DEALING WITH PRICE FLUCTUATIONS IN DREDGING CONTRACTS

摘要

Escalation clauses are becoming increasingly common in dredging contracts as a means to deal with unexpected price rises resulting from fluctuations in the cost of raw materials, fuel and labour during the course of the construction project. The fundamentals causing price fluctuations for fuel, labour and raw material (mainly steel) are distinctively different. In order to have a transparent escalation mechanism, independent data sources are preferred. However, this requirement is not always possible. A client should decide during preparation of a tender whether an escalation clause is to be included to deal with price fluctuations of fuel, labour and raw materials. For dredging contracts with short duration it is recommended to have an escalation mechanism for fuel and for contracts with duration over 2 years an escalation of fuel, steel and labour is recommended. The main benefit of a balanced escalation provision in the contract is that it will take speculation out of the pricing of the work by the contractor, which will result in a better focus on the most favourable tender price for the project. As part of its tender estimate a contractor will calculate the costs of fuel, steel and wages, and has to evaluate the appropriateness of the escalation clause as provided by the client to cover the risk of price fluctuations during the execution period of the contract. The present paper describes the application of escalation clauses in general, with practical solutions for common issues, and discusses the decisions a client or contractor may wish to consider during the preparation of an escalation clause for an actual dredging contract.