During the construction period, price variation clause in contracts caters to
- AIncrease in rates of only important materials
- BVariation in cost in materials element, labour element and petrol-oil-lubricant elementCorrect
- CVariation in total cost of the project on an ad hoc basis
- DRate of inflation
Solution
Concept
Price escalation clause
Step-by-step solution
1. The price variation (escalation) clause compensates for the variation in the cost of inputs during the contract. 2. It covers materials, labour and petrol-oil-lubricants (POL).
Explanation
In CPWD and other contracts, the price variation clause adjusts the payment for changes in the cost of the materials component, the labour component and the POL component, using published indices.
Shortcut
Price variation = materials + labour + POL components.
Common mistake
Choosing inflation because of the similar meaning.
Correct answer: B) Variation in cost in materials element, labour element and petrol-oil-lubricant element