The Office of Government Procurement has today published a suite of interim amendments to the Capital Works Management Framework (CWMF) to address the risk of price inflation to construction materials in public works contracts. The amendments, which are summarised below, are those interim amendments (‘the amendments’) that are described in Section 3 of the Guidance on public works tenders with respect to construction material price inflation (“the Guidance”), as published by the Office of Government Procurement on 24 November 2021 and should be read in conjunction with the Guidance.
The amendments comprise the introduction of the following measures:
a) Limited indexation to apply to the successful Tenderer’s tender (applies to PW-CF1 to PW-CF6 inclusive):
New measures are introduced to mitigate the risk of construction material inflation that occurs within a specified period prior to the award of the standard forms of public works contracts PW-CF1 to PW-CF6 (inclusive). Formulae have been introduced to the Instructions to Tenderers for these contracts to determine the extent of an increase (if any) that will apply where the price of construction materials, as measured by relative movements in a specified index (See Note 1), has increased above a specified threshold.
There are two distinct approaches where the formulae determine the adjustment:
– In the case of PW-CF1 to PW-CF5 (inclusive), the formula determines an ‘Applicable Factor (Contractor)’ that will adjust each interim payment to the main contractor, and where there are named Specialists (Novated or Reserved) in the contract, a separate ‘Applicable Factor (Specialist)’ will apply to their payments.
– Where PW-CF6 is concerned, the formula determines the adjustment to apply to the successful Tenderer’s tendered price to arrive at the final tendered price for the contract.
In both approaches described above, an adjustment will not result in a reduction in the successful Tenderer’s tender.
In the first instance, the Applicable Factor or the adjustment to the tendered Price (as appropriate), will be notified by the contracting authority in the Letter to the Successful Tenderer. Where the specified index is up-dated within the period prior to the issue of the Letter of Acceptance or Tender Accepted (as appropriate), the relevant formula in the Instructions will be re-applied, and a new notification issued to the successful Tenderer of the revised figures to apply for the contract.
The relevant Tender and Schedules for these public works contracts have been amended to allow for the inclusion of the values for the Applicable Factor (PW-CF1 to PW-CF5), and the final tendered Price (PW-CF6) in the relevant contract.
b) Amendment to PV1 and PV2 (applies to PW-CF1 to PW-CF5 inclusive only)
In PW-CF1 to PW-CF5, the price variation clauses PV1 and PV2 (“PV1 and PV2”), have been amended with respect to the fixed price period as follows:
i. Reduction in the duration of the fixed price period
The duration of the fixed price period for both PV1 and PV2 is reduced to 24 months, which now commences on the Tender Inflation Indexation Date (See Note 2).
ii. Adjustment to the Contract Sum for materials price inflation or deflation during the fixed price period
Under amendments introduced to both PV1 and PV2, within the amended fixed price period of 24 months, and subject to meeting the particular requirements of PV1 and PV2 (as applicable), as summarised below, the contract sum shall be
-increased where the price of a material has increased by more than 15% of the price of the material on the Tender Inflation Indexation Date; and
-decreased where the price of a material has decreased by more than 15% of the price of the material on the Tender Inflation Indexation Date.
Guidance
With respect to those measures outlined in a) above, worked examples on the application of the formulae have been provided in a new appendix to the relevant Instructions to Tenderers and guidance on how to access the specified index has been published here.
With respect to those measures outlined in b) above, Guidance Note 1.5.2 Price Variation is currently being updated to assist contracting authorities in implementing those new measures.
Implementation
A summary of the amendments made to documents published under the Capital Works Management Framework may be found here.
The amended documents take effect from the date of publication and contracting authorities should therefore make appropriate arrangements that the amended documents are used.
Subject always to the particular circumstances of a tender competition, contracting authorities currently conducting a live tender process should note that:
-where the standard form of Instructions to Tenderers for PW-CF 1 to PW-CF 5 are in use, that the amended forms of contracts will apply to those tenders that are due to be received from the 18th January 2022 onwards (See Note 3). Therefore, it is recommended that contracting authorities make appropriate arrangements to provide the relevant amended documents for such competitions.
-where the competition is for PW-CF6, that while the standard form of contract for PW-CF6 is not affected by the amendments, the Instructions to Tenderer and the Tender and Schedule are amended. Therefore it is recommended that those contracting authorities electing to include the amendments relevant to PW-CF6, make appropriate arrangements to provide the relevant amended documents for such competitions.
Contracting Authorities are advised to consider the potential impact that the amendments may have on the particular circumstances of a project and seek expert advice if necessary.
Notes:
- The specified index is the index for the “All Materials” category in Table 3 ‘Detailed Wholesale Price Indices (ex VAT) for Building and Construction Materials’ in the Statistical Release for the Wholesale Price Index published monthly by the Central Statistics Office.
- The Tender Inflation Indexation Date is the last day of the month in which the latest available index is published at the Contract Date.
- Being 10 days after the publication of the amended form of contracts on 7th January 2022 and disregarding the day of publication.