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Escalation

11 replies [Last post]
Wed, 2003-10-01 07:20
Shahzad Munawar
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If there is no clause of escalation in Contract and project delays due to the Employers default then will it be possible to get claim of escalation in the extended period as well as in original completion period?
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Fri, 2003-12-12 01:15
#1
Carolina Jose
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Kabayan Rex :-)

PD 1594 applies and in combination with the consultant prepared contract patterned after FIDIC. THere is an escalation clause but it applies to local (Peso) component of the contract only. It cannot apply to the foreign portion as stated in the said clause.

THe point I raised was that the project performance have been moved to a period of higher prices compared with the time when the contract should have been performed according to the original schedule. IT was already established that delay was due to the owner and a separate contract clause exists - that during such case, the Engineer and the COntractor will determine the cost incurred by the COntractor due to this delay. The claim related to delay covers the local component of the contract only and the foreign portion cannot be compensated on the basis of existing clause (in PD1594) which states that escalation will only apply to the local portion.

I was thinking maybe it would be more appropriate to say that the an additional cost was incurred due to price escalation (of foreign portion or imported materials/services). THe PD1594 clause for price escalation is indeed applicable only to local portion in the sense that the formula established would use price indices (or K factor) here in the Philippines. As to the foreign portion, or materials/services procured outside the Philippines, the escalation rate from country of source should be the basis.

Regards


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Fri, 2003-12-12 01:12
#2
Carolina Jose
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[duplicate post]
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Tue, 2003-12-09 21:52
#3
Se de Leon
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Hi Carolina kabayan,

I’m just curious, what type of contract are you using is it PD 1594 or FIDIC? I think in both contracts, escalation can be claimed especially in PD 1594 which outlines specifically how you can compute escalation charges.

On the issue of Delay by the owner, please note that an EOT claim is entirely different from escalation claim. Trying to fit in the merits of your claim combining the two issues to me, would be hard to prove. Please note also that in PD 1594 regarding EOT also, you can only be granted the time component but it is not compensable, meaning you can not claim for EOT with cost.

Assuming your claim is very obvious but without clear contractual basis, the dilemma still lies on the one approving the claim.
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Tue, 2003-12-09 00:28
#4
Carolina Jose
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On Mercy Claim, is it really not possible to use as basis an applicable clause in the contract, which states that "Failure of Owner ..." entitles the COntractor an additional cost to the Contract? Assuming a project has been delayed due to owner-cause delay, can we not rely on this applicable clause, which I think is commonly included in a construction contract. I stated that it can be viewed as mercy claim with contractual basis because there is an available provision although it is being contradicted by another contract clause regarding escalation. But can we use the term "additional cost" rather than "escalation cost" to dis-relate it to the escalation clause?
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Tue, 2003-12-09 00:28
#5
Carolina Jose
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[duplicate post]
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Fri, 2003-12-05 03:55
#6
Joe Mansour
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I am facing the same problems:
Almost all conditions of contrats prepared by the owners do not allow for price escalation and subsequent legislation.
A common problem in my country now is the effect of the worldwide increase in the prices of steel reinforcement, that reached up to 35% compared to a year ago (around $100 per ton).
Considering that any building project can easily contain 3000 tons of steel, the losses incurred by contractors were very heavy for any contractor to bear.
Since these losses cannot be claimed under the contract, I was looking for a way out in the governing common laws.
In some legal systems, there is a theory of the unforeseen circustances, which allows the contractor for compensation despite the existence of a clear clause in the contract stating the opposit. The concept behind this theory is that a contractor can bear a certain degree of risk, but when the price fluctuation causes *excessive damages*, then the economical balance of the contract established at the start of the contract, is destabilized.

I am still working on this issue. If anybody is interested, I can keep you updated.
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Thu, 2003-12-04 22:09
#7
Forum Guest
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In addition to the last thread, "I-hope-you-understand-our-situation" approach is also called mercy claim. which may or may not be granted because it may place the other party in dilemma to approve a claim without a contractual basis.
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Thu, 2003-12-04 06:51
#8
Carolina Jose
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Shazad,
I am handling a similar case in a railway project. We are seeking a price escalation for the foreign component of the project cost. The contract explicity stated that no price escalation will be allowed for foreign portion. But my position is to call the claim an additional cost incurred by the Contractor due to "Failure to give Possession of Site", which should be added to the contract price. THe method of calculation for additional cost would be cost increment due to escalation. It’s still a debatable issue because there are contradicting clauses. I believe that it’s approval relies on a negotiating environment between parties, the Contractor should undertake a sort of mercy claim with contractual basis. There is no doubt that COntractor has incurred cost and the Owner may recognize the Contractor’s predicament if the claims negotiator could impart an "I-hope-you-understand-our-situation" approach.

In your case, where no contract has been provided for escalation, try using the above approach.
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Thu, 2003-10-02 21:11
#9
Se de Leon
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Shahzad,

Yes there are some justification which can be made such as the principle of quantum maruit among others. But if the client will have his hands tied on the contract especially for government as client, which is in my case 8 months ago, the ultimate remedy to my mind is arbitration which is very tedious and time consuming. Not to mention it is also an irritant to some which may cause you to lose a client.

Regards,

Se
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Thu, 2003-10-02 07:57
#10
Shahzad Munawar
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Mr. Leon:

You are true in saying that Escaltion claim can not be entertained without Explicit Clause in Contract. It may only be entertained in case of Clause or by conduct but to my understanding there will surely exist a legal remedy for such type of cases

May you or anyone refer such judgements on this type of case?

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Wed, 2003-10-01 20:27
#11
Se de Leon
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Shahzad,

You may want to view one of the post I made regarding "contract provision not stated" in this forum category.

It is really hard to claim something which is not explicitly stated in a contract. You may try to file a claim but if your client would immediately state that what youre claiming is not written in the contract, it would be quite hard to deal with that. Sometimes we call this mercy claim.

Regards,

Se
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