FLUCTUATION CLAUSES IN SINGAPORE : ADJUSTMENT METHODOLOGY IN THE PSSCOC AND SIA STANDARD FORM OF CONTRACT

Abstract

Construction contracts are often faced with the problem of increases in prices of construction materials during their lifetime, due to the long periods of time over which they have to operate. An increasingly popular method of dealing with this problem is by the insertion of clauses that deal with price fluctuation. However, the extent to which these clauses are effective in providing an equitable risk-sharing regime will depend upon their exact drafting. This study examines the price adjustment methodology set out in the PSSCOC and SIA Form and provides suggestions for the improvement of the fluctuation clauses in both contracts. In particular, two aspects of the price adjustment methodology are examined in detail: how the quantity of materials to be used for the computation, and the price difference, is calculated. Relevant judicial decisions are analysed to determine the effect of changes in price subsequent to the contract date and the lessons that could be learnt. Practical aspects of price adjustment are also dealt with based on interviews with three QS practitioners. Fluctuation clauses in other contracts are used as alternatives for the purpose of comparison and suggestions for improvement. It is concluded that the appropriate quantification methodology is not clearly expressed in the PSSCOC and SIA Form clauses to address the issues identified, and several suggestions are provided as to how the methodology can be improved. The study concludes by noting the limited number of interviews done and the focus on only two main problems in the adjustment methodology which constitute the primary constraints on the analysis carried out. Recommendations for future angles of research are also made.