Claim for Increased Costs on a Fixed Price Contract

Are there circumstances whereby a contractor may claim increased costs of materials on a fixed price contract? As usual, this would depend on the particular contract, but if we take FIDIC as an example, yes there are.

Consider the following situation:

  1. The Contract duration is two years.
  2. The structural work contains large quantities of concreting which is all programmed to be completed within the first 8 months of the project.
  3. In the last six months of the project, the Engineer instructs a Variation which requires substantial additional concrete works.
  4. Since the beginning of the Contract, the cost of ready-mixed concrete and reinforcement steel have increased substantially.

Sub-Clause 13.3 (Variation Procedure) states that variations should be evaluated in accordance with Clause 12 (Measurement and Evaluation).

Sub-Clause 12.3 (Evaluation) states that:

‘For each item of work, the appropriate rate or price for the item shall be the rate or price specified for such item in the Contract …. However, a new rate or price shall be appropriate for an item of work if: …

(i) the work is instructed under Clause 13 (Variations and Adjustments)…

(iii) no specified rate or price is appropriate because the item of work is not of similar character, or is not executed under similar conditions, as any item in the Contract.’

The work was instructed as a Variation so its qualifies for a new rate or price.

The concrete work included in the Variation was not executed under similar conditions as the concrete work included in the Contract, because it was carried out approximately 16 months after the concrete work included in the Contract was completed and at a time after which the prices had increased so under this provision, it also qualifies for a new rate or price.

The Contractor should therefore be compensated for the increased price of materials.