Dear all,
I would appreciate guidance on the below example please.
BCIS 90/13
Base date - Apr 22 BCIS – 476
CE £100.00 based on Nov 22 prices BCIS – 395
Paid in full Nov 23 BCIS – 294
Proportions: .47 adjustable; .53 nonadjustable
I adjust the prices from Nov 22 to Apr 22 =100/(1+0.47*(395-476)/476) = £108.69 (X1.3)
X1.4 calculation = £108.69*(0.47*(294-476)/476) = -£19.53+£108.69=£89.16
£89.16 should be the same as if CE would not have been adjusted to base date and Nov 22 prices were used as a revised base date instead. However, the result is different £100*(0.47*(294-395)/395) = -£12.02+£100=£87.98
This above discrepancies seem to have something to do with proportions. If proportions are removed, the calculation seems to be correct.
For example:
I adjust the prices from Nov 22 to Apr 22 =100/(1+(395-476)/476) = £120.51 (X1.3)
X1.4 calculation = £120.51*(294-476)/476) = -£46.08+£120.51=£74.43
£74.43 should be the same as if CE would not have been adjusted to base date and Nov 22 prices were used as a revised base date instead. The result is the same £100*(294-395)/395) = -£25.57+100=£74.43
Any advice would be appreciated demonstrating where the mistake is please.
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Hi - Hope this helps
You did:
I adjust the prices from Nov 22 to Apr 22 =100/(1+0.47(395-476)/476) = £108.69 (X1.3)*
Which is correct - You have de-escalated the CE back to base date using the adjustable component (47%) of the PAF. The adjustment is at the assessment of the CE, which is Nov 22. - PAF = 0.47*(395-476)/476 = 0.0799 (negative PAF). The you work: CE Cost/1+PAF (£100/(1+ -0.0799)) = £108.68 (1.3)
You did:
X1.4 calculation = £108.69(0.47(294-476)/476) = -£19.53+£108.69=£89.16**
X.1.4 = In this example, the adjustment to add to the PWDD = de-escalated CE = £108.68 * PAF at the point of payment = 0.47*((294-476)/476)) = - 17.97. Then times de-escalated CE (£108.68) by PAF (-17.97) = -19.45. Add the adjustment to the PWDD (£108.69 + -19.45) = £89.23 (X.4)
This is correct, so far. The prices have reduced, this is in effect deflation in the BCIS Indices.
You state:
£89.16 should be the same as if CE would not have been adjusted to base date and Nov 22 prices were used as a revised base date instead
This is where it goes a little off. The de-escalation to base date and application of the PAF only work to the same dates: i.e. If you remove Nov 22 from the calc and work it all using Nov 23 data, you get the same answer if you de-escalate and apply PAF, as if you simply implemented the CE at £100 (you go full circle and get the same result). This assumes you quote and implement at Nov 23.
This above discrepancies seem to have something to do with proportions.
Correct, it’s due to the non-adjustable being so high, if the adjustable were removed you get the number you quoted.
Thank you for the above explanation. Although some of the figures seems little different, but I assume it is due to rounding.
My understanding is that we are deescalating CEs to base date from the date of relevant rates/lump sums to simplify the calculation because the X1.4 is applied on the overall period payments instead of having multiple CE base dates for different CEs.
Following from which it would suggest that regardless, if we deescalate to subcontract base date different CEs or if we introduce different base dates for different CEs the overall effect on the period payment price adjustment should be the same.
It is correct that if we run deescalation from Nov 22 to Apr 22 and then reverse calculation we get the same CE value.
What I would expect that PAF adjustment form Apr 22 to Nov 23 would cover price adjustment from Apr 22 to Nov 22 and Nov 22 to Apr 22.
Currently we are in situation where the subcontractor is happy to introduce new base date to X1 calculation for CE, which would suggest that they would be paid circa £300k less due to price adjustment calculation in comparison to if the quotation is deescalated to subcontract base date and then PAF is applied.
I guess my question is why one would follow de-escalation to subcontract base date principle if they can introduce new base date for different CEs and save money.
Hi - The answer is they can’t. You state the base date in Contract Data Part 1. The NEC guidance notes suggest the date for tender submission to be used, or any date before the Contract Start Date. That is the indices you are assessing from, the Subcontractor can’t then change this, or measure from different base dates. In theory the base date could be changed by a deed of variation, but I have never come across that.
Numbers are slightly different due to excel rounding up.