By Muhammad Faisal Kaleem

The Planning Commission has raised the ceiling for the variable portion of the price adjustment formula by up to 70% for construction material used in National Highway Authority (NHA) projects.

According to a document available with Wealth Pakistan, the decision has been taken in view of the unprecedented increase in prices of construction material.

The price adjustment formula is provided in FIDIC contracts to mitigate the risk of market fluctuations. The formula includes a fixed portion and a variable portion, the latter based on weightages of various construction materials that significantly impact project costs. In case of highways, these construction materials consist of diesel, steel, cement, bitumen and labour, the document shows.

Meanwhile, a senior official at NHA told Wealth Pakistan on the condition of anonymity that this decision was part of a policy introduced earlier last year.

“The NHA executive board had approved the policy regarding incorporation of price adjustment provisions for its development contracts,” he explained. He said as per the policy, certain standard operating procedures were defined, necessitating multi-tiered evaluation to ensure transparency and accountability.

According to the document, during the execution of any development project, the Pakistan Engineering Council (PEC) guidelines are the benchmark for all claims.

Moreover, the contractors benefit from a structured mechanism, but interest payments are excluded, while the final approval for the projects rests with national economic planning bodies and the Ministry of Finance. Such bodies include the Planning Commission, National Economic Council (NEC), Executive Committee of the National Economic Council (ECNEC), Ministry of Planning, Development & Special Initiatives, and Council of Common Interests (CCI). The involvement of these bodies depends on the situation and nature of the project.

As per this policy, once the contractor submits a comprehensive price adjustment claim to the project engineer, the engineer evaluates it in accordance with PEC criteria and forwards the findings to the project director. The zonal committee—comprising the NHA member zone, GM project, the accounts director, and the project director—then reviews the case and recommends the claimed price hike accordingly.

After that process, the employer’s review committee, which consists of NHA’s member engineering & coordination, member planning, member zone, GM budget & accounts, GM procurement, and GM engineering & coordination, examines recommendations case by case.

The chairman of NHA then reviews the financial impact and recommends it to the authority’s executive board. The case is then forwarded to Divisional Development Working Party/Central Development Working Party/ECNEC for final approval and fund allocation.

Officials said the revised formula was aimed at providing temporary relief to contractors facing financial stress due to volatile market conditions, especially sharp increases in the prices of steel, cement, fuel and other key construction inputs.

They added that prolonged delays in price adjustment approvals had previously affected project timelines and increased litigation between contractors and NHA.

The Planning Commission has emphasized that while the enhanced variable portion would help sustain ongoing projects, strict scrutiny mechanisms would remain in place to prevent misuse. Each claim will be assessed against documented price indices and verified quantities to ensure accuracy and compliance with approved procedures.

The officials further stated that the decision was expected to restore confidence among contractors working on NHA projects and encourage smoother execution of strategically important road infrastructure schemes across the country. However, they cautioned that effective implementation of the policy would be crucial, as past lapses had undermined its intended impact.

Credit: INP-WealthPk