A New Fee Adjustment Mechanism for Inflation has been introduced into the Standard Conditions of Engagement of the CWMF
12 September 2024
The Minister for Public Expenditure, NDP Delivery and Reform has today announced the introduction of a new Fee Adjustment Mechanism for Inflation into the Standard Conditions of Engagement for Consultancy Services (Technical) (COE1) and the Standard Conditions of Engagement for Archaeology Services (COE2).
From the date of publication set out below, the conditions of contract used to engage consultant technical professionals and archaeologists will permit fee adjustment for inflation in accordance with movements in specified indices published by the Central Statistics Office.
The key aspects of the new Fee Adjustment Mechanism are:
- The tendered fee and tendered hourly rates will remain fixed for a period of 2 years from the date 10 days prior to the deadline for receipt of tenders on lump sum contracts and for a minimum of 2 years on percentage fee contracts.
- After 2 years the fee will be adjusted, on an annual basis, by a factor that is applied to any fees earned in the subsequent year.
- The factor will be calculated by the Office of Government Procurement and published on the Capital Works Management Framework website.
A more detailed description of the new Fee Adjustment Mechanism is available later in this note.
The new provisions are contained in the amended forms of COE1 and COE2 which will be published on 30 September 2024 and will apply to contracts awarded pursuant to tenders received on or after the 10 October 2024.
Contracting authorities with live and upcoming tenders for works-related professional and archaeological services are asked to carefully consider the recommendations set out in this note.
As a result of the replacement of the fee adjustment mechanism in the Prolongation clause, changes have been made to the Form of Tender and Schedule (FTS-9 & FTS-10).
The OGP is publishing the Forms of Tender and Schedule used with COE1 and COE2 in advance of publishing the conditions of contract. This will allow Contracting Authorities with live tenders to prepare for the introduction of the new Fee Adjustment Mechanism for Inflation.
FTS-9, FTS-10 and a schedule of amendments to the contract conditions will be published on 16 September 2024. The revised conditions of contract (COE1 & COE2) will be published two weeks later, on 30 September 2024, accompanied by a note describing the methodology for calculating the factor that will be used to adjust the fee annually.
Contracting Authorities are no longer required to enter a Total Performance Period in Schedule B. Contracting Authorities are however still required to provide durations for Stage Performance Periods in Schedule B. It is recommended that Contracting Authorities continue to give careful consideration to arriving at appropriate durations for the Stage Performance Periods to perform the Services.
Further, Contracting Authorities should include in the Service Requirements, estimates of durations required between Stage Performance Periods for approvals (such as statutory approvals, funding approvals, business case approvals) (“inter-Stage periods”). The total of the Stage Performance Periods and inter-Stage periods provide Tenderers with an estimate of the total duration during which the Services will be required to be performed.
What Contracting Authorities need to do now
It is essential to use the correct version of tender documents in competitions. The changes outlined in this note have particular implications for live tenders.
Contracting Authorities are reminded to always use the most recently published version of documents when conducting tenders. In particular, the Instructions to Tenders provides that it is that version of the relevant contract published ten days before the tenders are due that applies to the tender procedure
Actions Required by Contracting Authorities – where the tender submission date is on or after 10 October 2024.
- Give careful consideration to the realistic time periods required to complete each stage of the Project and estimate as accurately as possible.
- Ensure that the Form of Tender and Schedule (FTS-9 or FTS-10 as appropriate) used on the tender has a publication date of 16-09-2024, or after. Reissue if necessary.
- Clarify that in Section 4.1 of the ITT, that the second sentence is amended by the deletion of “The total performance period for the performance of the Services, together with” is deleted. The sentence is to read “The Performance Periods for performance of each stage of the Service, are set out in Schedule B to the Conditions of the Engagement”.
- Inform Tenderers (by way of Supplemental Information) of the changes set out in this note and draw their attention to the total duration over which the Services are to be performed, including any inter-Stage periods.
In order to accommodate the changes to the contractual terms in the Conditions of Engagement and the Form of Tender and Schedule, it is recommended that Contracting Authorities consider extending the tender deadlines or internal procurement timelines, where appropriate.
Introduction of a new Fee Adjustment Mechanism for Inflation
The mechanism for adjusting fees for inflation in the Prolongation clause is removed and replaced by a new fee adjustment mechanism in the Payment clause.
The new fee adjustment mechanism provides that tendered fees and tendered hourly rates are fixed for an initial duration of 2 years (from the date that is 10 days prior to the submission of the tender) and thereafter are subject to adjustment for inflation. The adjustment is carried out by applying the Conditions of Engagement- Fee Adjustment Factor (‘the COE-FAF’) to the amount of fee payable.
The COE-FAF is a composite factor that has been developed for use with the COE. The factor uses movements in economy-wide wages and prices that are compiled by the Central Statistics Office. Seventy per cent (70%) of the fee will be adjusted for increases in average hourly wages figures, and twenty per cent (20%) of the fee will be adjusted for movements in the Consumer Price Index (CPI). Ten per cent (10%) of the fee is not subject to adjustment. The COE-FAF operates on a risk-sharing basis, whereby the Client bears the first 2% increase in the average hourly wage figure and the CPI, and thereafter will bear 70% of any increase in excess of 2%. The COE-FAF Methodology will be published alongside the Standard Conditions on 10 October 2024.
To minimise the administrative burden for Clients and Consultants, the OGP will calculate the value of the COE-FAF on a regular basis and publish it on the CWMF website. The first COE-FAF will be published in Q4 of 2026, which is the earliest date that the new mechanism may be operational for contracts tendered from Q4 of 2024 onwards.