Tuesday, January 16, 2018

‘Inclusion of fluctuation clause in contracts not as easy as may seem’

THE inclusion of a fluctuation clause in contracts is not as simple as some contractors think, says a senior lecturer at The University of the West Indies (UWI).

Derek Outridge, a lecturer in construction management and a chartered quantity surveyor, said the assessment of fluctuations can be costly to projects, but was necessary if such a clause was to be included.

And if a trained construction cost consultant was not involved, it could allow for more corruption on construction contracts, he said.

A fluctuating clause increases or decreases the contract price, according to changing market conditions, including taxes, labour and material costs.

Last Monday, Trinidad Cement Limited (TCL) announced its price hike for cement which contractors said would have a domino effect on the construction sector.

 Some said they stand to lose if they were in the middle of a project and asked that a                                                                                    fluctuation clause be included in new contracts.

Outridge said: “A construction index would have to be developed since there is no current basis for the assessment as one will have to know the prices of all construction materials, labour, plant and equipment costs at the time of the award of the contract. 

There is no price control in the construction market at this time. Government may have to set price controls on these construction resources, which will not be acceptable by either party.”

For a fluctuation clause to be effective, Outridge said contractors would have to operate on open book accounting, which most do not want, because it gives away their competitive advantage.

“In order for such a clause to be effected efficiently, there must be total trustworthy contractors, sub-contractors, suppliers, hardwares and manufacturers, as all would have to declare their accounts if the quantity surveyor so desires. The whole system of invoicing for all companies will have to change as the invoices must name the construction project involved in the invoice as well as the recipient or else the fluctuation costs will be rejected by the assessor,” said Outridge.

Mikey Joseph, president of the Trinidad and Tobago Contractors Association (TTCA), said the clause was not included to protect  the client against contractors who may want to take advantage of it.

 He said contractors, when making submissions, should make provision for uncertainties in the construction market to minimise  risks.