The Hindu : Front Page : New price adjustment mechanism announced

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Saturday, Mar 15, 2008
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New price adjustment mechanism announced

T. Ramakrishnan and N. Anand

It will help absorb undue increase in cost of materials used in government projects

It will cease to operate for works executed beyond agreement period
Incentives announced for those who complete works in advance

CHENNAI: The State government on Friday announced that it had devised a new price adjustment mechanism to absorb undue increase in cost of materials required for the execution of government projects.

Till now, no escalation was allowed up to 18 months of contract period of government works. Hereafter, it would be permitted after 12 months. The move comes in the wake of delays in implementation of several projects on account of contractors holding up works citing escalation of cost.

The government action is sequel to representations from the construction industry and the Builders’ Association of India, said S. Audiseshiah, Public Works Secretary, while addressing a seminar on infrastructure development and integrated township in the city on Friday.

Conditions

An order issued by the Public Works Department said full price adjustment on all components other than cement, steel, bitumen and petroleum, oil and lubricants (POL) would be applicable to works with a contract period of more than 12 months. In respect of cement, steel, bitumen and POL, the price adjustment could be done for contracts of 12 months and below only in the case of capital/plan works.

No price adjustment would be permitted for repairs and maintenance works. Price adjustment would apply only when the fluctuation of rates exceeded the estimate rates by 3 per cent.

It would be made both for increase and decrease in the cost of materials.

Based on wholesale price indices of the Reserve Bank of India, price variation would be calculated once in a quarter in the case of cement and steel as per the specified formula from the date of commencement of contracts to the end date.

In respect of bitumen and POL, it would be considered on “pass through” basis with actual payment at the rates charged by the Indian Oil Corporation.

The price adjustment mechanism would cease to operate for works executed beyond the agreement period, barring cases where the works could not be completed on time for reasons such as natural calamities, and where the period was officially extended due to factors such as delay in land acquisition, changes in design and scope of work.

The government decided to provide incentives to those who completed works in advance.

Ensuring transparency

A representative of the Builders’ Association of India would be invited to provide inputs to the government before finalising the schedule of rates, issued every April. This would facilitate transparency in the adoption of market rates.

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