My first post. I am having a disagreement with a Contractor regards price adjustment for inflation. The contract does not use X1 and this was removed at tender so the Contractor is fully aware of this. However, their argument is that the works have changed and CE’s have pushed the works over a FY and they couldn’t anticipate this at the time of tender so believe they should be able to apply X1.
Whilst I do see their argument (if a project was only 1 year but grew into 3 not really fair) but I believe that there is no ground for price adjustment for inflation given option X1 is not used and the delay is from Feb to June (4 months) but wanted to be sure. Comments and thoughts welcome.
Not really sure what the problem is here. The Contractor put forward their target price without X1 so they have taken the risk in inflation - but under option C even this is a shared risk as they will be paid “actual cost” which would include any inflation figures. However this would eat into any “gain share” entitlement at the end.
If there is a compensation event - this would be assessed at forecast Defined Cost - which would naturally allow the Contractor to assess any cost which would include any increases due to inflation. The original contract works they can not claim an increase for, but any compensation events that would come out within the assessment.
Hello Thanks and I agree. This was my point to the site agent who did not agree but has since been corrected by his PM.
The Contractor is in agreement.
Apologies to unearth this but maybe the NECs opinion has changed … see attached
"As with all compensation events, this one will be assessed based upon the effect it is forecast to have upon the defined cost to carry out the works plus the fee, see clause 63.1. If the works are now going to be carried out sometime later than originally allowed for, there is a risk that the defined cost will increase because of inflation. This has nothing to do with option X1, which is about who carries the risk of inflation.
Without option X1, the contractor normally carries that risk. But when assessing the compensation event, which is at the employer’s risk, the contractor is entitled to make an allowance for matters that have a significant chance of occurring and that are at its risk under the contract, see clause 63.6. This could include the risk of inflation being greater than that allowed for in its original price." This includes original works as while the substance of works has not changed the event in time has, and to be honest it makes perfect sense. Unless the Contract expressly removes this in writing, which it may.