Civil Engineering Project Management (4th Edition)

202 Civil Engineering Project Management
16.7 Payment for manufactured items shipped overseas
When manufactured items have to be delivered to projects overseas, arrangements
for staged payments will normally be provided for in the contract.
Items will need to be inspected and tested at the place of manufacture, their
loading to ships inspected, and inspected again when offloaded at the place of
destination. If the civil engineering contractor is responsible for the supply of
the items he must arrange for the loading and offloading inspections; if items
are supplied under a separate contract the engineer will have to arrange the
inspections. In either case, however, the engineer will need to ensure that such
inspections are efficient, not only for the purposes of payment, but to ensure
safe delivery because it may take weeks or months to replace an item lost or
damaged.
Manufacturers normally only quote supply of equipment ‘to dockside’ or
‘f.o.b.’ (free on board), after which the carrier takes responsibility until he
offloads. If equipment is not inspected at every stage, it may be impossible to
know who is responsible for any damage or loss; leaving the employer to bear
the cost of any replacement. The whole operation needs to be well organized
if trouble is to be avoided.
16.8 Price adjustment
Some contracts contain a price variation clause in order to protect the contractor
against the risk of rising prices due to inflation. Nowadays it is not
usual for contracts in the UK lasting less than 2 years to contain such a clause.
To calculate the amount due, the contractor either has to produce evidence of
how prices have altered since he submitted his tender; or a formula which uses
published indices of price changes is applied to the payments due to him
under billed rates.
For contracts in the UK the price indices published by the Department of the
Environment, Transport and the Regions, formerly referred to as the Baxter
indices and which are relevant to the civil engineering industry, can be used
according to a formula. The formula applies the indices via various weightings
given to labour, plant, and specific materials – in rough proportion to their use
in the works being built. Standard types of formulae are included in the ICE
and other forms of contract. At each interim payment the formula is applied
using the latest published indices to give a multiplier representing the change
in construction prices since the date of tender. This is applied to the value of the
work done and certified for payment during the month. The cumulative total
of these monthly additions represents the allowance for price inflation for
work done to date.
Most price variation clauses provide that the price adjustment ceases for
those parts of the works for which a substantial completion certificate is issued,