New price clause for design-build projects

New price clause for design-build projects
By Hamidah Atannews@nst.com.my
2008/05/14


PUTRAJAYA: A new contract clause for price variations in steel will be introduced for all government design-and-build projects.

The Finance Ministry said this would minimise the risk in price variations shouldered by contractors when the ceiling price of steel is abolished.The current design-and-build contract does not have a clause that takes into consideration changes in the price of steel, the ministry said in a statement released yesterday.Prime Minister Datuk Seri Abdullah Ahmad Badawi said on Monday that the cabinet had decided to scrap the ceiling price of steel effective May 12, in view of numerous complaints on the high price of steel, particularly billets and steel bars and difficulties in getting supplies at the ceiling price.He said steel was sold at a much higher price on the world market and this would affect the construction industry and the implementation of development projects.

Currently, the ministry said, government conventional contracts for civil work and buildings followed a contract clause on price variation.
(a) "For civil work contracts, the calculation formula for price variation currently used is based on the price of transaction and this method will continue.
(b)"For building work contracts, the calculation method is based on the cost index of 15 construction materials, including steel."This formula will be reviewed where changes in the price of steel will be based on the market price and calculated separately from the index of the construction items," he said.It also said
(c) the ministry would be issuing a circular on the implementation of the calculation formula for price variations in the shortest possible time. It said contract applications by contractors should be forwarded to the relevant implementing agencies as was the practice now.The ministry added the calculation methods will also be made effective on May 12.

Abdullah had said that the government had agreed on three liberalisation measures to assist contractors.The cabinet, he said, agreed to
(1)scrap the ceiling price to enable contractors for government projects to apply for changes in the contract price based on the market price for steel. The government also agreed to (2) exempt steel importers from applying for import licences. This will exempt them from paying import duties. Abdullah also said local steel producers or entrepre-neurs
(3) could now export their steel-based products.The measures are in line with the government's aim to make sure national development will take place as planned.They will also make the market for steel-based products more efficient and transparent.