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Price Variation Bid Project Cost in HAM

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Umesh Mishra

This document discusses the calculation of escalation on bid project costs for hybrid annuity mode (HAM) road projects in India. It provides the background that HAM projects involve a combination of build-operate-transfer and engineering-procurement-construction models, with contractors receiving payments during construction and later as annuities. The document then explains that escalation accounts for cost changes over a project's lifetime due to factors like inflation. It outlines how to calculate escalation using the bid project cost, bid date, and wholesale and consumer price indices for the bid month and invoice month. Applying example values results in an escalated project cost that is 3.2 crore higher than the original bid cost due to escalation.

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Price Variation Bid Project Cost in HAM

Uploaded by

Umesh Mishra
1K views6 pages
This document discusses the calculation of escalation on bid project costs for hybrid annuity mode (HAM) road projects in India. It provides the background that HAM projects involve a combination of build-operate-transfer and engineering-procurement-construction models, with contractors receiving payments during construction and later as annuities. The document then explains that escalation accounts for cost changes over a project's lifetime due to factors like inflation. It outlines how to calculate escalation using the bid project cost, bid date, and wholesale and consumer price indices for the bid month and invoice month. Applying example values results in an escalated project cost that is 3.2 crore higher than the original bid cost due to escalation.

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Price variation Bid Project Cost in HAM

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This document discusses the calculation of escalation on bid project costs for hybrid annuity mode (HAM) road projects in India. It provides the background that HAM projects involve a combination of build-operate-transfer and engineering-procurement-construction models, with contractors receiving payments during construction and later as annuities. The document then explains that escalation accounts for cost changes over a project's lifetime due to factors like inflation. It outlines how to calculate escalation using the bid project cost, bid date, and wholesale and consumer price indices for the bid month and invoice month. Applying example values results in an escalated project cost that is 3.2 crore higher than the original bid cost due to escalation.

Copyright:

© All Rights Reserved
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
1K views6 pages

Price Variation Bid Project Cost in HAM

Uploaded by

Umesh Mishra
This document discusses the calculation of escalation on bid project costs for hybrid annuity mode (HAM) road projects in India. It provides the background that HAM projects involve a combination of build-operate-transfer and engineering-procurement-construction models, with contractors receiving payments during construction and later as annuities. The document then explains that escalation accounts for cost changes over a project's lifetime due to factors like inflation. It outlines how to calculate escalation using the bid project cost, bid date, and wholesale and consumer price indices for the bid month and invoice month. Applying example values results in an escalated project cost that is 3.2 crore higher than the original bid cost due to escalation.

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Calculation of Escalation on Bid Project Cost in HAM (Hybrid Annuity Mode)

Today I m gonna to explain you how to calculate escalation on Bid Project in Hybrid Annuity Mode based Road
Project. Currently all over India this kind of project is well focused and every new project comprises this. It is called
Hybrid because it is combination of BOT based Project and EPC based project. The Contractors gets payment is
certain ratio during construction and remaining in certain time in the form of Annuity.
  1. Various NHAI project is currently running on this type of mode of project.
  2. Various State Government adopted same kind of Project for up gradation and strengthening of  
          existing road as well as new construction with minor modifications in payment system to make   
          it easier for contractor.

First Question Comes into mind that.......What is Escalation in Construction Industry? Why it is so important?
How it can be calculated? 

The term ESCALATION  used  to indicate extent of these changes from the commencement
of a project through any point during its life. As equivalent terms fluctuations rise and
fall and contract price adjustments are used interchangeably.

It is so important because the financial success of construction projects can be


uncertain and at risk due to changes in escalation rates during construction. The
success of a construction projects is mainly influenced by to what extent of cost
escalation identified and allocated to the projects. Cost escalation is part and parcel of
construction projects in India. Escalation in construction market in recent years has
been extremely volatile, and this trend expected to continue in the near future due to
competition for resources and skilled workers. This situation has created a great deal of
uncertainty and nervousness among construction field. (The above information is taken
from www.academia.edu)

The calculation of escalation is fully based on what kind of project it is, In construction
industry there is lots of  ways to calculate escalation. But as we are talking about HAM
(Hybrid Annuity Mode Project) So, here we would get details calculations to calculate
the project. But before proceed the calculation we should have well familiar terms like
Bid Project Cost, Bid Date, Price Index , Wholesale Price Index, Consumer Price Index.
For Better Understanding here we assume some data to analyze the escalation of
certain road project.
The assumptions are:- 
1. Bid Project Cost:-  100 Cr.
2. Bid Submission Date:-  31st Dec-2018
3. Price Index shall comprise 
    a). 70% of WPI 
    b)  30% of CPI
Now Calculations begins
1. First of all we need price index for both WPI & CPI for the month preceeding the bid
date and for the month preceding the invoice date of bill. Suppose here we put the
invoice to the client in the month of August-2019 , hence, the preceding month will be
july-2019. So, we have to take the Price Index of July-2019.
2.  Now For WPI (Whole Sale Price index)
   a). we would visit the website of OFFICE OF THE ECONOMIC ADVISER by clicking
the link i.e. https://eaindustry.nic.in/
   b). Now we will go to the area in which will ask the the WPI forPeriod type i.e. month
or yearly, year and Groups/commodities. (Screenshot given below). As our assume bid
date is 31st Dec-2018 hence our preceding date would be Nov-2018. So in the period
type we have to select monthly, in Year column we have to select 2018 and in
Group/commodities column shall be ALL. After that click Click to Search Date in Green
Colour.

 
 c). After clicking the Click to Search Data a new page shall be open as given below
and after that we should click on All Commodities tab.
d). After clicking on All Commodities tab a new page shall be open as given below ,
which show the price index of year 2018 of each and every month.(Screenshot given
below)

 Now from here we would select the price index for the month of Nov-2018 i.e. 121.6
and similarly we would check for the price index for the month of July-2019 as our
invoice date in the month August-2019. The price index of July month is 121.2
(screenshot given below)

3. Now For CPI (Consumer Price Index)


   a). we would visit the website of Labour Bureau by clicking the link
i.e. http://labourbureau.gov.in/
 and the new page shall be opened as screenshot given below after that click on Index
Number Only  options
b) After Clicking on Index Numbers Only options there would be a new page shall be
open as given below and on that page click on
Previous Years/Months  Index Numbers

 
 

 c) After Clicking of Previous years/Months Index Number a PDF will be downloaded in
which entire year month wise and State wise labour index would be given. Here I
assume that I m calculating the price index for the project in Maharashtra in Nagpur
region. Always select the nearby region which shall be given in list. Otherwise select the
All India Index. Here in Maharashtra in Nagpur region the Index for the month of Nov-
2018 i.e. 361

d)  Now again we will go to the previous page and click on Centre wise Index for CPI
and from there we would take the index value for the month preceding the invoice date.
so, for the month of July-2019 i.e.403 (Screenshot given below)
4. Now After getting all this we would calculate the Price Escalation of Revised Bid
Project after Escalation.

 Now, from the above you can see that your project cost was Rs.100 Cr. and due to
escalation its comes to Rs.103.20 Cr. The increase by 3.20 Cr. is called escalation
value.
The escalation may positive and negative and consequently the bid project cost may go
up and down.
If you need excel copy of calculation sheet you may mail to me at
[email protected].
at September 15, 2019 
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