Fluctuations

Question 1

What does fluctuation mean?

Answer 1

Change

Relevant to price changes

Question 2

What is a cost fluctuation?

Answer 2

The change in a cost

This may be due to inflation or other market preasure

Question 3

What does the NRM2 say the two ways of dealing with price fluctions are?

Answer 3

1. Contractor Prices the risk
2. A fluctuation price contract (fluctuation clause)

Question 4

What is a fluctuation clause?

Answer 4

A clause in the contract that will mean that the contractor can claim either some or all of an anmount of costs fluctuation.

Question 5

In a volitile market should the contractor price the risk or should a fluctuation clause be used?

Answer 5

In a situation of a volatile market a fluctuation clause will ensure that that the contractor receives a fair fee and won’t be over paid or underpaid. If the client is willing to accept a bit of price uncertainty, they may end up with a cheaper overall price

“Those best able to accept, quantify and manage the risk”

Question 6

How many Fluctuation options are there in standard JCT lump sum contracts?

Answer 6

1. Option A
2. Option B
3. Option C

Question 7

Where would you find details of a fluctuation clause?

Answer 7

In the Contract Particulars

Question 8

In a standard JCT Lump sum contract what does the fluctuation clause Option A include?

Answer 8

Fluctuations because of tax policy change

In April 2002 Gordon Brow changed nation insurance – he rose it to pay for national health service – this will have increased a contractors cost to labour.

Question 9

In a standard JCT Lump sum contract what does the fluctuation clause Option B include?

Answer 9

Fluctuations for labour and material costs as well as tax fluctuations

This rate for labour will be based of wage fixing bodies such as the Construction industry Joint Council

Question 10

In a standard JCT Lump sum contract what does the fluctuation clause Option C include?

Answer 10

Formulae adjustment using indecies.

This adjustment will cover the whole works

Diffrent indecies can be used (relevant to the specific works)

Question 11

When picking an index to use in a fluctuation clause - what is important to understand?

Answer 11

How it is calculated and who by – it is also important to know that it will remain to be published for the course of the contract.

Index shouldnt be used on past performance.

Considering what index to use will be a bilateral process and will mainly involve decisions based around what the project is and what index will be most relevant to communicate accurate market change of the materials and cost associated with the project.

Question 12

What is the JCT default possition on fluctuations?

Answer 12

Option A - fluctuations dealing with tax policy

Question 13

In a JCT where are fluctuations dealt with?

Section & Clauses?

Answer 13

Section 4 - Payment

Clauses 4.21 & 4.22
Schedule 7

Question 14

What is excluded from labour fluctuations under JCT Option B

Answer 14

1. Non productive overtime
2. Wage costs that the contractor pays above nationally negotiated wage rates

Question 15

Are fluctuations after the date of completion recoverable?

Answer 15

Yes, but the level of materials / labour / statutory costs is frozen at the date completion should have occurred

Question 16

How is retention applied to amounts calulated from the fluctuation options in JCT?

Answer 16

Amounts under option A & B are not subject to retention
Amounts under option C are subject to retention