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CYBER QS ONLINE CPD SERIES 22.04.2020

ADJUSTMENT OF
CONTRACT PRICES
USING CIDA
FORMULA METHOD
PRASAD S. DISSANAYAKA
B.Sc. (QS) Hons, AIQS(SL), MCIOB(UK), Pg. Dip. Commercial Arbitration
Chartered Quantity Surveyor and Chartered Construction Manager

Why we need to adjust contract price…?

• Many Reasons ............
Local & International
Economical & Political ………etc.

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Contractual situation …….

• Due to those reasons Contractors suffered many

losses in the projects …
• This has discourage the industry
• As a solution to this issue there were researches to
find solutions to this issue.

Contractual situation …….

• ICTAD introduced the “Formula Method” in 1993.
• This has introduced to the Conditions of Contracts
• Now this is applicable in any Construction project.
• This will cover the costs related to Labour, Material &
Plant in Construction projects.

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What is the Formula …?

• Formula has introduced in two versions.
1. For Contract not exceeding 10 Million
2. For Contract exceeding 10 Million

Formula for Contracts exceeding 10 Million

F = 0.966 (V – Vna ) ∑ Px (Ixc – Ixb)
100 all inputs
Ixb
F = Price adjustment for the period
V = Valuation of work done during the period concerned
Vna = Value of non – adjustable element
Px = Percentage cost contribution of input X
Ixc = Current index for input X
Ixb = Base index for input X

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Calculation of Price Fluctuation Value

There are two majour steps ………
Calculation of fluctuation factor = 0.996 (V – Vna) 1
100

Calculation of Total change of index = ∑ Px (Ixc – Ixb) 2

Ixb

Current value of price adjustment = 1 X 2

Formula for Contracts exceeding 10 Million

• V = (Vc + Mc) – (Vp + Mp)
• Vc = Cumulative Value of work done during the period
concerned.
• Mc = 80 % of the invoiced value of material used for
permanent works on current valuation.
• Vp = Cumulative Value of work done up to previous claim.
• Mp = 80 % of the invoiced value of material used for
permanent works on previous valuation.

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Formula for Contracts exceeding 10 Million

• Vna = Vnac – Vnap
Vnac - Cumulative of work certified under items specified
as non-adjustable element up to the current bill
Vnac - Cumulative of work certified under items specified
as non-adjustable element up to the Previous bill

Px – Percentage cost contribution of input X

• Input percentages to be calculated based on to the
cost of the major item required for the
construction.
• Major items are identified as groups according the
Labour, Material & Plant categories.
• Following sequence of steps are suggested for the
input percentages calculation.

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Px – Calculation of Input Percentages

• STEP 1 –
Identification of Non-Adjustable elements
This will include,
– Preliminary Items –
– All Provisional Sum Items –
– Contingencies –

Px – Calculation of Input Percentages

• STEP 2 –
Disregarding of items for which the breakdown of inputs
cannot be given easily
Especially,
– Work items such as Lumpsum Items –

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Px – Calculation of Input Percentages

• STEP 3 –
Grouping of Items
– When looking at the BOQ we can find out there are items which
have similar inputs.
– Those are to be grouped together accordingly
– When there are items with similar inputs but measures by
different units, such items to be grouped together with
necessary unit conversions.

Px – Calculation of Input Percentages

• STEP 4 –
Identification of Cost significant Groups
– After the grouping the groups are need to rearrange in descending
order according to the total value of grouped items.
– By completing this step you will be able to view that some of the
groups are represent a majority of the project cost and some
groups are representing only a small portion of the project cost.
– It will help to identify the most cost significant works groups.

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Px – Calculation of Input Percentages

• STEP 5 –
Computation of Input Quantities
– Standard norms for the each work group should use for this.
– By applying the standard norms total quantities of each & every
input of each group shall compute.
– Some of the works groups are not easy to break in to the basic
inputs. In such cases they are to be break apart considering the
contribution percentages. [Such as Aluminum, Electrical works etc.,]

Px – Calculation of Input Percentages

• STEP 6 –
Calculation of Contribution of input costs
– Total input costs to be calculated by applying the input rates in to
the calculated input quantities.
– In this process input costs are considered excluding the OH&P
components associated with composite unit rates.

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Px – Calculation of Input Percentages

• STEP 7 –
Computation of Input proportions
– All the inputs are need to rearrange in a descending order
considering the total cost of each input.
– Based on this the percentage contribution of each input to the
project to be calculated.
– Finally the most cost significant inputs are identified and less cost
significant input items are disregarded since the total impact of
those are minor.

Ixb - Base Index

• In accordance with the CIDA Formula method base it is
important to correctly identify the base input.
• The applicable input period for the base indexes shall be the
month 28 days prior to the bid closing date.
• The inputs published during that month shall be applied as the
base indexes.

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Ixc - Current Index

• For the first month or first interim valuation of the project
Current index month shall be considered as the month applicable
to the project commencement date.
• For all other valuations current index month shall be the month
after the previous valuation.

THANK YOU

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