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By a through study prior signing the contract, and by transferring the risk to others, either by paying down payment for stabilizing the price from suppliers, or by hiring a sub-contractor with the materials supply included in his agreement. or by limiting his risk with the client with a fix percent (5%) price fluctuation to be carried by contractor and the client will cover if more..
Usually a price range of items to be used is agreed upon in such contracts and bid is mostly based considering the average price. A thorough study and extensive price research is of course essential before submitting the list of prices items to client. If homework is satisfactory it has been observed that most of the items fall below the average price at the time of execution and a few items that go beyond the average price mark are compensated by those arranged below the average price mark.
In addition as Mr Amin has mentioned, risk can be transferred to a subcontractor or vendor or a price fluctuation clause can be added to cover up the risk.
The need for the employer to compensate the contractor contract modification prices in several cases, notably if were amended tariffs or fees or taxes, materials or quoted services officially, and when adjusting tariffs or fees or taxes, materials or quoted services officially increase or decrease after the date of the offer .
Compensation when prices change
Regulatory systems this process in all its aspects through his commitment to that if raw materials specified price changed under this regulation plus or minus manifestation List Bohmha (cement, iron, asphalt, ready-mixed concrete, wood, pipes, Alekiabl) or any other raw materials has been cited regulation in this case the need identified by the Ministry of Finance and then the contract is adjusted upward or decrease the prices according to several requirements.
A fixed price contract is not subject to any adjustments. It is assumed that the contractor has taken into consideration the expected variation in prices while quoting the rate.
However, if there is an abnormal increase as evidenced from the published market prices for specific items due to sudden change of govt. policy or war or environmental changes which is beyond control of the contractor, the contractor still may request the purchaser for price review with solid justification. The purchaser, if agreed, will place the issue in the tender committee meeting for opinion and action will be taken accordingly
As the contractor is working to a fixed price, they might be tempted to skimp on subcontractors or use lower-grade materials. Therefore it is imperative the owner must specify materials he requires to be used at the outset. In this case the contractor will cut down scope or reduce manpower or hire low bid sub-contractor to maintain their profit or break-even.
A good market survey of market demands and supply, seasons of demand and fluctuating rates.
Contractor usually keeps a good profit margin for all his running projects & they are different from project to the other, so material price change is not a big problem for him
Talking about a "Fixed Price Contract" means that there will not be any price review and/or adjustment during the validity of the Contract, in this type of Contract is usually a back-to-back Contract, which means before quoting, each bidder study the price of different items/services listed in the Contract Scope of Work and Schedule of Rates, and try to fix these prices to the best extent through long term Contractor/s for supplying of his own main items/spares/raw materials .. etc, so, with having his sub-contracted items price fixed, bidder can easily plan, forecast, price (with some markup based on Contract duration and expected inflation) and fix his own product for the Contract duration.
A fixed price contract is not subject to any adjustments. It is assumed that the contractor has taken into consideration the expected variation in prices while quoting the rate up to a particular date. He may ask for the review of the prices for each item after crossing that date.
How can Contractor manage change in material's Prices (Fixed Price Contract ).
It is to be hoped that the terms and conditions from the Prime Contractor have been “flowed down” to the suppliers. In the event that they have not then changes in price, delivery, performance, financial arrangements, cost control etc. can be managed under a Change Clause in the Contract. Suppliers have a responsibility to control their costs as a part of their own internal management procedures. It is also our responsibility to monitor changes in costs and prices within our own industry. Changes is the costs of steel, gold, copper, fruit, vegetables, textiles, livestock, building materials etc. are available to us through the public media as well as through financial institutions such as banks, trading organisations and stock exchanges.
Try to include a simple Change Clause in the Contract to control any movement of costs. Maybe wording such as:
“Purchaser reserves the right at any time to make changes within the general scope of this Agreement. Such changes may include: (1) drawings, designs or specifications; (2) technical clarifications; (3) cost; (4) quantity; (5) method of shipment or packing; (6) quality; or (7) place or time of delivery.
If any change causes a significant impact on the cost of, or the time required for, performance of any work under this Agreement, an equitable adjustment shall be made in the price or delivery schedule, or both as applicable, in writing. Any Seller claim for adjustment under this article shall be deemed waived unless asserted in writing within twenty (20) days after receipt by Seller of the notice to make the change and may only include reasonable, direct and demonstrable costs that will necessarily be incurred as a direct result of the change.
Seller shall not proceed to implement any change until Purchaser provides for such change in writing.
Nothing in this section, including any disagreement with Purchaser as to the equitable adjustment to be made, shall excuse Seller from proceeding with the Agreement as changed.”
Make sure that the Seller or supplier knows that any uncontrolled changes in cost that cannot be demonstrated as being reasonable to the Buyer will not be the responsibility of the Buyer.
In this case , the contractor can manage manpower with time scheduale by reduced manpower and but some activities in baralel excution .
ask for more time to finish project activities .
