Special Price Adjustment Approved for Construction Sector in Nepal

The Government of Nepal has decided to implement a Special Price Adjustment mechanism for public construction projects affected by extraordinary increases in the prices of key construction materials.

The decision has been taken under Section 55, Sub-section (1a) of the Public Procurement Act, 2063, with the objective of addressing abnormal price increases caused by international conflicts and disruptions in global supply chains.

Special Price Adjustment for Construction Materials

Under the new arrangement, special price adjustment will be available for eligible public construction contracts involving significant increases in the prices of:

• Petroleum products
• Bitumen
• HDPE pipes
• Cement
• Reinforcement steel (TMT bars)

The provision will apply to public construction contracts that remain within their performance period even after Chaitra 15, 2082, subject to the prescribed eligibility criteria.

The special adjustment will be calculated based on the actual and verified consumption of the eligible construction materials.

Contracts Without Existing Price Adjustment Provisions Also Covered

An important aspect of the decision is that contracts without annual price adjustment provisions may also qualify for the special mechanism if they meet the required standards and conditions.

Similarly, contracts that already contain price-adjustment provisions will not receive duplicate compensation.

For such contracts, the amount payable under the existing price-adjustment provisions and the contractual agreement will first be deducted. Only the remaining eligible amount will be provided as a special price adjustment.

Government Aims to Prevent Double Benefits

The special price adjustment is not intended to compensate contractors for ordinary market fluctuations.

Instead, the mechanism specifically addresses abnormal price increases resulting from extraordinary international circumstances, including disruptions in international supply chains and the effects of global conflicts.

The payable amount will be determined using:

• Actual consumption
• Verified quantities
• Relevant applicable prices
• Prescribed government standards
• Existing contractual price-adjustment provisions

This approach is designed to prevent double benefits, excessive claims and unnecessary government payments.

Why Is Special Price Adjustment Important?

Construction projects can face significant financial pressure when the prices of essential materials rise sharply after a contract has already been awarded.

Unexpected increases in fuel, bitumen, cement, steel and HDPE pipes can increase project costs and create difficulties for contractors in completing projects under the original contract terms.

The special price adjustment mechanism is therefore intended to provide a fair and evidence-based response to extraordinary cost increases while maintaining accountability in public expenditure.

Impact on Public Infrastructure Projects

The government has stated that the decision aims to ensure that ongoing development projects are not unnecessarily halted because of extraordinary international economic conditions.

The measure is expected to support:

• Continuity of ongoing public infrastructure projects
• Timely completion of construction contracts
• Financial stability in the construction sector
• Fair treatment of eligible contractors
• Better management of extraordinary cost increases
• Reduction in the risk of construction projects being delayed or abandoned

Special Price Adjustment vs Normal Price Adjustment

A normal contractual price adjustment generally operates according to the provisions already incorporated into a construction agreement.

The newly introduced special price adjustment is different because it specifically targets extraordinary price increases caused by exceptional circumstances.

Therefore, contractors cannot automatically claim the special adjustment simply because market prices have increased.

They must satisfy the prescribed eligibility requirements and provide evidence of actual consumption and applicable price increases.

What This Means for Contractors in Nepal

Eligible contractors should carefully review their public construction contracts and determine whether their projects meet the government's criteria.

Contractors may need to maintain and submit appropriate documentation relating to:

1. Actual consumption of eligible materials
2. Verified quantities used in the project
3. Applicable purchase prices
4. Contractual price-adjustment provisions
5. Project performance period
6. Other documents required under the prescribed procedure

Proper documentation will be important because the special payment will be based on verified consumption and eligible price differences, rather than estimated or unsupported claims.

Government's Objective

The government introduced the special mechanism with the broader objective of ensuring that extraordinary international circumstances do not unnecessarily disrupt Nepal's infrastructure development.

By addressing exceptional cost pressures in a controlled manner, the government aims to allow ongoing projects to continue while ensuring that public funds are protected through verification and eligibility requirements.

For investors, entrepreneurs and professionals following Nepal's economy, infrastructure spending and government policy, such decisions can also provide important insights into the country's construction, banking, manufacturing and investment environment.

Conclusion

Nepal's decision to introduce a Special Price Adjustment for eligible public construction contracts is aimed at addressing abnormal increases in petroleum products, bitumen, HDPE pipes, cement and steel.

The mechanism focuses on extraordinary circumstances rather than routine market fluctuations. Payments will be based on actual consumption, verified quantities and applicable prices, while existing contractual price adjustments will be taken into account to prevent double compensation.

The decision is ultimately intended to keep public construction projects moving, support infrastructure development and provide a fair response to extraordinary cost pressures in Nepal's construction sector.

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