For NEC3 TSC Option A, the first bullet of Clause X1.3 states that “Defined Cost current at the time of assessing the compensation event adjusted to base date by dividing by one plus the PAF for the last assessment of the amount due.”
As the payment is assessed monthly, should the above Defined Cost be adjusted monthly as well? The formula will be somehow as following:
Amount due for price adjustment = change of Defined cost * PAF in current month / (1+PAF in last month)
Or should there be only one adjustment of the Defined Cost to base level which is based on the assessment date of the compensation event?
The price adjustment mechanism, under option X1.3 1st bullet, assumes that a compensation event is being priced at ‘current rates’, so is required to be ‘backdated’ to the Base Date. As this is a change to the Prices (Price List), it is adjusted so that the change amount is ‘comparable with’ the amounts in the Price List.
It does this by using the PAF calculated for the latest payment assessment, but applies the calculation in reverse, that is by dividing by 1 plus PAF.
The payment assessment (Price for Services Provided to Date) is adjusted under X1.4 which takes the applicable ‘changed amount’ from the Price List (interim value) and applies a PAF adjustment to reflect the point in time when this is assessed for payment.
Under X1.3 there is only one adjustment calculation, made at the time the compensation event is assessed. When this amount is included in a payment assessment, a PAF adjustment is applied at the time of the assessment.
Thank you very much for answering my question.
I encountered another problem while dealing with the adjustment calculation under X1.3. As the adjustment shall be made at the time the compensation event is assessed and this assessment takes a period of time, so at which timeline of this period of time should we base on when determine the PAF used to convert the Defined Cost to base date level?
For example, we give an instruction to quote on 1st of November and the Contractor provides the quote on 14th of November and the assessment date of IP is on 7th November. If we consider 1st of November as the timeline, then the PAF used in October’s IP will be used in the adjustment calculation. However, if we consider 14th of November as the timeline, the PAF used in November’s IP will be used then.