REGIONAL OFFICE VIII and

BUREAU OF CONSTRUCTION

PROJECT
DOCUMENTATION
SEMINAR

PRICE ESCALATION
August 16, 2023 Presented by: JANINE C. DE PABLO
10:30 AM – 12:00 PM Engineer II, Price Escalation Review Section
Claims Review Division, Bureau of Construction
OUTLINE OF PRESENTATION

Updates

Procedures
SHORT QUIZ
Question 1
TRUE OR FALSE?

PRICE ESCALATION MAY BE GRANTED EVEN BEFORE

THE IMPLEMENTATION OF THE PROJECT SO THAT
CONTRACTOR IS GIVEN DUE COMPENSATION FOR THE
CHANGE IN PRICES OF CONSTRUCTION MATERIALS.
Question 2
TRUE OR FALSE?

INCREASE IN LABOR COST IS NOT INCLUDED IN THE

CONSIDERATIONS UNDER PRICE ESCALATION SINCE
THE MAJOR COMPONENTS IN CONSTRUCTION ARE
ONLY MATERIALS AND EQUIPMENT.
Question 3
TRUE OR FALSE?

IN COMPUTING PRICE ESCALATION, CURRENT PRICES

OF MATERIALS, LABOR, AND EQUIPMENT ARE
COMPARED WITH THE BASE PRICES SUBMITTED BY
THE CONTRACTOR DURING THE BIDDING.
Question 4
TRUE OR FALSE?

THE DEPARTMENT OF TRADE AND INDUSTRY (DTI)

RELEASES THE CONSTRUCTION MATERIALS
WHOLESALE PRICE INDICES (CMWPI) ON A MONTHLY
BASIS.
Question 5
TRUE OR FALSE?

CONTRACTORS MAY REQUEST FOR PRICE ESCALATION

AT ANY TIME AS LONG AS THERE IS AN INCREASE IN
THE PRICE OF CONSTRUCTION MATERIALS, LABOR,
AND EQUIPMENT FROM THE DATE OF HIS BID TO THE
DATE OF HIS PROGRESS BILLING.
Question 6
TRUE OR FALSE?

ONE OF THE ATTACHMENTS NEEDED WHEN

REQUESTING FOR PRICE ESCALATION IS THE LETTER
FROM THE CONTRACTOR REQUESTING THE
IMPLEMENTING OFFICE TO COMPUTE THE AMOUNT
OF HIS PAYABLE PRICE ESCALATION.
Question 7

TRUE OR FALSE?

AFTER COMPUTING THE ADJUSTED UNIT COSTS,

VARIATION ORDER SHALL BE APPROVED TO ESCALATE
THE COST OF EACH ITEM.
Question 8

TRUE OR FALSE?

PRICE ESCALATION AND PRICE ADJUSTMENT ARE THE

SAME AND INTERCHANGEABLE.
OUTLINE OF PRESENTATION

Updates

Procedures
Price Adjustment

Price Escalation
 Price Adjustment

➢ Proposal to GPPB for a Price Adjustment

Formula

➢ The GPPB is not in favor to PURSUE Price

Adjustment but only Price Escalation
Amendment
 Price Escalation

➢ DPWH proposed to the NEDA, DBM, and

GPPB to amend Price Escalation
Guidelines for a simplified price
escalation process and computation
 Price Escalation
Proposal Remarks
1. Authorize the DPWH To streamline and expedite
to approve the claim the process of Price
for Price Escalation Escalation allowing the
and its corresponding DPWH to approve and pay
payment and furnish price escalation claim of
copy of approved the contractor and just
Price Escalation to provide a copy to NEDA
NEDA and GPPB and GPPB for their
reference.
 Price Escalation
Proposal Remarks
2. The NEDA will be responsible in To ease the
establishing / proving the Contractors from the
existence of an extraordinary challenging
circumstance that warrants computation of the
Price Escalation, thereby two-standard
Section 5.2.2(a) Standard deviation of the 30-
Deviation under Appendix 15 of month historical data
the Revised IRR of R.A. 9184 for each project as
will no longer be computed prescribed by NEDA.
including K threshold and K
Average.
 Price Escalation
Proposal Remarks
3. Revise the Procedure and formula in To grant the true Price
Section No. 5.3 Amount of Price Escalation amount to the
Escalation to be Granted under the
Contractors without a
same Appendix 15 of IRR of R.A.
9184 from deduction of 5%
considering that the
Where K > 1.05, P = Po (K-0.05) DPWH does not include
Where 0.95 ≤ K ≤ 1.05, P = Po
a projected inflation rate
Where K < 0.95, P = Po (K+0.05)
increase in the
To: P = Po (K) preparation of ABC/POW.

Where P – escalated bid/unit price

Po – original bid/unit price
K – fluctuation factor
 Price Escalation
Proposal Remarks
4. Specify that the price indices to be To use the price indices
used as reference indices for the that are officially
computation of Price Escalation
published and verified
shall be from the Construction
Materials Wholesale Price Indices
by the PSA.
(CMWPI) as published monthly by
the Philippine Statistics Authority
(PSA) and only use area-specific
price indices when there exists an
occurrence that distinctly and
significantly affected the prices of
construction materials, labor, or
equipment in that area.
OUTLINE OF PRESENTATION

Updates

Procedures
 PRICE ADJUSTMENT
➢ Adjustment of the original unit cost.

➢ This new unit cost will now be used

in computing the billing amount of the
quantities accomplished.

➢ The amount reflected in the billing will

be the original cost plus the price
adjustment of the item of work.
 PRICE ADJUSTMENT
Quantity
Original Price Adjusted
Item No. & Accomplished Amount of Billing
Unit Cost Adjustment Unit Cost
Description for this Billing E=AxD
(B) (C) (D)
Period (A)

Item 200
–
1,000 200.00 / 25.00 /
Aggregate 225.00 225,000.00
cu.m. cu.m. cu.m.
Subbase
Course
Item 311 - 1000 2,000.00 / 100.00 /
2,100.00 2,100,000.00
PCCP sq.m. sq.m. sq.m.

Item 506 - 4,500 / 300.00 /

500 cu.m. 4,800.00 2,400,000.00
SM cu.m. sq.m.
 Price Escalation

➢ Escalation of the original unit cost.

➢ This escalated unit cost will be used in

computing the escalated amount for each
item of work in an approved billing
(Progress/Final).
 PRICE ESCALATION
Amount of Amount of
Quantity Original Amount of
Escalated Billing per Billing per
Item No. & Accomplished Unit Price
Unit Cost Original Unit Escalated
Description for this Billing Cost Escalation
(C) Cost Unit Cost
Period (A) (B) F=E–D
(D) (E)
Item 200 –
Aggregate 200.00 / 225.00 /
1,000 cu.m. 200,000.00 225,000.00 25,000.00
Subbase cu.m. cu.m.
Course

Item 311 - 2,000.00 2,100.00

1000 sq.m. 2,000,000.00 2,100,000.00 100,000.00
PCCP / sq.m. / sq.m.

Item 506 - 4,500 / 4,800.00

500 cu.m. 2,250,000.00 2,400,000.00 150,000.00
SM cu.m. / sq.m.
 Implementing PEECRC
Contractor TWG
Office Chairman

If there are findings/ observations/ comments

DPWH
For PEECRC
GPPB NEDA Secretary /
Undersecretary
Deliberation

Implementing
DPWH
Office
 K K K Adjusted
Threshold Average Factor Unit Costs
 LEGAL PARAMETERS

K K
Threshold Average
 LEGAL PARAMETERS

Article Article Article

1174 1250 1680
Typhoons Fire, War

Inflation Pestilence,
Thunderstorms
Locusts

Flooding in lowly
Unusual floods
areas Deflation
Vehicular Earthquake
accidents
 LEGAL PARAMETERS

A method used to
prove the existence of
2 STANDARD extraordinary
DEVIATION circumstances based
on the legal
parameters.
 LEGAL PARAMETERS

SAMPLE PROJECT
Project: 21D00090 Construction/Repair/Rehabilitation/ Improvement Of Various
Infrastructure Including Local Projects Road Widening of Magallanes Drive (By-
Pass Road to Decongest Traffic) Brgy. Silang Crossing West-Brgy. Maharlika West,
Tagaytay City, Cavite Province
Contract Amount: ₱ 168,659,902.81
Date of Bidding: May 26, 2021
Contract Effectivity: August 31, 2021
Contract Expiry: June 27, 2022

Progress Billing No. 1: August 31, 2021 – February 25, 2022

Item 405(1)a3 - Structural Concrete (20.68 Mpa, Class A, 28 days)
- Fluctuation Factor of K16 Concrete for Structure Class A or B
 LEGAL PARAMETERS: K-Threshold
30 months historical data from Bid Opening

K16threshold = 0.15 + 0.03(L2stdv+mean) + 0.41(C2stdv+mean) + 0.19(B2stdv+mean) + 0.09(D2stdv+mean) + 0.04(F2stdv+mean) + 0.09 (E2stdv+mean)

K16threshold = 120.22
 LEGAL PARAMETERS: K-Average

K16average = 0.15 + 0.03 (Laverage) + 0.41 (Caverage) + 0.19 (Baverage) + 0.09 (Daverage) + 0.04 (Faverage) + 0.09 (Eaverage)
K16average = 121.49

Condition:
IF Kaverage > Kthreshold, Price Escalation may be GRANTED
IF Kaverage < Kthreshold, Price Escalation is NOT GRANTED
Since
Kaverage > Kthreshold
121.49 > 120.22 ,
TECHNICAL PARAMETERS

K Adjusted
Factor Unit Costs
 TECHNICAL PARAMETERS: K Factor

1. List all Items of Work on a particular

Progress/Final Billing

2. Identify the Parametric Formula for

each Item of Work
TECHNICAL PARAMETERS: K Factor
TECHNICAL PARAMETERS: K Factor
TECHNICAL PARAMETERS: K Factor
 TECHNICAL PARAMETERS: K Factor

1. List all Items of Work on a particular

Progress/Final Billing

2. Identify the Parametric Formula for

each Item of Work

3. Determine the Base Index and Current

Index for each Component of the
Parametric Formula
 TECHNICAL PARAMETERS: K Factor
K16 (Sept. 2021) = 0.15 + 0.03 (Li/Lo) + 0.41 (Ci/Co) + 0.19 (Bi/Bo) + 0.09
(Di/Do) + 0.04 (Fi/Fo) + 0.09 (Ei/Eo)
Component, Base Index Current Index (Month
K10 (Date of Bidding) of Billing)
Labor (L) DOLE WAGE ORDER DOLE WAGE ORDER

Cement (C) PSA CMWPI PSA CMWPI

Aggregates (B) PSA CMWPI PSA CMWPI

Lumber (D) PSA CMWPI PSA CMWPI

Fuel (F) PSA CMWPI PSA CMWPI

Equipment (E) PSA CMWPI PSA CMWPI

 TECHNICAL PARAMETERS: K Factor
K16 (Sept. 2021) = 0.15 + 0.03 (Li/Lo) + 0.41 (Ci/Co) + 0.19 (Bi/Bo) + 0.09
(Di/Do) + 0.04 (Fi/Fo) + 0.09 (Ei/Eo)
Component, Base Index Current Index (Month
K10 (Date of Bidding) of Billing)
Labor (L) 400.00 400.00

Cement (C) 123.70 124.10

Aggregates (B) 138.50 138.20

Lumber (D) 133.40 136.10

Fuel (F) 124.80 132.90

Equipment (E) 146.90 146.90

 TECHNICAL PARAMETERS: K Factor

4. Compute the K-Factor per Month

5. Compute the Average K-Factor based on a

duration of at least 6-month period
(regardless of the number of Billing, except
for Final Billing)
 TECHNICAL PARAMETERS: K Factor

K16 = 0.15 + 0.03 (Li/Lo) + 0.41 (Ci/Co) + 0.19 (Bi/Bo) + 0.09 (Di/Do) + 0.04 (Fi/Fo) + 0.09 (Ei/Eo)
K16September = 1.0053
K16October = 1.0094
K16November = 1.0189
K16December = 1.0163
K16January = 1.0231
K16February = 1.0261

K16PB1 = (K16September + K16October + K16November+ K16December + K16January + K16February) / 6

K16PB1 = 1.0265
 TECHNICAL PARAMETERS: K Factor

Condition: For Billing No. 1, Item 405(1)a3

K > 1.05 P = Po (K – 0.05) Po = 8,137.08

Therefore,
0.95 ≤ K ≤ 1.05 P = Po
P (escalated unit price) = 8,137.08
K < 0.95 P = Po (K + 0.05)
Where:
P - escalated bid/unit price
Po - original bid/unit price
K - Fluctuation Factor
NO PRICE ESCALATION FOR ITEM
Since
405(1)a3 BILLED UNDER PROGRESS
Kactual = 0.95 ≤ 1.0265 ≤ 1.05, P = Po
BILLING NO. 1
TECHNICAL PARAMETERS: Adjusted Unit Cost

Condition: For Billing No. 1, Item 405(1)a3

K > 1.05 P = Po (K – 0.05) Po = 8,137.08

Therefore,
0.95 ≤ K ≤ 1.05 P = Po
P (escalated unit price) = 8,137.08 (1.0701 – 0.05)
K < 0.95 P = Po (K + 0.05)
= 8,300.64
Since
Kactual = 1.0701 > 1.05 , P = Po (K – 0.05)

Original Unit Escalated Quantity Amount of Billing Escalation

Price Unit Price Accomplished Amount
(A) (B) (C) Original Adjusted (F = E – D)
(D = A x C) (E = B x C)
Item 405(1)a3 8,137.08 8,300.64 1,000.00 cu.m. 8,137,080.00 8,300,640.00 163,560.00
 TECHNICAL PARAMETERS: K Factor

6. Compute the Escalated Unit Cost

7. Compute the amount of Price Escalation

TECHNICAL PARAMETERS: Adjusted Unit Cost
 Item No. Description Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
Planned Structural Concrete (20.68
405(1)a3 Mpa, Class A, 28 days)
Actual

The Price Escalation shall be based on the applicable price index for the period in which it should have been accomplished.
 Item No. Description Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
Bidding Date Structural Concrete
VO Approved 405(1)a3 (20.68 Mpa, Class
Date Billed A, 28 days)

The based cost indices shall be based on the applicable price index prevailing on the date the variation order was approved
Checklist of Requirements (DO 60, s. 2017)

Letter request of the Contractor Bill of Quantities

Endorsement Letter of the IO NTP

Computation of the Price Escalation Approved SWA

Contract Agreement Approved VO and ICR, if any

GCC / SCC / COPA Approved Disbursement Voucher

Resolution of Award Voucher of Advance Payment

Checklist of Requirements (DO 60, s. 2017)
Fluctuation Factor (K)

Copy of Applicable Price Indices

Approved CTE, if any

Approved WSO and WRO, if any

Approved PDM or PERT CPM, Bar Chart with S-Curve

Approved Revised PDM or PERT CPM, Bar Chart with S-Curve, if any

Approved unit price adjustment, if any

Requests for Price Escalation shall only
be made for cost items already
incurred by the contractor.

Already incurred = Items that are

included in the approved Billing
References in the preparation, review, and
approval:

DPWH Appendix 15 Revised IRR

Department of RA 9184:
Order No. 60 Revised Guidelines for
Series of 2017 Contract Price Escalation
 END OF
PRESENTATION