PRICE ESCALATION



Guidelines for arriving at the cost of Price Escalation of labour and other materials

A)steps for calculation of % of various components in each package

1)List out all the working items in the ibm estimate along with the unit rate and total cost of the item and enter in col.s(1) to (6) of statement A

2) Calculate the percentage of a) cement component b) steel component, c) fuel component, d)labour component, e) machinery component of each item of work based on the data adopted in the ibm. If the fuel component is already approved for the package, the same may be taken. The other materials component will be 100-(cement component +steel component+fuel component+labour component+ machinery component)

3) The calculation of other materials component is only approximate and the actual % of other materials may be arrived at the end of execution and the necessary adjustment is to be made.

4) If the separation of the above components is not possible in the data adopted for ibm, consider the data of that year (the year in which the new standard data is published) for arriving at the % of various components in each item work.

5)Then, calculate the cost of the various components mentioned above i.e. labour component, other material component etc. for each item of work based on the % of each component calculated in step(2) and enter into col.s (7) to(11) of statement A.

6) Calculate the total of each component for the total packages.

7) Divide the total of ech component by the total cost of the working items of the package listed in step (1) to arrive at the % of each component for the entire package.

8) statement A is enclosed to enter all the calculations from step (1) to step (7).

B) Calculation of financial Implication due to allowing price escalation for labour and other materials from the end of agreement period.

1)Arrive at the month wise value of work done after the end of agreement period up to that month and enter into col.s(1) to (3) of statement B.

2) To calculate the price escuation for labour. Apply month wise price index of labour (statement enclosed) using the formula:

0.85xp/100 xR x(l1-l0)/l0

Pl=% factor for labour component arrived in step A(7)

R= total value of work done during the month

L1= price index for industrial workers for that month

L0= price index for industrial workers at the time of agreement

3)Calculate the total price escalation for labour by adding the month wise price escalation up to that month calculated in step (2)

4) To arrive all the price escalation for other materials.

Apply month wise price index of all commodities using the formula:

1)arrive at the cost of balance work at the end of that period taking into consideration the quantities in ibm estimate. Only the packages for which agreement period is completed on or before Agreement Period are to be considered.

2)To calculate the priceescalation for labour. Apply price index of labour for that month using the formula:

0.85Xp100XRX(l1-l0)/l0

p1=% factor for labour component arrived in step A(7)

R=balance value of work after that month

L1=price index for industrial workers for that month

L0=price index for industrial workers at the time of agreement

3) to arrive at the price escalation for the materials apply price index of all commodities for that month using the formula:

0.85Xpcm/100XRX(ac1+ac0)/ac0

pcm=%factor for other materials components arrived in step A(7)

R=balance value of work after that month.

ac=price index for all commoties for subsequent month

ac0=price index for all commities at all the time of agreement

0.85Xpom/100XRX(ac1-ac0)/ac0

pom=%factor for other materials component arrived in step A(7)

R=total value of work done during the month

ac1=price index for all commodities for that month

ac0=price index for all commodities at the time of agreement

5) calculate the total price escalation for other material by adding the month wise price escalation up to that month calculated in step(5)

6)To arrive at the price escalation for machinery apply month wise price index of machinery & machine tools (statement enclosed) using the formula:

0.85Xpm/100XRX(m1-m0)/m0

pm=foctors for machinery component arrived in step A(7)

R=total value of work done during the month

m1=price index for machinery & machine tools at the time of agreement

m0=price index for machinery& machine tools at the time of agreement

7)calculate the total price escalation for machinery by adding the month wise price escalation up to 7/2012 calculated in step(7)

8)enter all the calculations in statement B enclosed

C) Calculation of financial implication due to allowing price escalation for labour and other materials from:

4)To arrive at the price escalation for machinery, apply price index of machinery & machine tools for the month of... using the formula:

0.85Xpm/100XRX(m1-m0)/m0

pm=%factor for machinery component arrived in step A(7)

R=balance value of work after that month

m1=price index for machinery &machine tools for subsequent month

m0=price index for machinery & machine tools at the time of agreement 

5)enter the calculations in the statement C enclosedd) CO

D)Consolidated staement for the entire project

After calculating the price escalation for individual packages enter the value in the consolidated staement D and E  for the entire project

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