Railway Accounts Department Examinations

Tuesday, October 19, 2021

Price Variation clause

PVC – Price Variation Clause

  • Source: 46A of GCC for works


  • Purpose: 


  • To resolve the conflicts between Contractors and Railway due to variation in prices

  • To protect the interests of Contractors as well as Railways against the rising and declining prices of

  • components of the Contract respectively.



  •  Applicability:  Contract agreement value is Rs. 5 Crores or more.


  •   However the authority competent to accept the tender or SAG officer of Executive Dept,

  • whichever is higher may decide that PVC shall not be applied to the contract’s Agreement

  • value of Rs. 5 Crores or more   OR that PVC  shall apply to the contract’s Agreement value

  • of less than 5 Crores also.  Such a decision should be taken with the concurrence of associated

  • finance and the same should be incorporated in the Special conditions of Contract

  • before issuance of NIT – Notice Inviting Tender.

                             

  •  Example: Estimated value of Tender is Rs. 5.50 Crores  (as per NIT).  But the value of the Contract

as per Contract Agreement is  Rs. 4.75 Crores, then PVC shall not apply, even if the actual final value
is Rs.5 Crores  or more due to variation in quantities during the execution of the Contract. 
Thus variation in quantities after signing of Contract Agreement is not relevant for deciding whether
PVC is applicable to a Contract or not.


  • PVC shall not be applicable to a Works Contract which is either an AMC or a Zonal Contract.

                               


  • PVC shall not be admissible for the following items


  1. Specific payments to consultants.

  2. Materials supplied free of cost by Railways to the Contractor

  3. Fixed component.

  4. Any extra NS items included in subsequent variation





  • Base Month: Shall be taken as month 28 days prior to opening of Tender including extensions,

  • if any, unless otherwise stated elsewhere. 


Example1: 5th July, 2021 is Tender Opening Date.  In this case, June, 2021 is the Base month. 

Example2: 31st May, 2021 is Tender Opening Date.  In this case, May, 2021 is the Base month. 


  • Base Quarter: Shall commence from the month following the Base month.  


In above Example1: The Base Quarter is July to September, 2021. 


In above Example2: The Base Quarter is April to June, 2021


  • The Price Variation shall be based on the average Price Index of the Quarter under consideration.


  • The percentages of different components of various types of engineering works are as follows.


Type of work

Earth work, Ballast

supply, Tunneling

(without explosives)

Tunneling

(with explosives)

Bridges

Buildings

P.Way

Others

Labour

20

20

20

40

50

20

other material

10

15

30

35

5

20

Plant, Machinery

& Spares

30

15

20

5

15

30

Fuel & Lubricants

25

15

15

5

15

15

Detonators &

Explosives

-

20

-

-

-

-

Fixed Component

15

15

15

15

15

15

Total

100

100

100

100

100

100


  • Fixed component @15% shall not be considered for any price variation.  






  • Formulae for Labour component : 

        W x (Lq – Lb)  x Lc

        L  =     ___________     ___

                                        Lb                   100


Where

 L = Amount of price variation in Labour

W= Gross value of Work (excludes: Specific payments to consultants, material supplied by Railways at

fixed price, Price value of Steel & Cement) 


Lq= Consumer price index number for Industrial workers – All India published by RBI for the

Average price index of the 3 months of the Quarter under consideration.

Lb= Consumer price index number for Industrial workers – All India published by RBI for the Base period.

Lc= % of Labour component


  • The above formulae is applicable for other components i.e., Other Materials, Plant & Machinery,

Fuel & Explosives.  (not applicable for Cement & Steel) 


  • Formulae for Steel : 

        Sw x (Sq – Sb)  

        S  =     ___________    

                                        Sb                  


 S = Amount of price variation in Steel 


Sw= Gross value of Steel supplied by the Contractor as per the On Account Bill for the month under consideration.  


Sq= Index number of Monthly wholesale Price Index for the relevant category of mild steel  item  for the Average price index of the 3 months of the Quarter under consideration.(DIPP)


Sb= Index number of Monthly wholesale Price Index for the relevant category of mild steel  item  for the Average price index of the Base period under consideration.(DIPP)


  • Formulae for Steel is equally applied to the Cement component too. 







  • PVC – Extended period of Contract


  1. PVC applicable , if extension granted vide Clause 17-A of Standard GCC. (Due to delay on part of Railways)

  2. PVC not applicable, if extension granted vide Clause 17-B of Standard GCC. (Due to delay on part of Contractor ) But if PVC is favorable to the Railways, that is the rates under consideration are decreased, then the PVC is applicable even under the extension is granted vide clause 17-B of Standard GCC.


  • Example: Construct a PV formula from the following data of Building Contract.  Total Agreement Value is Rs.2,40,000.  ( includes: Consultant payment - Rs. 10000, Cement - Rs. 20,000, Steel - Rs.10000) 


Component

Percentage

Fixed component

15

Labour

40

Other materials

35

Plant, Machinery & Spares

5

Fuel & Lubricants

5

Total

100


  • Base rate indices and End of Quarter figures for the Indices are as follows.


Particulars

Base Quarter Period index

End of the Quarter under consideration index

Labour

100

105

Fuel (F)

200

150

Cement ( C)

600

630

Steel (S)

500

535


Workout the PV payable

W= Gross Value = Rs.2,40,000 - Rs.40,000 (Excluded items) = Rs.2,00,000







Solution: 


Labour component ( L):


                                   W x (Lq – Lb)  x Lc

        L  =     ___________     ___

                                        Lb                   100


      2,00,000  x ( 105 -100)  x   40

   = -------------------------------     ----  =  Plus Rs.4000

                      100                      100


Fuel Component (F):


                                   W x (Fq – Fb)  x Fc

        F  =     ___________     ___

                                        Fb                   100


     2,00,000  x ( 150 -200)  x      5

   = -------------------------------     ----  =  Minus 2500 

                     200                        100



            Cement Component (C):


                                    Cv x (Cq – Cb)  

        C  =     ___________    

                                            Cb                  


                  20,000  x ( 630-600)  x        

   C  =     -------------------------------       =  Plus 1000 

                              600   

                        

            Steel Component (S):



                                        Sw x (Sq – Sb)  

        S  =          ___________    

                                               Sb                  





                  10,000  x ( 535-500)  x        

   C  =     -------------------------------       =  Plus 700 

                                 500   



Total of variation = 4000 – 2500 + 1,000  + 700 = Rs. 3200


Revised amount to be paid to the contractor = Rs.2,40,000 + Rs. 3,200 = Rs. 2,43,200

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