NEW DELHI: In response to the ongoing crisis in West Asia and its impact on global supply chains, the Central Public Works Department (CPWD) has permitted automatic price adjustment in construction contracts to address rising material costs.
In a recent clarification, CPWD stated that it had no objection if government departments and organisations following its works manual choose to incorporate price variation clauses in their new tender documents.
These clauses allow contract values to be adjusted in line with fluctuations in market prices of materials and labour.
The decision comes as prices of key construction material such as steel, cement, and fuel continue to escalate due to geopolitical tensions, putting significant financial strain on contractors and delaying infrastructure projects.
The move is aimed at ensuring smoother project execution by protecting contractors from unforeseen cost surges and also to maintain the pace of infrastructure development projects.
As per the CPWD works manual and Standard Operating Procedure (SoP) 2024, there is a standard contractual clause in the General Conditions of Contract (GCC) to provide compensation to the contractors against the market value variation in the price of materials and wages of workers.
This price variation clause is generally included in contracts with stipulated periods more than 12 months.
According to the officials, several government organizations and departments follow the provisions of CPWD manual or SoP for their construction works.
And given the disturbance in West Asia, there have been inconsistent fluctuations in the prices of some construction materials, including bitumen and other petroleum-based products, causing supply disruptions in some construction works. The non-admissibility of price escalation is being cited as one of the reasons impeding progress.
“Considering the present sensitive situation, it is clarified that CPWD has no objection if the respective organizations (following CPWD manuals) prescribe a standard price variation clause in the NITs (Notice Inviting Tenders) for the work even shorter duration also; i.e. for works less than 12 months also. The decision in this respect may be taken by the competent authorities of the respective organizations/ departments, considering the ground situation/ nature of work,” read an internal communication of the CPWD, seen by TNIE.