Review of Construction Environmental Capital Law (No. 14) | "Adjustable Price" Analysis

Basic Interpretation of 1.

An adjustable price is a form of price agreed upon by both parties in a contract. Article 23.2 of the General Clause of the 1999 Version of the Model Construction Contract distinguishes between three ways of determining the contract price, namely, fixed-price contracts, adjustable-price contracts, and cost-plus-fee contracts. Article 23.3 further clarifies that the adjustment factors of the contract price in the adjustable price contract include: 1. Changes in laws, administrative regulations and relevant national policies affect the contract price; 2. Price adjustment announced by the project cost management department; 3. Within one week, the suspension of water, power and gas caused by non-contractor reasons exceeds 8 hours in total; 4. Other factors agreed by both parties. Article 23.4 specifies the adjustment procedure of the contract price in the adjustable price contract: the contractor shall notify the engineer in writing of the reason and amount of the adjustment within 14 days after the occurrence of the 23.3, and the engineer shall confirm the adjusted amount as the additional contract price and pay it at the same time as the project payment. If the engineer does not confirm or propose modification within 14 days after receiving the notice from the Contractor, the adjustment shall be deemed to have been agreed.

When the "1999 version of the construction contract model text" was promulgated and implemented, China's project pricing adopted a fixed-rate pricing model, so the "1999 version of the construction contract model text" in the clear adjustable price is in the traditional fixed-rate pricing model of the contract pricing method. In practice, the adjustable price is relatively small for the contractor, but for the contractor, it may not be conducive to its investment control, and the risk of breakthrough investment is relatively large.

Under the conditions of the 1999 version of the Model Construction Contract, adjustable price and fixed price are relative concepts. Adjustable prices include price adjustment factors, which can be adjusted for contractually agreed factors, I .e., changes in quantities and price changes are normal in an adjustable price contract. It is generally believed that the fixed price shall be borne by the contractor for all price risks (in judicial practice, unless there is sufficient evidence to prove that changes in circumstances such as abnormally high materials and no adjustment to the fixed price will lead to serious imbalance of interests of the parties); In the case of fixed unit price, quantitative change is allowed, but the unit price itself is not allowed to change; in the fixed total price, quantitative change should be distinguished; outside the scope of risk, such as changes in the amount of work caused by design changes will inevitably lead to changes in the total price, but such changes in the total price is not a breakthrough in the fixed total price agreement.

The adjustable price problem in the fixed pricing model of 2..

According to the quota settlement, three elements need to be determined: the first is the calculation standard of engineering quantity, which is generally based on the construction drawing (as-built drawing), and if changes are involved, it is supplemented by a valid engineering quantity visa; The second is the calculation standard of consumption, which is generally agreed to be based on the local quota of the project and relevant supporting materials. The third is the unit price of "human resources machine, it is generally agreed that the average price of the local project cost information during the construction phase is the pricing standard.

1. Selection of quota documents

The construction contract should accurately describe the name and version of the applicable quota document to prevent disputes over the basis of cost calculation during settlement due to inaccurate quota name or unclear agreement. In practice, contractors are often more willing to use the old quota, because the technological level and management level of the old quota are obviously lagging behind those of the new quota, and its consumption is larger than that of the current construction. If more consumption is multiplied by the fixed quantity and information price, the cost is naturally higher than that of the new quota. On the other hand, the contractor prefers to use the new quota. Therefore, the applicable quota must be clearly and accurately agreed in the contract, otherwise it is very easy to produce disputes. At the same time, the application of quota is regional. Generally, the quota documents of the project location should be selected. All provinces and cities in the country have formulated and issued local quota documents. Although the contents are similar, their names, compilation methods and specialties are different. The name and version of the applicable quota documents should be accurately described in the contract to prevent disputes in settlement.

2, the material price agreement.

Usually the method of determining the price of materials includes: fixed price, market price, Party A refers to pricing, information price and so on. Among them, although the fixed base price has the unit price of "talent machine", but the fixed base price is the price determined when the quota is prepared, does not change with time, unless there is a new version of the fixed base price, so the fixed base price is often lower than the construction of the material market price. Therefore, according to the principle of fairness, an agreement should be made on the material price as the basis for adjusting the difference between the fixed base price. Comparing these price methods, information prices are more commonly used. It is published monthly on the basis of the fixed base price, with reference to real market price fluctuations, reflecting the current month's market price, which is generally higher than the fixed base price. Information price is the average price calculated by the government cost department through market research and weighted average, usually in the local publication of the "construction cost information" journal query, the journal is generally monthly, often updated once a month.

However, the information price cannot cover all building materials. When the information price of a certain material cannot be inquired, it can be agreed to take the purchase price as the basis for settlement. When the construction time span is long, it can be agreed to take the average price of the local project cost information in the construction stage as the pricing standard. If no information price is announced during the construction period, it can also be agreed to refer to the information price given by the provincial cost management department, the information price published by the cost management department of the adjacent administrative region or the information price of the recent period in the region. By agreeing on a layer-by-layer basis through these methods, materials can effectively plug all possible loopholes and prevent similar disputes in settlement.

3. Agreement on labor costs

With the increase of labor cost in the market, the proportion of labor cost in the project cost is getting higher and higher, so the labor cost must be clearly agreed, otherwise it is easy to produce greater disputes. The unit price of labor in the quota is relatively fixed with the quota, and the standard is usually lower than the market price. Some construction contracts will agree to adjust the contract price according to the local policy price adjustment documents, and the fixed labor cost will be adjusted accordingly. However, the adjustment range of labor cost in this way is relatively small and cannot make up for the actual gap. However, some construction contracts stipulate that the adjustment of the "talent machine" will refer to the information price. Although this agreement is more reasonable than the policy price adjustment, from the actual reflection of the market, even if the unit price of labor costs is determined according to the information price, there is still a big gap with the actual market price of labor costs. Therefore, it is best to agree in the contract to directly determine the unit price of each type of labor cost in the form of a visa, if this is not possible, at least also agreed in the contract to publish the upper limit of the range of labor costs according to the information price to determine the unit price of each type of labor cost.

The change of 3. project pricing model and the development and change of adjustable price.

China has long adopted the fixed-rate pricing model in the project valuation method, and after the implementation of the 2003 version of the list pricing specification, China's project pricing has adopted the "dual-track system" of project quantity list pricing and fixed-rate pricing, and then the regulations and norms of fixed-rate pricing and project quantity list pricing have been further adjusted and developed accordingly, for example, the Ministry of Finance and the Ministry of Construction have promulgated and implemented the Interim Measures for the Settlement of Construction Project Prices (Caijian [2004] No. 369), the 2008 version of the List Pricing Specification, the 2013 version of the List Pricing Specification, and the Measures for the Management of Construction Contracting and Contracting Pricing.

With the implementation of the "dual-track system" of project pricing, until the promulgation and implementation of the "2013 version of the construction contract model text", in a relatively long period of time, it is not uncommon to use the "1999 version of the construction contract model text" but use the bill of quantities pricing method in practice, so in fact, the application scope of the "adjustable price" of the "1999 version of the construction contract model text" is expanded to a certain extent, that is, "adjustable price" essentially means that the parties to the contract agree that the contract price can be adjusted in the event of certain events or factors, and there are circumstances in which the contract price can be adjusted in both the bill of quantities and the fixed pricing model.

From the changes in relevant regulations and pricing norms, "adjustable price" has gradually evolved into "contract price adjustment". Article 8 of the Interim Measures for the Settlement of Construction Project Prices (Caijian [2004] No. 369) of the Ministry of Finance and the Ministry of Construction stipulates: "... (III) adjustable prices. The adjustable price includes the adjustable comprehensive unit price and measure fee, etc. Both parties shall agree on the adjustment method of the comprehensive unit price and measure fee in the contract. The adjustment factors include: 1. The contract price is affected by the changes of laws, administrative regulations and relevant national policies; 2. The price adjustment of the project cost management organization; 3. The approved design change; 4. The contractor changes the approved construction organization design (except for correction errors) resulting in increased costs; 5. Other factors agreed by the parties." Article 28 stipulates that "if the contents of the model contract are inconsistent with these measures, these measures shall prevail." This provision is clearly in line with the implementation of the 2003 version of the list pricing specification, which clearly stipulates that there is also an adjustable price in the project quantity list pricing (comprehensive unit price) method.

For example, item 9.1.1 of article 9 "contract price adjustment" of the 2013 version of the list pricing specification stipulates: "if the following matters (but not limited to) occur, both parties shall adjust the contract price according to the contract: 1. changes in laws and regulations; 2. engineering changes; 3. The description of project characteristics is inconsistent; 4. missing items in the bill of quantities; 5. engineering quantity deviation; 6. price changes; 7. Provisional valuation; 8. Day work; 9. On-site visa; 10. Force majeure; 11. Early completion (compensation for rush work);12. Compensation for delay; 13. Construction claims; 14. Provisional sum; 15. Other adjustments agreed by the contracting parties." Items 1, 6, 12 and 15 of the provisions that can adjust the contract price are basically consistent with Article 23.3 of the General Provisions of the 1999 Edition Model Construction Contract.

Article 14 of the Measures for the Administration of Construction Contracting and Contracting Valuation also stipulates: "The contracting parties shall agree in the contract on the adjustment method of the contract price in the event of the following circumstances: (1) Changes in laws, regulations, rules or relevant national policies affect the contract price; The (II) project cost management agency releases price adjustment information; (III) approved changes in design; (IV) the contractor changes the approved construction organization design resulting in an increase in costs; (V) other factors agreed upon by the parties." This provision does not explicitly limit the project pricing model, and "contract price adjustment" is equally applicable in the project quantity list pricing and fixed pricing model.

Judging from the development and changes of the construction contract model text, in order to adapt to the changes in the project pricing method, the contract price form of the 2013 version of the construction contract model text is adjusted to unit price contract, total price contract and other types of contracts, and the adjustment factors that can be adjusted in the 1999 version of the construction contract model text are listed separately. whether it is unit price contract, total price contract or other types of contracts, the applicable price adjustment factors can be selected. The 2017 version of the Model Construction Contract is consistent with the 2013 version of the Model Construction Contract in terms of price and adjustment factors.

Therefore, with the development and change of China's project pricing model and related laws and regulations, construction contract model text, "adjustable price" has gradually evolved into "contract price adjustment". "Adjustable price" or "contract price adjustment" is commonly shown in bill of quantities pricing as both parties agree to adjust the contract price due to changes in the total project price or unit price components. In fixed pricing, it is commonly shown that both parties agree to adjust the price according to the actual prices of people, materials and machines announced by the project cost management department or to settle the project price according to the latest fixed pricing standard during the contract performance period.

(Note: The original text is contained in the Law of Construction Contracts in China, Law Press, October 2019. The present text has been partially revised)