ICTAD Formula Method for EMERGENCY NORTHERN RECOVERY PROJECT Price Fluctuation Dr.(Eng)S.S.Sivakumar Project Director EMERGENCY NORTHERN RECOVERY PROJECT

ICTAD Formula Method for Price Fluctuation The ICTAD Formula Method was introduced in January 1993. To Reimburse of Price fluctuation of Material, Labour & Plant in Construction. To Calculate the amount due to the Price Fluctuation. There are two Formula 1. Contract exceeding 10 Million 2. Contract not exceeding 10 Million

THE FORMULA METHOD FOR CONTRACT EXCEEDING RS. 10 MILLION F= 0.966 (V – Vna ) ∑ Px (Ixc – Ixb) 100 all inputs Ixb F = Price adjustment for the period V = Valuation of work done during the period concerned Vna = Value of non – adjustable element Px = Percentage cost contribution of input X Ixc = Current index for input X Ixb = Base index for input X

V - Valuation of work done during the period concern Valuing the cumulative work done including the 80 % of the cost of material delivered to site but has not been incorporated in permanent works and deducting the cumulative payment certified up to the previous bill. V = (Vc + Mc) – (Vp + Mp) Vc = Cumulative Value of work done during the period concerned. Mc = 80 % of the invoiced value of material used for permanent works on current valuation. Vp = Cumulative Value of work done up to previous claim. Mp = 80 % of the invoiced value of material used for permanent works on previous valuation.

Vna – Non Adjustable Element Value of work done under the items which will not be considered for price adjustment and have been listed accordingly in the Contract. Generally there are three categories of items will be considered as non-adjustable element. Items in the BOQ for which the expenditure will be fixed and executed at early stages of contract. (Most preliminaries items fall under this ) Provisional sum item. Extra works items for which the rates are agreed based on the prices prevailing at the time of execution of works or are priced at Day-work rates.

Vna – Non Adjustable Element Vna = Vnac – Vnap Vnac = Cumulative of work certified under items specified as non- adjustable element up to the current bill Vnac = Cumulative of work certified under items specified as non- adjustable element up to the Previous bill

Px – Input Percentages The percentage cost contribution of major materials, Plant and Labour to the contract. When include these item, it is suggested to exclude the less cost significant items, in computing the input percentages. Combined effect of such items will be less than 10% of the total cost of inputs. Hence the total contribution of major inputs will be considered as 90%. The computation of input proportions is based on the costing major input items required for proposed construction. The costs will be calculated using the prices that prevailed at the time of bidding. The cost of major inputs will be considered as 90% of the total cost.

Px – Input Percentages Input proportion of a particular input will be computed as the ration between the cost of the input and the cost of all inputs. Example Indices No Input Name Input percentage (Px) P2 Heavy Machinery 37.89 M7 Metal 20.66 M30 Bitumen 16.89 P3 Fuel 5.19 L2 Unskilled labor 4.35 M8 Sand 2.9 L1 Skilled labor 2.12 90

Indices The indices used in the formula shall be those published by ICTAD. Monthly indices will be published in Bulletin of Construction Statistics. The type of indices applicable to this formula shall be Material(M indices), Labour (L indices) & Plant & Equipment (P indices)

Ixb – Base Indices “Base Indices” shall be the indices for the input, prevailing for the calendar month, one month prior to the date set for the submission of Bid. For Example, If the bids were closed on any date of the month of September, the applicable base indices shall be the indices published for the month of August of the same year

Ixc – Current Indices The current index of a particular input shall be the index published by ICTAD for that input for the month applicable. The Contractor is supposed to submit the monthly statement for the payment. For the first interim bill, Current indices shall be taken as the indices prevailing on the first month after commencement of the contract. For any other interim claim or the final claim the Current indices shall be taken as indices prevailing for the calendar month, one month after the previous valuation was done.

Ixc – Current Indices Example for the use of Current Indices Details of monthly statement submitted by the Contractor Applicable Current Indices Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Case a Claim 1 Claim 2 - Claim 3 Final Case b Claim 1 Claim 2 Claim3 Final Claim Case a 6onth 1 Month 2 Month 3 Month5 Case b Month 1 Month3 - Month 4

Method Of Computation Of Price Fluctuation The Formula is considered in two parts for the purpose of computations: 0.966 (V – Vna ) as the first part 100 ∑ Px (Ixc – Ixb) as the second part all inputs Ixb

Method Of Computation Of Price Fluction Computation of V- Vna 1.0 Price adjustment computation for the Valuation No 2.0 Previous Valuation a. Date 04/2011 b. Cumulative value of work done Rs. 6,521,904.02 c. Cost of material at site Rs. 450,000.00 d. Cumulative cost of non-adjustable element Rs. 105,650.00 3.0 Current Valuation a. Date 09/2011 b. Cumulative value of work done Rs. 9,745,967.43 c. Cost of material at site Rs. - d. Cumulative cost of non-adjustable element Rs. 155,890.00 e. Indices applicable for Current Valuation May/ 2011

Method Of Computation Of Price Fluctuation 4.0 Computation of V – Vna V – Vna = (3b+3c-3d) –(2b+2c-2d) = 2,723,823.41 5.0 0.966 (V – Vna ) = 26,312.13 100 6.0 Computation of ∑ Px (Ixc – Ixb) all inputs Ixb

Method Of Computation Of Price Fluctuation Name of input Input percentage (Px) Base index (Ixb) Feb/2011 Current Index (Ixc) Px (Ixc – Ixb) Ixb Heavy Machinary (P2) 37.89 313.7 0.000 Metal (M7) 20.66 267.5 273.9 0.079 Bitumen (M30) 16.89 870.7 Fuel (P3) 5.19 715.8 747.6 0.231 Unskilled labor(L2) 4.35 352.1 Sand (M8) 2.9 1780.3 1791.0 0.017 Skilled labor (L1) 2.12 363.5 0.327

Method Of Computation Of Price Fluctuation 7.0 Price Adjustment for the Current variation F = Step 5 X Step 6 26,312.13 X 0.327 = 8,604.06

The Formula Method For Contract Not Exceeding Rs. 10 Million F= 0.869 (V – Vna ) (Itc – Itb) Itb F = Price adjustment for the period V = Valuation of work done during the period concerned Vna =Value of non – adjustable element Itc = Current Composite index for type of work Itb = Base Composite index for type of work

Method Of Computation Of Price Fluctuation Step 1: Estimating the cumulative value of work done up to the time of valuation V = (Vc + Mc) – (Vp + Mp) Vc = Cumulative Value of work done during the period concerned. Mc = 80 % of the invoiced value of material used for permanent works on current valuation. Vp = Cumulative Value of work done up to previous claim. Mp = 80 % of the invoiced value of material used for permanent works on previous valuation.

Method Of Computation Of Price Fluctuation Step 2: Excluding the non-adjustable element Vna = Vnac – Vnap Vnac = Cumulative of work certified under items specified as non-adjustable element up to the current bill Vnac = Cumulative of work certified under items specified as non-adjustable element up to the Previous bill

Method Of Computation Of Price Fluctuation Step 3: Computation of Price fluctuation a. Calculate the factor, 0.869 (V – Vna) b. Using the appropriate base and current composite indices compute (Itc – Itb) Itb c By multiplying the result obtained from Step ‘a’ and Step ‘b’ above the price adjustment due for the current valuation can be computed.

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