Tendering & Contracting Resources

The CIF has published a policy paper based on members views on how the new Price Variation Mechanisms recently introduced into the Public Work Contracts are being implemented by Contracting Authorities. The main areas of concern relate to:

1. Insufficient time and consideration being given by Contracting Authorities to Contractors in the completion of weightings and proportions in the Form of Tender and Schedule during the tender stage.
2. The weightings being allocated for plant and overheads is inappropriate and not reflective of material compositions on projects.
3. Contracting authorities are automatically selecting the maximum threshold of 10% without due consideration to the duration, complexity and material composition of projects as recommended by the OGP.
4. Inconsistency of approach by Contracting Authorities on the development of the FTS on Design and Build Projects.

The Policy Paper sets out several recommendations. particularly:

1. Affording contractors a meeting with the contracting authority during the tender stage to agree a balanced allocation of weightings and proportions in the FTS that reflect the material makeup of the project.
2. The permitted threshold increase should be set at a default level of 3% and a maximum threshold of 5%.
3. The preparation of the FTS on a Design and Build project should be completed in conjunction with the successful Contractor when quantities and scope have been established and verified by both parties.

The CIF and SCSI have jointly published an industry agreed information note on how the Price Variation Mechanisms within the Public Works Contract operate. It explains in detail the roles of the consultant and contractor in effectively implementing the mechanism. It also lays out the key factors involved in the preparation of the schedules, tender process, workbooks and the payment process underpinning the recovery of inflationary costs throughout the project. It includes examples of specific projects ranging from industry, commercial, health, education and housing.

While it is recommended that members study the document as a whole, we strongly urge them to read Section three on page five in detail. This sets out the key factors that contractors must be aware of and what action they must take in the event of any discrepancies in how the mechanism is being setup or applied.

Members should take particular note of the following:

1. While the default threshold is 5%; many contracting authorities are opting automatically to select the max. of 10%. Subject to the complexity and duration of the project, this must be challenged where appropriate.
2. Members should also check that the proportion and weighting allocated in the schedule for materials, labour and fuel are reflective of the project.
3. The contracting authority can recover costs from the contractor, if deflation rises above 10% on a material; for example.
4. You must challenge and make known any concerns during the tender process or you will end up in contract with what is in the schedule; without any recourse to make any amendments later on.