A fixed-price construction contract is normally just that. Sometimes, however, prices for materials or commodities such as asphalt or fuel are stipulated in the bid documents, with payment to the contractor adjusted to reflect actual costs indicated in periodic published indexes.
The purpose of this mechanism, from a project owner’s standpoint, is to level the field for bidders and eliminate the need to carry contingencies as protection against volatile swings in performance costs. To be effective, however, a price adjustment clause must track actual contractor costs.
The Mississippi Supreme Court recently struck a provision from a state highway contract because it froze “actual” costs at the contractual completion deadline. By failing to account for contractor costs incurred after that date, the clause violated the statute authorizing the use of price adjustment clauses.
Other cases this week addressed the division of authority on a federal construction project and a bid amendment that was physically separated from the bid itself. While the project architect could comment on a contractor’s submittal and the construction manager could evaluate any cost or schedule impact, only the contracting officer could authorize a deviation from the original specification. And, the bid amendment could be accepted because the bid itself was timely and was in the control of the procuring agency.
