Project managment

Adjustment item to the total price

An adjustment item is an addition or deduction a tenderer makes to the final total of his prices entered in the bills of quantities. The CESMM permits an adjustment item as a lump sum addition or deduction, paid by instalments in the same proportion as the total payments to date, less retention, bears to the total of billed prices (see Section 16.4). The addition or deduction is not to be exceeded, and the full amount is to be allowed when a certificate of substantial completion for the whole works is issued.
In contracts which do not follow the CESMM a tenderer may be free to add an adjustment item to his tender – or in fact add any additional item for which he submits a separate price. His tender is only an ‘offer’ so he is free to offer his price in any way he likes. The employer can, of course, lay down rules that he will not entertain any offer that is not priced as he instructs, but this is a rule for himself. The tenderer has to run the risk that his non-conforming tender will not be considered: but this is rather unlikely to happen if his bid is the lowest.
Thus, instead of inserting a lump sum addition or deduction as required by the standard method, he can insert an adjustment item which comprises a percentage reduction (or, more rarely, addition) to be applied to all his billed prices. Sometimes this practice is actually invited by the employer who invites tenders for two separate contracts simultaneously, and provides a special item in one contract for the contractor to quote his reduction of price (if any) if he were awarded both contracts.
An adjustment item as such is usually added by a tenderer when – after having had all the items in the bill priced and totalled – he looks at the final total so derived and decides to increase or decrease it. This is his commercial decision.
He will have made a check estimate of the cost of the whole contract in an entirely different manner from that obtained by totalling the priced quantities in the bills. This can be done, for instance, by costing the total materials and estimated labour and plant to be used on the job, and adding a percentage for overheads and profit. In the light of his findings and taking into account other factors, such as risk, need for more work or the likely competition from  other tenderers, etc., the contractor may decide to add or subtract an adjustment figure to the total of billed prices. He could, of course, select certain bill items whose rate or price he could alter to make the adjustment, but this could be risky if more or less work under such items should prove necessary.

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