
P.O.L. shall be worked as per the formula given below:-

(a) Adjustment for component of 'Cement' '

Xc Cl  Cl 0
Vc  WX X
100 Cl 0

Vc = Variation in cement cost Le. increase or decrease in the

amount in rupees to be paid or recovered.

W = Cost of Work done worked out as indicated in sub-para

(ii) of Clause 10CC.

Xc = Component of cement expressed as percent of total value

of work.

CI = All India Wholesale Price Index for cement for the

period under consideration as published by the Economic
Advisor to Govt. of India, Ministry of Industry and
Commerce.

(In respect of the justified period extended under the provisions of

clause 5 of the contract without any action under clause 2, the index
prevailing at the time of stipulated date of completion or the
prevailing index of the period under consideration, whichever is
less, shall be considered.)

Clo = All India Wholesale Price Index for cement as published

by the Economic Advisor to Govt. of India, Ministry of
Industry and Commerce as valid on the last stipulated
dale of receipt of tenders including extensions, if any.
 210

(b) Adjustment for component of 'Steel'

Vs = Variation in steel cost i.e. increase or decrease in the

amount in rupees to be paid or recovered.

W = Cost of Work done worked out as indicated in sub-para (ii)

of Clause 10CC.

Xs = Component of steel expressed in percent to the total value

of work.

SI = All India Wholesale Price Index for steel (bars and rods)
for the period under consideration as published by
Economic Advisor to the Government of India, Ministry of
Industry and Commerce. However, the Price Index shall be
'-' minimum of the following:
(i) Index for the month when the last consignment of
steel reinforcement for the work is procured or
(ii) Index for the month in which half of the stipulated
contract period is over
(iii) Index for the period under consideration

For the justified period extended under the provisions of clause 5 of

the contract, without any action under clause 2-, the same principle as for the
period within stipulated period of completion, will apply.

SI0 = All India Wholesale Price Index for steel (bar and rods)
published by the Economic Advisor to Govt. of India, Ministry
of Industry and Commerce as valid on the last stipulated date of
receipt of tender including extension, if any.

(c) Adjustment for civil component (except cement and steel) /

electrical component of construction 'Materials'
 211

Xm MI  MI 0
Vm  Wx x
100 MI 0

Vm = Variation in material cost i.e. increase or decrease in the

amount in rupees to be paid or recovered.

W = Cost of Work done worked out as indicated in sub-para (ii)

of clause 10CC.

Xm = Component of 'materials' expressed as percent of the total

value of work.

MI = All India Wholesale Price Index for civil

component/electrical component* of construction material
as worked out on the basis of All India Wholesale Price
Index for Individual Commodities/Group Items for the
period under consideration as published by Economic
Advisor to Govt. of India, Ministry of Industry and
Commerce and applying weight ages to the Individual
Commodities/Group Items. (In respect of the justified
period extended under the provisions of clause 5 of the
contract without any action under clause 2, the index
prevailing at the time of stipulated date of completion or
the prevailing index of the period under consideration,
whichever is less, shall be considered.)

MI0 = All India Wholesale Price Index for civil

component/electrical component* of construction material
as worked out on the basis of All India Wholesale Price
Index for Individual Commodities/Group Items valid on
the last stipulated date of receipt of tender including
extension, if any, as published by the Economic Advisor to
Govt. of India, Ministry of Industry and Commerce and
 212

applying weight ages to the Individual Commodities/

Group Items.

*Note: relevant component only will be applicable.

(d) Adjustment for component of 'POL'

Z F1  F10
VF  Wx x
100 FI 0

VF = Variation in cost of Fuel, Oil and Lubricant i.e. increase

or decrease in the amount in rupees to be paid or
recovered.

W = Cost of Work done worked out as indicated in sub-para

(ii) of Clause 10CC.

Z = Component of Fuel, Oil and Lubricant expressed as

percent of the total value of work. '

FI = All India Wholesale Price Index for Fuel, Oil and

Lubricant for the period under conside~tio!1 as published
by Economic Advisor to Govt. of India, Ministry of
Industry and Commerce, New Delhi. (In respect of the
justified period extended under the provisions of clause 5
of the contract without , any action under Clause 2, the
Index prevailing at the time of stipulated date of
completion or the prevailing index of the period under ,
consideration, whichever is less ,shall be considered.)

Flo = All India Wholesale Price Index for Fuel, Oil and
Lubricant valid on, the last stip41ated date of receipt of
tender including extension, if any.
 213

(v) The following principles shall be followed while working out the
indices mentioned in para (iv) above.

(a) The compensation for escalation shall be worked out at quarterly

intervals and shall be with respect to the cost of work done as per
bills paid during the three calendar months of the said quarter. The
first such payment shall be made at the end of three months after
the month (excluding) in which the tender was accepted and
thereafter at three months' interval. At the time of completion of the
work, the last period for payment might become less than 3 months,
depending on the actual date of....completion.

(b) The index (MI/FI etc.) relevant to any quarter/period for which
such compensation is paid shall be the arithmetical average of the
indices relevant to the three calendar months. If tile period up to
date of completion after the quarter covered by the last such
installment of payment, is less than three months, the index MI and
FI shall be the average of the indices for the months falling within
that period.

(vi) The compensation for escalation for labour shall be worked out as
per the formula given below:-

Y LI  LI 0
VL  Wx x
100 LI 0

VL : Variation in labour cost i.e. amount of increase or decrease

in rupees to be paid or recovered. .

W : Value of work done, worked out as indicated in sub-para

(ii) above.

Y : Component of labour expressed as a percentage of the total

value of the work.
 214

LI : Minimum wage in rupees of an unskilled adult male

mazdoor, fixed under any law, statutory rule or order as
applicable on. the last date of the quarter previous to the
one under consideration. (In respect of the justified period
extended under the provisions of clause 5 of the contract
without any action under clause 2, the minimum wage
prevailing on the last date of quarter previous to the quarter
pertaining to stipulated date of Completion or the
minimum wage prevailing on the last date of the quarter
previous to the one under consideration, whichever is less,
shall be considered.)

LIo : Minimum daily wage in rupees of an unskilled adult male

mazdoor, fixed under any law, statutory rule or order as on
the last stipulated date of receipt of tender including
extension, if any. .

(vii) The following principles will be followed while working out the
compensation as per sub-para (vi) above. .

(a) The minimum wage of an unskilled male mazdoor mentioned in

sub-para (vi) above shall be the higher of the wage notified by
Government of India, Ministry of Labour and that notified by the
local administration both relevant to the place of work and the
period of reckoning.. .

(b) The escalation for labour also shall be paid at the same quarterly
intervals when escalation due to increase in cost of materials and/or
P.OL is paid under this clause. If such revision of minimum wages
takes place during any such quarterly intervals, the escalation
compensation shall be payable at revised rates only for work done
in subsequent quarters:
 215

(c) Irrespective of variations in minimum wages of any category of

labour, for the purpose of this clause, the variation in the rate for an
unskilled adult male mazdoor alone shall form the basis for
working out the escalation compensation payable on the labour
component.

(viii) In the event the price of materials and/or wages of labour required
for execution of the work decrease/s, there shall be a downward
adjustment of the cost of work so that such price of materials and/or
wages of labour shall be deductible from the cost of work under
this contract and in this regard the formula herein before stated
under this Clause 10CC shall mutatis mutandis apply, provided
that:

(a) no such adjustment for the decrease in the price of materials and/or
wages of labour aforementioned would be made in case of contracts
in which the stipulated period of completion of the work is equal to
or less than the time as specified in Schedule 'F'.

(b) the Engineer-in-Charge shall otherwise be entitled to lay down the

procedure by which the provision of this sub-clause shall be
implemented from time to time and the decision of the Engineer-in-
Charge in this behalf shall be final and binding on the contractor.

(ix) Provided always that the provision of the preceding clause 10C and
10 CA shall not be applicable for contracts where provisions of this
clause are applicable but in cases where provisions of this clause
are not applicable, the provisions of Clause 10C and 10 CA will
become applicable.
 216

MILITARY ENGINEERING SERVICES (MES)

PRICE VARIATION CLAUSE IN THE CONTRACT

REIMBURSEMENT REFUND ON VARIATION IN PRICE

Refer condition 63 of the General Condition of contracts (IAFW-

2249). Re-imbursement/refund on variation of prices. The condition 63 of the
General Conditions of contracts shall be deemed to be modified to the extend
mentioned hereinafter. Increase or decrease in prices of materials and fuel
shall be adjusted on the basis stipulated hereinafter irrespective of the actual
variation in prices (to the contractor):-

(a) Materials

The materials cost component including the cost of materials issued

under schedule 'n' in accordance with Condition 10 (D) of IAFW-2249, for
the contract as a whole shall be taken as KM % of the value of works
executed under the contract; value of KM given herein below :-

W1  W 0
E M  (Vm 2  VM 1) x
W0

(KM
VM  xVg )  (Vs  VB )
100

Variation in prices of materials shall be worked out by applying the

following formula;-

EM = Variation in prices of materials to be adjusted.

KM = Constant representing the percentage cost of materials

inducing schedule 'B' materials as compared to the total
 217

value of work under the contract as a whole the value of

KM for this work shall be 60 (Sixty) only.

Vg = Gross value of work done at contract rates upto the last

date of the last of the period of reckoning.

VS = Materials lying at site for incorporation in the work

including materials issued under Schedule B and including
brought and paid or payable to contractor under Prime
Cost Sum and or Star Rate (s)

VB = Value of all materials (out of Vg and Vs) issued schedule

'B' plus value of all materials brought and on payable
contractor under prime Cost Sum and/or Star Rate (s). .

WL = Whole sale price index for all commodities (base 1970-71-

100) published by Economic Adviser to the Govt of India,
as on the date of commencement of the period of
reckoning.

WO = As for W1 but the index as on the last due date for receipt
of the tender.

VM2 = Value of material upto the last date of the period of

reckoning for which price variation adjustable as worked
out as per formula for VM.

VM1 = -do- but as on the of immediate proceeding period of

reckoning.

Fuel :

Fuel cost component for the contract as a whole shall be taken as

KP % of the value of work.
 218

(Kp F1  FO
Ep  Vgl ) x
100 FO

Where, EP = Variation in price of fuel to be adjusted.

KP = Constant representing the percentage cost of fuel compared

to the total value of work under the contract as a whole.
The value of Kp for this work shall be 1 (One only)

* executed under the contract, value of Kp given herein

below :

Vg1 = Gross value of work done during the period of reckoning

using values of Vg for calculating VM 1 and VM 2 under
clauses XI (a) above.

F1 = Whole sale price index for sub group for fuel, power, light
and lubricants (Base 1970-71 = 100) published by
Economic Adviser to Govt of India as on the date of
commencement of the period of reckoning.

FO = As for F but the index as on the last due date for receipt of
tenders.

Notes :

1. No adjustment. whatsoever, due to variation in prices of materials and

fuel on account of coming into force of any fresh law of statutory rule
or order as provided in Condition 63 of JAFW-:2:!49 or otherwise than
provided in this condition shall be made.

2. Adjustment due to variation in wages of labour on account of coming

into force of any fresh law or statutory rule or order shall be made in
the manner and to the extent provided in Condition 63 of IAFW-2249.
 219

3. No adjustment in prices shall b:: made for any work done with material
brought at site after the due date 01 completion or extension of time
granted under Condition 11 of IAFW-2249 (whichever is later) for the
work under the contract.

4. Periodicity of working out the variations will be at three months. The

last calculation shall however be done for the value of work at contract
rates and materials lying at site for incorporation in the work _ as on
date of completion or extension thereof as mentioned in Note 2 above.
Valuation of. RARs is to be timed in such manner that relevant date
required for quarterly calculation under this condition is available from
RARS. Amount payable relevant to work done and materials collected
in any quarter will be worked out after firm whole sale price indices for
the relevant quarter available. Once the amount adjustable for any
quarter is worked out we same shall be adjusted as and along with
advance on account payment under condition 64 of IAFW-2249 In the
following RAR (s).

5. Any dispute arising out of interpretation or application of this Special

condition shall be referred to the. Accepting Officer whose decision
shall be final and binding.

6. For purposes of calculation of retention money and liquidated

damages, the value of contract as revised by the above price variation
will be taken into account.
 220

REIMBURSEMENT / REFUND ON VARIATION PRICES

Material Labour Fuel T&P&Tp

Sl.No Type of work
KM KL KP t at site
1 2 3 4 5 6
1. Married Accommodation 60% 20% 1.5% 3.5%
2. OTM Accommodation 60% 20% 1.5% 3.5%
3. Married Accommodation 58% 21% 2% 4%
Multistoreyed
4. Factory type buildings involving 58% 22% 1% 4%
steel superstructure
5. Adm Blocks, Officers Messes, 60% 20% 1.5% 3.5%
Institutes, Auditorium Hospital
Buildings etc
6. RCC OH Reservoir 51% 29% 2% 3%
7. Piling Works 51% 25% 3% 6%
8. Air Field Pavements 59% 17% 3% 6%
9. Road Work not involving 57% 21% 2% 5%
substantial earth work.
10. Central Sewage disposal plants, 65% 18% 0.5% 1.5%
Water Purification plants etc.
11. Electrification works 70% 13.5% 0.5% 1%
12. Central Air-conditioning Works 70% 13.5% 0.5% 1%

LABOUR

Increase or decrease in prices consequent on variation in wages of

labour (refer / condition 63 of IAFW-2249) shall be adjusted on the basis
stipulated hereinafter irrespective of the actual variation in price-wages of
labou'r to the contractor. The labour component for the work under the
contract as a whole shall be taken a KL of the value of the work executed
under the contract. Variation in labour wages shall be worked out by applying
the following .formula :-
 221

E KL L  Lo
 x V g Ix I
L 100 LO

EL - Variation in wages of Labour reimbursement to be made to

the Contractor or refund to be made by the Contractor.

KL - Constant representing the percentage cost of labour element

as compared to the total of the work under the contract as a
whole.

Vg - Gross value of work done at contract rates during the period

of reckoning less value of work paid or payable to the
Contractor based on actual cost (e.g. star rate (5). work
executed under prime cost sum etc) during the period of
reckoning.

LI - Minimum wage in rupees of an unskilled adult male

mazdoor as fixed under any law, statutory rule or order as on
the date of commencement of the period of reckoning.

LO - As for LI but the minimum wage in rupees of an unskilled

adult male mazdoor as on the .0 - last due date for receipt of
tenders.

REIMBURSEMENT / REFUND ON VARIATION IN PRICES

1. The following points should be noted particularly:

(a) The periodicity for working out the variations will be three
months. The first variation would be for the period of three
months reckoned from the last due date for receipt of tenders.

(b) Whole Sale Price Index for all commodities are published
every week for the week ending Saturday. Thus the Index
 222

applicable for any day shall be the one applicable for the
corresponding week ending Saturday.

(c) As the adjustment are to be made on a quarterly basis,

commencing from the last due date for receipt of tender RARs
should be timed in such a manner that the gross value of work
done upto the corresponding date is readily available.

(d) The weekly Index numbers of wholesale prices for all

commodities published by the Economic Advisor to Govt of
India, in the first instance, are generally termed 'Provisional'.
Final Index Numbers for the corresponding weeks are
published subsequently, say after an interval of 6 to 8 weeks
or so. It is to be ensured that the variation are worked out
based on the 'Final' Index numbers.

TAMIL NADU PUBLIC WORKS DEPARTMENT (TNPWD)

PRICE VARIATION CLAUSE IN THE CONTRACT

The formula (e) for adjustment of prices are : R = Total value of

work done during the quarter.

Adjustment for labour component

(i) Price adjustment for increase or decrease in the cost due to labour
shall be paid in accordance with the following formula:

VL = 0.85 x P 1/100 x R x (L1-L0) / L0

VL = increase or decrease in the cost of work during the quarter

under consideration due to changes in rates for local
labour.
 223

L0 = the average consumer price index for industrial workers for

Chennai centre on the date of agreement as published by
Labour Bureau, Ministry of Labour, Government of India.

L1 = The average consumer price index for industrial workers

for Chennai centre for the quarter under consideration as
published by Labour Bureau, Ministry of Labour,
Government of India.

P1 = Percentage of labour component of the work.

Adjustment for cement component

(ii) Price adjustment for increase or decrease in the cost of cement

procured by the contractor shall be paid in accordance with the
following formula.

Vc = 0.85 x Pc/100 x R x (C1-C0) / C0

Vc = Increase or decrease in the cost of work during the quarter

under consideration due to changes in the rates for cement

Co = The all India average wholesale price index for cement on

the date of agreement as published by the Ministry of
Industrial Development, Government of India, New Delhi

C1 = The all India average wholesale price index for cement for
the quarter under consideration as published by Ministry of
Industrial Development, Government of India, New Delhi

Pc = Percentage of cement component of the work

 224

Adjustment for steel component

(iii) Price adjustment for increase or decrease in the cost of steel

procured by the Contractor shall be paid in accordance with the
following formula:

Vs = 0.85 X Ps /100 X R X (Si – S0) / So

Vs = Increase or decrease in the cost of work during the quarter

under consideration due to changes in the rates for steel

So = The all India average wholesale price index for steel (Bars
and Rods) on the date of agreement as published by the
Ministry of Industrial Development, Government of India,
New Delhi

Si = The all India average wholesale price index for steel (Bars
and Rods) for the quarter under consideration as published
by Ministry of Industrial Development, New Delhi .

Ps = Percentage of steel component of the work

Note: For the application of this clause, index of Bars and Rods
has been chosen to represent steel group.

Adjustment of Bitumen component

(iv) Price adjustment for increase or decrease in the cost of bitumen

shall be paid in accordance with the following formula:

Vb = Increase or decrease in the cost of work during the quarter

under consideration due to changes in the rate for bitumen.

Bo = The average official retail price of bitumen at the IOC depot

at Chennai on the date of agreement.
 225

BI = The average official retail price of bitumen at IOC depot at

Chennai for the 15th day of the middle calendar month of
the quarter under consideration.

Pb = Percentage of bitumen component of the work.

Adjustment of POL (fuel and lubricant) component

(v) Price adjustment for increase or decrease in cost POL (fuel and
lubricant) shall be paid in accordance with the following formula:

Vf = 0.85 XPf / 100 XRX ( F1  F0 ) / F0

Vf = Increase or decrease in the cost of work during the quarter

under consideration due to changes in rates for fuel and
lubricants.

Fo = The average official retail price of High 5peed Diesel (H5D)

at the existing consumer pumps of IOC at Chennai on the
date of agreement.

Fi = The average official retail price of H5D at the existing

consumer pumps of IOC at Chennai for the 15th day of the
middle calendar month of the quarter under consideration.

Pf = Percentage of fuel and lubricants component of the work.

Note: For the application of this clause, the price of High Speed
Diesel oil has been chosen to represent fuel and lubricants
group.
 226

Adjustment for Plant and Machinery Spares component

(vi) Price adjustment for increase or decrease in the cost of plant and
machinery spares procured by the Contractor shall be paid in
accordance with the following formula:

Vp = 0.85 XPp / 100 XRX ( PI  Po) / Po

Vp = Increase or decrease in the cost of work during the quarter

under consideration due to changes In the rates for plant and
machinery spares

Po = The all India average wholesale price Index for heavy

machinery and parts on the date of agreement as published
by the Ministry of Industrial Development, Government of
India, New Delhi

Pi = The all India average wholesale price index for heavy

machinery and parts for the quarter under consideration as
published by Ministry of Industrial Development, New
Delhi

Pp = Percentage of plant and machinery spares component of the

work

Note: For the application of this clause, index of Heavy Machinery

and Parts has / been chosen to represent the Plant and
Machinery Spares group.

Adjustment of Local materials

(vii) Price adjustment for increase or decrease in cost of local materials

other than cement, steel, bitumen and POL procured by the
contractor shall be paid in accordance with the following formula:
 227

Vm = 0.85 XPm / 100 XRX ( M 1  Mo) Mo

Vm = Increase or decrease in the cost of work during the quarter

under consideration due to changes In rates for local
materials other than cement, steel, bitumen and POL.

Mo= The all India average wholesale price index (all

commodities) on the date of agreement, as published by the
Ministry of Industrial Development, Government of India,
New Delhi.

Mi = The all India average wholesale price index (all

commodities) for the quarter under consideration as
published by Ministry of Industrial Development,
Government of India, New Delhi.

Pm = Percentage of local material component (other than cement,

steel, bitumen and POL) of the work.

The following percentages will govern the price adjustment for the
entire contract:

1. Labour - PI 30.00%
2. Cement – Pc 10.00%
3. Steel - Ps 22.00%
4. Bitumen – Pb 00.50%
5. POL - Pt 00.50%
6. Plant and Machinery Spares – Pp 04.00%
7. Other materials – Pm 33.00%
Total 100%
 228

BHARAT SANCHAR NIGAM LIMITED GENERAL CONDITIONS

OF CONTRACT - 2007

PRICE VARIATION CLAUSE IN THE CONTRACT

CLAUSE 10C: Payment due to Increase / Decrease in Prices / Wages

after receipt of Tender for the work

If the prices of materials (not being materials supplied or services

rendered at fixed prices by the BSNL in accordance with Clauses 10 and 34
thereof) and/or wages of labour required for execution of the work increase,
the contractor shall be compensated for such increase as per provisions
detailed below and the amount of the contract shall accordingly be varied.
subject to the condition that such compensation for escalation in prices shall
be available only for the work done during the stipulated period of the
contract including such period for which the contract's validity is extended
under the provisions of Clause 5 of the contract without any action under
Clause 2 and also subject. to the condition that no such compensation shall be
payable for a work for which the stipulated period of completion is
12(Twelve) months or less. Such compensation for escalation in the prices of
materials and labour, when due, shall be worked out based on the following
provisions: -

i. The base date for working out such escalation shall be the last
stipulated date of receipt of tenders including extension, if any.

ii. The cost of work on which the escalation will 'be payable shall be
reckoned as below: -
 229

i. Gross value of Works done upto this quarters (A)

ii. Gross value of Work Done upto the last quarter. (B)
iii. Gross value of work done since previous quarter (A-B) (C)
iv. Full assessed value of Secured Advance fresh paid in this (D)
quarter
v. Full assessed value of Secured Advance for which (E)
escalation is payable in this Quarter
vi. Full assessed value of Secured Advance for which (F)
escalation is payable in this Quarter (D-E)
vii. Advance payment made during this Quarter (G)
viii. Advance payment recovered during this quarter (H)
ix. Advance payment for which escalation is payable in this (I)
Quarter (G-H)
x Extra items paid as per Clause -12 and 12A based on (J)
prevailing market rates during this quarter
xi. The, AA = C (+-1) F (+/-) I-J
BB = 0.85 AA
xii. (Less cost. of services rendered at fixed charges as per (K)
Clause 34 and recovered during the quarter.
xiii. Cost of work for which escalation is applicable : W=BB-K

iii) Components of Cement, Reinforcement Steel. shall be worked out

as indicated below, and for other materials, Labour. P.O.L, etc shall
be predetermined for every work and incorporated in the conditions
of contract attached to the tender papers included in Schedule 'E'.
The decision of the Engineer-In-Charge in working out such
percentage shall be binding on the contractor.

iv) The compensation for escalation for Cement, 'Reinforcement Steel,

Other Materials arid P.O.L. shall be worked out as per the formula
given below:
 230

a) Adjustment for component of Cement

Vc  Qc * Spc * (Cl  Clo) / Clo

Vc : Variation in cement cost i.e. increase or decrease in the

amount in rupees to be paid or recovered

Qc : Quantity of Cement consumed, based on theoretical

consumption, or actual quantity consumed whichever is less
during the quarter

SPc : Star price of Cement as mentioned in Schedule F.

CI : All India wholesale index for Cement for the period under
consideration as published by the Economic Adviser to
Government, of India, Ministry of Industry and Commerce

Clo: AII India wholesale index for Cement as published by the

Economic ' Adviser to Government of India, Ministry of
Industry ,and Commerce, as valid on the last for the period
under consideration and that valid on 'the-Iast 'stipulated
date of receipt of tender including extension if any.'

b) Adjustment for component of Reinforcement Steel

Vs  Qc * Sps  *( Sl  Slo) / Slo

Vs : Variation in Reinforcement Steel cost i.e. increase or

decrease in the amount in rupees to be paid or recovered

Qs : 'Quantity of Reinforcement Steel consumed, based on

theoretical consumption" or' actual, quantity consumed
whichever Is less during the Quarter. ' :
 231

SPs : Star price of Reinforcement Steel as mentioned in Schedule

F.

Sl : All India Wholesale index for Bars and Rods (Steel) for', the
period under consideration as published by the' Economic
Adviser to Government. of India, Ministry of Industry and
Commerce, New Delhi '

Slo : All India wholesale index for Bars and Rods (Steel) 'as
published by the Economic Adviser to' Government of India,
Ministry of Industry and Commerce, for the period under
consideration and that valid on the last stipulated date of
receipt of tender including extension If any.

c) Adjustment for component of Other Materials

VM  (W * X / 100  Qc * Spc  Qs * SPs ) * (MI  Mio) / MIo

VM : Variation 'in other' material 'cost i.e. increase or decrease In

the amount in rupees to be paid or recovered.

W: Cost of work done worked out as indicated in sub-para ii)

above.

X: Component of materials expressed as per cent of the total

value' of “Work as indicated in schedule F.

MI : All India wholesale Index for All Commodities for the

period under consideration as published by 'the Economic
Adviser to Government. of India, Ministry of Industry and
Commerce. '

Mlo: All India wholesale index for All Commodities as published

by the Economic Adviser to Government. of India, Ministry
 232

of Industry and Commerce ,as valid on the last stipulated

date of receipt of tender' including extension if any. '

MI: Adjustment for component of P.O.L.

VF  W * (Z / 100) * ( FI  FIo) / FIo

VF : Variation in cost of fuel, power, light and lubricants,

increase or decrease in rupees to be paid or recovered.

W: Value of work done, worked out as indicated in sub-para ii)

above.

Z: Component of fuel, power, light and lubricants expressed as

per cent of total value of work as indicated in schedule' F:

FI : All India wholesale 'index for fuel, power, light and

lubricants for the period under consideration as published
weekly by the Economic Adviser to Government of India,
Ministry of Industry, New Delhi.

Flo : AII India wholesale index for fuel, power, light and
lubricants as 'published weekly, by the Economic Adviser to
Government of India, Ministry ,of Industry, New. Delhi
valid on the last stipulated date of receipt of tender including
extension if any.

v) The following, principles shall be followed while working out the

indices mentioned in para (!v) above.

a) The compensation for escalation shall be worked out at quarterly

intervals and shall be with respect to the cost of works done as per
bills paid during the three calendar months of the said quarter. The
first such payment shall. be made at the end of three months after
 233

the month (excluding) in which the tender was accepted and

thereafter at three months interval, at the time of completion of the
work, the last period for payment might become Iess than months,
depending on the actual date of completion.

b) The index (SI/CI/MI/FI etc) relevant to any quarter/period for

which such compensation paid shall be the arithmetical average of
the indices relevant to the three calendar months. If the period up to
date of completion after the quarter covered by the last such
installment of payment, is less than three months, the index
SI/CIIMI and FI shall be the average of the indices for the months
falling within that period.

vi) The compensation for escalation for labour shall be worked out as
per the formula given below:-

VL  W * (Y / 100) * ( LI  LIo) / LIo

VL : Variation In labour cost i.e. amounts of increase or decreases

in rupees to be paid or recovered.

W: Value of work done, worked out as indicated in sub-para ii)

above.

Y: Component of labour expressed as a percentage of the total

value of the work as indicated in schedule F.

Llo : Minimum daily' wage in rupees of an unskilled adult male

mazdoor, fixed under any law, statutory rule or order as en
the last stipulated date of receipt of tender including
extension, if any.

LI : Minimum wage in rupees of an unskilled adult male

mazdoor, fixed under any law, statutory rule or order as
 234

applicable on the last date of the quarter previous to the one

under consideration.

vii) The following principles will be followed while working out the
compensation as per sub-para (vi) above.

a) The minimum wage of an unskilled male mazdoor mentioned

in subpara (vi) above shall be the higher of the wage notified
by Government of India, Ministry of Labour and that notified
by the local administration both relevant to the place of work
and period of reckoning.

b) The escalation for labour also shall be paid at the same

quarterly intervals when escalation due to increase in cost. of
materials and/or P.O.L. is paid under this clause. If such
revision of minimum wages takes place during "any such
quarterly intervals. the escalation compensation'shall be
payable at the revised rates only for work done in subsequent
quarters.

c) Irrespective of variations in minimum wages of any category of

labour, for the 'purpose of this clause, the variation in the rates
for an unskilled adult male mazaoor alone shall form the basis
for working out the escalation compensation payable on the
labour component.

viii) In the event the -price of 'materials and/or wages of labour required
for execution of the work-decrease/s, there shall be a downward
adjustment of .the cost of work so that such price 'of materials
and/or wages of labour shall be deductible from the cost of work
under this contract 'and in this regard the formula herein before
 235

stated under- this clause 10 (C) shall mutatis mutandis apply,

provided that:

a) No such adjustment for decrease in the price of Cement,

Reinforcement Steel, Other Materials and/or wages of labour
aforementioned would be made in case of 'contracts' in Which
the stipulated period of completion of work is twelve months or
Iess. '

b) The. Engineer-in-Charge snail otheM1se be entitled to lay

down the procedure 'by which the provision of this sub-clause
shall be implemented from time to time and the decision of the
Engineer-in-Charge in this behalf shall be final and binding
on1he contractor

AIRPORT AUTHORITY OF INDIA

PRICE VARIATION CLAUSE IN THE CONTRACT

CLAUSE-10 (C) If during the progress of the works, the price of

any materials incorporated in the works (not being materials supplied from
the Engineer-in-Charges stores in accordance with Clause 10 hereof) and/or
wages of labour increases as a direct result of the coming into force of any
fresh law, or statutory rule or order (but not due to any changes in sales tax)
and such increase exceeds ten percent of the price and! or wages; prevailing
"at the time of receipt of the tender" for the work and the contractor thereupon
necessarily and properly pays in respect of that material (incorporated in the
works) such increase in price and! or in respect of labour engaged on the
execution of the work such increased wages, then the amount of the contract
shall accordingly be varied provided always that any increase so payable is
not, in the opinion of the Executive Director Engineering! General Manager
Engineering whose decision shall be final and binding attributable to delay in
 236

the execution of the contract within the control of the contractor. Provided
however, no reimbursement shall be made if the increase is not more than
10% of the said prices! wages and if so, the reimbursement shall be made
only on the excess over 10% and provided further that any such increase shall
not be payable if such increase has become operative after the contract or
extended date of completion of the work in question. If during the progress of
the works, the price of any material incorporated in the works (not-being
material supplied from the Engineer-in-Charge's stores in accordance with
Clause 10 hereof) and/or wages of labour is decreased as a result of the
comming into force of any fresh law or statutory rule or order (but not due to
any changes in sales tax) and such decrease exceeds ten percent of the prices
and/or wages prevailing at the of receipt of the tender for the work, Airports
Authority of India shall in respect of materials incorporated in the works (not
being materials supplied from the Engineer-in-Charge's stores in' accordance
with Clause 10 hereof) and or labour engaged on the execution of the work
after the date coming into force of such law, statutory rule or order be entitled
to deduct from the dues of the contractor such amount as shall be equivalent
to difference between the price of materials and! or wages as they prevailed at
the time of receipt of the tender for the work minus ten percent thereof and
the prices of material und/ or wages of labour on the coming into force or
such law, statutory rule or order.

The contractor shall, for the purpose of this condition keep such
books of account and other document as are necessary to show the amount of
any increase claimed or reduction available and shall allow inspection o{the
same by a duly authorized representative of Airports Authority of lndia and
further shall, at the request of the Engineer-in-Charge furnish verified in such
a manner as the Engineer-in-Charge may require, any documents so kept and
such other information as the Engineer-in-Charge may require. .
 237

The contractor shall within a reasonable time of his becoming

aware of any alteration in the price of any such material and or wages of
labour give notice there of to the Engineer-in-Charge stating that the same is
given pursuant to this condition together with all information relating there to
which he may be in a position to supply.

Note : No escalation will be paid on bitumen.

CLAUSE-10 (CC). If the prices of materials (not being materials

supplied or service rendered at fixed price by the department in accordance
with Clause 10 and 33 hereof) and/ or wages of labour required for execution
of the work increase, the contractor shall be compensated for such increase as
per provision detailed be10wand the amount of the contract shall accordingly
be varied, subject to the condition that such compensation for escalation in
prices shall be available only for the work done during the stipulated period of
the contract including such period for which the contract validity extended
under the provisions of Clause 5 of the contract without any action under
Clause 2 and also subject to the condition that no such compensation shall be
payable a work for which the stipulated period of completion is 6 (six)
months or less. Such compensation for escalation in the prices of materials
and labour, when due shall be worked out based on the following provisions:-

1. The base date for working out such escalations shall be the last date
on which tenders were stipulated to be received.

2. The cost of work on which escalation will be payable shall be cost

of work as per bills (running or final) as described under. In the
case of materials brought to site for which any secured advance is
included in the bill, the full value of such materials, as assessed by
Engineer-in-Charge (and not the reduced amount for which secured
advance has been paid) shall be included in the cost of work done
 238

for operation of this clause. Similarly when such materials are

incorporated in the work and secured advance is deducte4 from bill,
the full assessed value of materials are incorporated in the 'Work
and secured advance' is deducted from bill, the full assessed value
of materials originally considered for operation of this clause
should be deducted from the cost of work shown in the bill
(running or final). Also 'in case of advance payment made, for work
done during this quarter but not measured, the same shall be
included and when this work is measured for payment, the same
shall be recovered during the quarter under consideration. From this
amount, the cost of work for which payment is made under on
prevailing market rates, shall be deducted. 85% of this amount shall
be reckoned as the cost of work and from this amount value of
materials supplied under clause 10 for all items except the items for
which payment is made under clause 12 or clause l2A on prevailing
market rates and service rendered at fixed charge as per clause 33
by this contract and proposed to be recovered in the particular bill,
shall be deducted. This net amount, so calculated shall qualify for
the Payment of compensation for escalation.

2A. Refer. foot note at the end of item No. adjustment of escalation in
cost of bitumen.

3. Components of Materials labour and POL shall be predetermined

for every work and incorporated in the conditions of contract
attached to the tender papers and the decision of the Engineer-in-
Charge in working out such percentages shall be binding on the
contractor.
 239

The components of materials, labour and P.O.L. as mentioned

above in para 3 of sub clause 10 (cc) have been pre-determined as below :-

(a) Material Percent

(b) Labour Percent
(c) P.O.L. Percent
Total 100 Percent

4. The compensation for escalation for materials, labour and POL

shall be worked out as per the formula given below:

Xx ( M 1  M 10 )
Vm = Wx
100 M 10

Y x( L1  L10 )
V1 = Wx
100 L10

Zx ( F 1  F 10 )
Vf = Wx
100 F 10

Whereas :

Vm = Variation in materials cost Le increase or decrease in the

amount in rupees to be paid or recovered.

Vf = Variation in Cost of Fuel, oil and lubricants i.e. increase or

decrease in the amount in rupees to be paid or recovered.

V1 = Variation in labour cost Le. increase or decrease in the

amount in rupees to be paid or recovered.

W = Cost or work done, worked out as indicated in sub para 2

above.

X,Y,Z = Components of materials, labour and POL respectively,

expressed as percentage of the total value of work as predetermined.
 240

Ml and MIO = All India whole sale index for all commodities for
the period under reckoning as published by the Economic Advisor to the
Govt. of India, Ministry of Industry and Commerce, or C.P.W.D. indices for
the period under consideration and that valid at the-time of receipt of tender
respectively.

Ll = Minimum daily wage in rupees of an unskilled adult male

Mazdoor Catagory-ll as fixed under any law, statutory rule or orders as
applicable on the last day of the quarter previous to the one during which the
escalations is being paid.

L10 = Minimum daily wages in rupees of an unskilled adult male

Mazdoor, Catagory-II as fixed under law, Statutory rule or order as on the last
date on which tenders for the work were to be" received.

Fl and FlO = Average Index number of wholesale price for group

(fuel, power light and lubricants) as published weekly by the Economic
Advisor to Govt. of India, Ministry of Industry' for the period under reckoning
and that valid at the time of receipt of tenders respectively.

5. The following principles shall be followed while working out the

indices mentioned in sub para 4 above.

(a) The compensation for escalation shall be worked out at

quarterly intervals and shall be with respect to the cost of
work done during the three calendar months of the said
quarter. The first such payment shall be made at the end of
three months after the month (excluding) in which the tender
was accepted and thereafter at three months interval. At the
time of completion of the work, the last period for payment
might become less than 3 months, depending on the actual
date of completion.
 241

(b) The index (M1/F1 etc.) relevant to any quarter for which such
compensation is paid shall be the arithmetical average of the
indices relevant to the three calendar months, if the period up
to date of completion after the quarter covered by the last such
installment of payment is less than three months, the index M,
and F, shall be the average of the indices for the months
failing within that period.

(c) The base index, M10, F10 etc. shall be the one relating to the
month in which the tender was stipulated to be received.

(d) The minimum wage of an unskilled male mazdoor mentioned

in Sub-para 4 above shall be the higher of /' the following two
figures: namely those notified by Government of India.
Ministry of Labour and those notified by the local
Administration, both relevant to the place of work and the
period of reckoning.

(e) The escalation for labour also shall be paid at the same
quarterly intervals when escalation due to increase in cost of
materials and labour is paid under this clause. If such revision
of minimum wages takes place during any such quarterly
intervals, the escalation compensation shall be payable for
work done in all quarters subsequent to the quarter in which
the revision of minimum wages takes place.

(f) Irrespective of variations in minimum wages of any category

of labour, for the purpose of this clause, the variation in the
rates for an unskilled adult male mazdoor alone shall form the
basis for working out the escalation compensation payable on
the labour component.
 242

The first such payment will be made at the end of three

months excluding the month in which the tender was accepted
and thereafter at three months interval.

6. In the event the price of materials and! or wages of labour required

for execution of the work decreases, there shall be downward
adjustment of the cost of work so that such price of material and! or
wages of labour shall be deductible from the cost of work under
this contract and in this regard the formula herein before stated
under this clause 10 (cc) shall mutates mutandis apply, provided
that,

(i) No such adjustment for the decrease in the price of materials

and! or wages of labour afore mentioned would be made in
case of contracts in which the stipulated period of completion
of the work is less than six months.

(ii) The Engineer-in-Charge shall otherwise be entitled to lay

down the principles on which the provisions of this Sub-clause
shall be implemented from time to time and the decision of the
Engineer-in charge in this behalf shall be final and binding.

7. The provisions of the proceeding clause 10 (c) shall not be

applicable for contracts where provisions of this clause 10 (cc) are
applicable. However, in contract where provisions Clause 10 (cc)
are not applicable.
 243

SOUTHERN RAILWAY

PRICE VARIATION

Adjustments for variation in prices of materials, labour, fuel shall

be determined in the manner prescribed below:-

The percentage component of various items in a contract on which

variation in prices admissible shall be :-

Labour component : 30%

Other Materials Component : 40%
Fuel Component : 15%
Fixed Component : 15% *
* Fixed component will not be considered for any price variation.

If in any case the accepted offer include some specific payment to

be made to consultants or some materials supplied by Railway at fixed rate,
such payments, should be excluded from the gross value of the work for
purpose of payments/recovery of variations.

The amount of variation in price in the several components

(Labour, materials etc.) shall be worked out by the following formulae.

Rx ( I  lo ) xP
i) L =
100 xlo

Rx ( W  Wo ) xQ
ii) M =
100 xWo

Rx ( F  Fo ) xZ
iii) U =
100 xFo
 244

L = Amount of price variation in labour

M = Amount of price variation in materials

U = Amount of price variation in fuel

R = Gross value of the work done by the contractor as per 'on

account' bills excluding cost of materials supplied by
Railways at fixed price. This will also exclude specific
payment, if any, to be made to the consultants engaged by
the contractors (such payment will be indicated in the
contractor’s offer)

Io = Consumer Price Index Number for industrial workers - All

India - Published in RBI Bulletin for the based period.

I = Average Consumer Price Index Number for Industrial

Workers - All India Published in RBI Bulletin for the three
months of the quarter under consideration.

Wo = Index Number of wholesale prices - By Groups and Sub-

Groups All commodities - as published in the RBI Bulletin
for the base period.

W = Average Index Number of wholesale price - By Groups and

sub-groups-All commodities-as published in the RBI
Bulletin for the three months of the quarter under
consideration.

Fo = Index Number of wholesale prices - By Groups and sub-

groups for fuel, power, light and lubricants as published in
the RBI Bulletin for the base period.

F = Average Index Number of wholesale prices - By Groups and

sub-groups for fuel, power, light and lubricants as published
 245

in the RBI Bulletin for three months of the quarter under

consideration.

P = % of Labour Component

Q = % of Materials Component

Z = % of Fuel Component

The Index Number for the base period will be the Index Number as
obtained for the month of opening of the tender (Technical Bid) and the
quarter will commence from the month following the month of opening of
tender (Technical Bid). The month of opening of 'tender' referred in the
previous sentence shall be replaced by the 'Month of opening of the concerned
negotiated offer' in the event of accepting the tender by the

The adjustment for variation in prices if required, shall be made

once in every quarter in the on account payments. If more than one on
accounts is made to the contractor in a quarter, the adjustment, if required
shall be made in each bills.

The bills for variation in prices shall be allowed on the basis of

provisional indices made available by the Reserve Bank of India. Any further
adjustments needed to be done based on the finally published indices shall be
made as and when they become available in the final bills.

If the amount of variation in prices, either upward or downward is

less than 5% of the amount payable to the contractor (excluding (a) cost of
cement, steel and other items supplied by the Railway to the contractor at a
fixed price and (b) specific consultancy charge as per accepted offer), no
adjustment in prices shall be made and further reimbursement/recovery due to
variation in price shall be made only for the total amount in excess of 5% of
the amount finally payable to the contractor due to variation in prices of the
 246

several components. However, price variation payable shall be limited to 10%

(i.e. 15% (-) 5% floor price) of the amount payable (excluding (a) cost of
cement, steel and other items supplied by the Railway to the contractor at a
fixed price and (b) specific consultancy charge as per accepted offer).

70/3 Official Changes in Prices of Materials and Fuel

(a) If an official change is enacted on the prices of principal materials

that are used in the Permanent Works after the date 28 days prior to
the latest date for submission of tenders for the Contract, then the
unit rates of the Works concerned shall be revised to allow for the
direct increase of prices of materials according to the following
formula:

M = M0 (0.15 + (0.85 M1 / M0)

Where M = Revised price

M1 = New price of material

M0 = Original price of material

Provided that this price revision shall not include any changes in
prices resulting from applying Sub-Clause 7012(a) and Sub-Clause 7013(c).

Decision concerning the overall price revision shall be set out by

The Ministry of Public Works and Housing.

(b) Principal materials intended in paragraph (a) shall be determined

from the materials listed in Sub-Clause 70/3 and shall, in
accordance to nature of the project, be specified in the Special
Conditions of Contract.
 247

(c) If payments due to the Contractor are paid in Jordanian currency,

and it happens that after the date 28 days prior to the latest date for
submission of tenders for the Contract, the exchange rate of the
Jordanian Dinar against the US Dollar is decreased as announced
daily by the Central Bank of Jordan, then the Contractor shall be
compensated for the direct loss he may sustain in paying the cost of
materials and Plant used' in the Permanent Works and purchased
from markets.

For compensation occurring in case the Contractor is paid in

Jordanian Dinars, the following conditions shall be considered.

(1) The decrease in the exchange rate of the Dinar shall be not
less than 7% of the basic rate on the date of submission of
tenders.

(2) No market fluctuation in the exchange rates shall be allowed

for.

(3) Quantities of materials available on Site shall be calculated,

and the Contractor shall be compensated for the quantities
needed for completion after the date the exchange rate is
affected, with no allowance for wastage or additions in those
materials or Plant.

(4) No allowance shall be made for overhead and profit.

(5) No change shall be made in the price of any material

concerning any item of the Works whose value is less than 2%
of the Contract Price.

(d) In case foreign components of construction materials that are

produced locally or the prices of spare parts or supplies required for
the operation of the Con or's Equipment. (if the Works comprise a
 248

roads, water or sew project) are changed by a ratio resulting In an

increase exceeding of the rates of items affected by the change, or
JD 5000, whichever is less, then the Contractor shall be
compensated for such changes in - accordance with the formulae
set out by the Ministry of Public Works and Housing at the
appropriate time.

(e) Paragraphs (c) and (d) above shall not be applied if the Contractor
is paid any portion of his payments if foreign currency.

(f) In case the cost of fuel needed for operation of the Contractor's
Equipment in the Works is increased by a margin exceeding 5% of
the basic cost at the date of submission of tenders, the Contractor, if
the Works comprise a road, water or sewage project shall be
compensated for the differential exceeding the mentioned five
percent ratio according to the formulae set out by the Ministry of
Public Works and Housing.

70/4 No Compensation for Unjustified Delay

No compensation shall be paid to' the Contractor 'for any delayed

part of the Works executed beyond the Time for Completion or any extension
thereto issued pursuant to Clause 44, as he is bound to bear any Increased cost
resulting from such delay.
 249

NATIONAL HIGHWAY AUTHORITY OF INDIA (NHAI)

Adjustment Formulae

Variation of Price – Local Labour

The Contract Price will be subjected to adjustment on account of

variations in the cost of labour The adjustment will be made according to the
formula given below:

RIx(C  C o ) XL
V1 =
Co

where,

V1 = Variation in price on account of local labour during the

period under consideration

C0 = Base Cost Index related to the General Consumer Price

Index for Industrial Workers on an all India Basos (Base
1982 = 100) released by . the Labour Bureau, Ministry of
labour Government of India at the time specified in para (E)
hereinafter

C = Current Cost Index related to the General Consumer Price

Index for Industrial Workers on all-India basis during the
period under consideration. (Base 1982 = 100) released by
the above mentioned agency at the time specified in para (F)
hereinafter

L = A factor of 0.2 (zero point two) representing component of

all local labour costs in the Contract Price including
overheads, benefits, amenities ete
 250

RI = Value of the work done during the period under

consideration and payable in non-convertible Indian Rupee
Currency at the base rates and prices as applicable under the
Contract

Variation of Price - General Materials

The Contract. Price will be subjected to adjustment on account of

general variation of prices of all materials other than specifically provided in
Sub- Clause 70.5 hereinafter The adjustment will be made according to the
formula given below:

RIX ( I  I 0 ) XG
V2 =
Io

Where,

V2 = Variation in price on account of general variation of prices

of all materials other than specifically provided in Sub-
Clause 705 hereinafter

I0 = Base Cost Index for machinery and machine tools in

wholesale price in India (Base 19,81.82 = 100) released by
the Economic Adviser Ministry of Industry Government of
India, 2It the time specified In pare (F) hereinafter

I = Current Cost Index numbers of wholesale prices In India for

all commodities) for the period under consideration (Base
1981-1982 = 100) released by the same agency at the time
specified in para (F) hereinafter

G = Factor 0 15 (zero one five) representing component of all

materials other than specifically provided elsewhere in the
Contract Price.
 251

RI = Value of Work done during the' period under consideration

and payable' in non 'convertible India Rupee Currency at the
base rates and price as applicable under the Contract .

Variation of Price – POL

The Contract Price will be subjected to adjustment on account of

variation of prices of POL. The adjustment will be made according to the
formula given below :

RIX ( P  P0 ) xQ
V3 =
P0

Where,

V3 = Variation in price on account of POL during the period

under consideration.

Po = Base Price of HSD at the fuel depot nearest to the site of the
works at the time specified in clause 70.1 (2) (f)

P = Current Price of HSD for the period under consideration at

the fuel depot nearest to the site of the Works at the time
specified in para (F) hereinafter.

Q = Factor of 0.05 (zero point zero five) representing the

component of POL in the Contract Price.

RI = Value of the Work done during the period under

consideration and payable in non – convertible Indian Rupee
Currency at the base rates and prices as applicable under the
Contract.
 252

Price Adjustment for Plant and Equipment

Price adjustment for increase or decrease in the cost of

constructional plant shall be paid in accordance with the following formula :

RIX (m  m0 ) XE
V4 
mo

Where

V4 = Increase or decrease in the cost of work price of usage or

due to changes in rates of constructional plant, during the
quarter under consideration.

Mo = Base cost index for machinery and machine tools in

wholesale price in India (Base 1981-82 =100) release by the
Economic Adviser Ministry of Industry Government of
India, at the time specified in para (F) hereinafter.

m = Current Cost index numbers of wholesale prices in India for

machinery and machine tools in wholesale price in India
(Base 1981-82 =100) released by the Economic Adviser,
Ministry of Industry, Government of India, at the time
specified in para (F) hereinafter.

RI = Value of Work done during the period under consideration

and payable in non convertible India Rupee Currency at the
base rates and price as applicable under the Contract.

E = Factor of 0.05 (zero point zero five) representing the aspect

of equipment usage in the contract price.
 253

E) Variation of Price – Foreign Inputs, if any

The Contract price will be subject to adjustment on account of

general variation in prices due to all foreign inputs, if any to be provided for
by the Contractor in accordance with the details furnished by him in Schedule
1 in (Volume 4) of the Bidding Documents in accordance with the formula
given below :

0.85RFx ( F  F0 )
V5 =
F0

Where,

V5 = Variation of price in Indian Rupees on account of foreign

inputs, if any, during the period under consideration

F0 = Base Index as applicable to foreign inputs like cost of

technical personnel, constructional plant, etc on construction
projects in the Contractor s country, or failing which an
appropriate proxy index reflecting the cost at periodic
intervals, of providing an appropriate mix of expatriate
personnel, imported constructional plant etc, as the case may
be at the time specified in para (F) hereinafter The relevant
index to be applied for this purpose 511all be indicated by
the Bidder 111 the Appendix to the Bid '

F = The official current index corresponding to Foal the time

specified in para (F) hereinafter The relevant index to be
applied for this purpose shall be indicated by the Bidder in
the Appendix to the Bid

RF = The value of work done in Indian Rupee currency during the

period under consideration which is worked out as
percentage of the total value 6f work done during the period
 254

under consideration and payable in convertible Indian Rupee

currency al base rates and prices as applicable under the
contract, the percentage being as given in Schedule 1 of
Sections IX Volume 4 of the Bidding Documents

Adjustments to the' Contract Price for Cement and Steel

The Contract Price will be subject to adjustment on account of

variations in cost of cement and. steel which is delivered to the site for use in
the Permanent . Works as per Clause 60 2 hereof or is Incorporated in
Permanent Works, according to the formula given below:

Sx( M  M o ) XT
Vc =
Mc

Where,

Vc = Adjustment to the Contract Price on account of increase or

decrease of cost indices of cement or steel as applicable

S = Basic Price for cement or steel, as applicable and indicated

in Schedule 3 of Section IX of Volume 4 of the Bidding
Documents .

Mc = Base cost index for cement / steel which shall be the index
for cement/iron and steel as shown in 'Index Numbers of
wholesale Prices in India - By Groups and Sub-Group
(Month end/year end data) (Base 1981 - 82 = 100), released
by the Office of the Economic Adviser Ministry of Industry,
Government of India prevailing at the time specified in para
F of Sub-Clause 70 3
 255

M = current cost index for cement / steel which shall be the index
for cement/iron and steel as shown in the 'Index Numbers of
wholesale Prices in India - By Groups and sub-group (Month
end/year end data)' (Base 1981-82 = 100), released by the
Office of the Economic Adviser Ministry of Industry,
Government of India, relevant to the period in which
cement! steel Is delivered to the site for use in permanent
works as per Sub-Clause 60 3 hereof or is incorporated in
permanent works

T = The actual quantity of Cement 'or Steel which is delivered to

the site for use in Permanent Works as for Clauses 60 2 or is
incorporated in Permanent Works

(iii) The Contractor shall use due diligence to ensure that excessive
wastage of the Specified Materials shall not occur, Any Specified
Materials removed from the site shall be clear1y identified in the
records required under paragraph (vii) of this Sub-Clause,

(iv) The Contractor shall at all times have regard to suitable markets
and shall whenever buying materials, a variation in the cost of
which would give rise to an adjustment of the Contract Price under
this sub-clause, be diligent to buy or procure the same at the most
economical prices as are consistent with the due performance by
the Contractor of his obligation under the Contract

If at any time there shall have been any lack of diligence default or
negligence on the part of the Contractor, whether in observing the
above requirements or otherwise, then for the purpose of adjusting
the Contract Price pursuant, hereto; no account shall be taken of
any increase in cost which may be attributable to such lack of
 256

diligence, default or negligence and the amount by which any cost

would have been decreased but for such lack of diligence, default
or negligence shall be deducted from the Contract Price

(v) No other adjustment to the Contract Price on account of fluctuation

in the cost of materials shall be made,

(vi) In determining the amount of any adjustment to this Contract Price

pursuant to this Sub – Clause no account shall be taken of any
overheads or profits

FIDIC CONDITION OF CONTRACT

PRICE VARIATION CLAUSE: The adjustment to the Interim

Payment Certificates in respect of changes in cost and legislation shall be
determined from the following formulate :

Ln Mn Fn Bn
Pn = A+b ---- + c --- + d ----- + e -------
Lo Mo Fo Bo

Where, Pn is a price adjustment factor to be applied to the amount for the

payment of the work carried out in the subject month, determined in
accordance with Sub – Clause 60.1 (c) and with Sub – Clauses 60.1 (e) and
(f), where such variations and Daywork are not otherwise subject to
adjustment.

A = 0 40, b = 0.15, c -= 0.25, d = 0.10 and e = 0.10

Ln, Mn, Fn, and Bn are the current cos indices of reference prices of
the cost elements of labour, material fuel (diesel) and bitumen in local
currency for month “n’, determined pursuant to Sub – Clause 70.5. L0, M0,
F0 and B0 are the base indices of reference prices corresponding to the above
 257

cost elements of labour, material, fuel (diesel) and bitumen at the date
specified in Sub – Clause 70.5.

The sources of Indices shall be as follows :

I. Shall be the minimum wage for labour as published by the

Tamil Nadu Government.

M. Shall be the wholesale price index (all commodities) as

published by the Reserve Bank of India.

F Shall be the price of one litre of diesel fuel as applicable at

Chennai.

B Shall be the price of a M.T of bitumen as applicable ex

Chennai Refinery, Tamil Nadu inclusive of all taxes.

The base cost indices or prices shall be those prevailing on the day
28 days -prior to the latest date for submission of bids. Current indices or
prices shall be those prevailing on the day 28 days prior to the last day of the
period to which a particular Interim Payment Certificate is related. If at any
time the current indices are not available, provisional indices as determined
by the Engineer will be used, subject to subsequent correction of the amounts
paid to the Contractor when the current indices become available.
 258

APPENDIX 3

THE ANALYTIC HIERARCHY PROCESS (AHP)

METHODOLOGY

The AHP is a popular method for determining relative priorities of

final choice alternatives in multi-criteria decision problems. It represents these
decision problems as well-structured hierarchies and requires the decision
makers (experts) to provide pair wise comparison of elements in each level to
obtain their relative weights or importance scores on a ratio scale (Saaty
1980). Table 3.1 shows the pair-wise comparisons scale and the respective
explanations. It thus provides a well-structured basis for decision making by
experts. The AHP can handle both qualitative (intangible) and quantitative
(tangible) criteria and is suited for individual and group decision making. A
large number of elements in any level of the hierarchy could prove to be
cumbersome in terms of obtaining the pair wise comparisons. Applications of
the AHP can be qualitatively evaluated and validated using specific
consistency measures. The AHP allows for the application of data,
experiences, insight and institution in a logical and thorough way (Forman
1990).
 259

Table A3.1 The pair wise comparison scale of the AHP

Numeric
Verbal Scale Explanation
value
1 Equal important to both Two elements contribute
elements equally
3 One is moderately more Experience and judgement
important favor
5 One is strongly more important Strong favor
7 Very strong importance over the Very strong dominance
other
9 Extreme importance over the Indisputable dominance
other
2, 4, 6, 8 Intermediate values Compromise between two
levels

Analytic Hierarchy Process (AHP) is used in the present study to

obtain and analyze the weights of various factor categories causing cost
overrun and cost escalation. AHP is used to determine the effects of
escalation factor categories that cause cost overrun and cost escalation. Since,
the performance of these factor categories are imperative and require a
thorough rigorous analysis. Hence, AHP is considered as the best option with
pair wise comparison of each factor category. However, the entire exercise
retained its basic character of determining the weight-age or importance
scores on a 0 to 1 scale to enable robust comparisons across the different
issues. The main advantage with the AHP is that it has a built in mechanism
to measure internal consistency by which the reliability be taken cared. AHP
is not used for factors contributing to cost overrun and cost escalation.

Explanation Questionnaire survey

 260

Example: If I strongly prefer chemistry over physics, then the rating

according to this pair wise is indicated below:

Physics 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Chemistry
Chemistry is strongly preferred than Physics

C14 To identify and evaluate the potential factors that contribute to cost
escalation, major cost components of project has been identified.
According to you, which are the most important component that is
responsible for cost escalation in a project? (Compare your
preference pair wise and tick below)

Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Steel

Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Brick

Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Sand

Coarse
Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9
aggregate

Cement 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

Steel 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Brick

Steel 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Sand

Coarse
Steel 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9
aggregate

Steel 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

Brick 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Sand

Coarse
Brick 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9
aggregate

Brick 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

Coarse
Sand 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9
aggregates

Sand 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

Coarse aggregates 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Timber

 261

Pair wise comparison scale for each set of major factor category
for cost escalation through Analytic Hierarchy process (AHP) questionnaires
were used and respondents were asked to indicate their pair-wise comparison
scale for individual cost escalation impact. The software named Expert
choice was used for analyzing the AHP responses (Forman et al 1983). As a
general rule (Saisana 2005), AHP responses with in-consistency ratios greater
than 0.15 have not been considered in the analysis. The typical input and
output result is shown below.

Typical Input data

Typical output data

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Typical output data