Application of Recent Tax Changes in

Contract Administration of
Construction Contracts

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS
FIDIC 99
Sub Clause 1.13 (b) - Compliance with Laws
the Contractor shall give all notices, pay all taxes, duties and fees, and obtain all permits, licences and approvals, as required by the
Laws in relation to the execution and completion of the Works and the remedying of any defects; and the Contractor shall indemnify
and hold the Employer harmless against and from the consequences of any failure to do so.
Sub Clause 13.7 Adjustments for Changes in Legislation
The Contract Price shall be adjusted to take account of any increase or decrease in Cost resulting from a change in the Laws of the
Country (including the introduction of new Laws and the repeal or modification of existing Laws) or in the judicial or official
governmental interpretation of such Laws, made after the Base Date, which affect the Contractor in the performance of obligations
under the Contract.
If the Contractor suffers (or will suffer) delay and/or incurs (or will incur) additional Cost as a result of these changes in the Laws or
in such interpretations, made after the Base Date, the Contractor shall give notice to the Engineer and shall be entitled subject to
Sub-Clause 20.1 [Contractor’s Claims] to:
(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for
Completion], and
(b) payment of any such Cost, which shall be included in the Contract Price.
After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine
these matters.
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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

SBD / 02
Sub Clause 1.13 - Compliance with Laws
The Contractor shall in performing the Contract, comply with applicable Laws,The Contractor
shall give all notices, pay all taxes, duties and fees, and obtain all permits, licenses and approvals,
as required by the Laws in relation to the execution and completion of the Works and the
remedying of any defects; and the Contractor shall indemnify and hold the Employer harmless
against and from the consequences of any failure to do so.

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS
SBD 02
Sub Clause 13.6 Adjustments for Changes in Legislation
The Contract Price shall be adjusted taking into account any increase or decrease in Cost resulting from
Change in Law in Sri Lanka, during the period commencing 28 Days prior to the closing date of Bids
and ending on the date of issuance of the Certification of Completion or termination pursuant
to clause 15 and 16 and which affect the Contractor's performance of contractual obligations.
For purposes of this sub clause, Change in Law means the enactment of any new Law or a
change to existing legislation and the repeal of , or modification of existing laws of the country,
including any regulations made, and/or directives issued thereunder, or a change in the judicial
interpretation and the application of any Law by a competent Court as compared to such
interpretation or application by a Court prior to the date of this Agreement, and which relates
to taxation or imposes rationing proscribing any activity or relates to duties and other
import/export levies which in case is beyond the control of the Contractor and materially
effects the performance of the Contractor's responsibilities under the Contract.

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

SBD / 02 - Sub Clause 13.6 Adjustments for Changes in Legislation Continued…

If the Contractor suffers delay and or incurs additional cost attributable to a Change in Law during the period
commencing 28 Days prior to the Closing date of Bids and ending on the date of issuance of the Certificate of
Completion or termination pursuant to Section 15 and 16, the Contractor shall give notice to the Engineer
and shall be entitled subject to sub clause 19.1: (Contractor's Claims:) to;
(a) an extension of time for any such delay, if completion is or will be delayed under Sub-Clause 8.4
(Extension of Time for Completion); and
(b) Payment of any such Cost, which shall be included in The Contract Price. Notwithstanding the
foregoing, such additional or reduced cost shall not be separately paid or credited if the same shall
already have been taken into account in the indexing of any inputs to the Price Adjustment Formula
in accordance with the provisions of Clause 13. 7
After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 4.3 (Determinations) to
agree or determine these matters.
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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS
FIDIC 2017 – Sub Clause 1.13
(a) the Employer shall have obtained (or shall obtain) the planning, zoning or building permit or similar permits,
permissions, licences and/or approvals for the Permanent Works, and any other permits, permissions, licenses and/or
approvals described in the Specification as having been (or being) obtained by the Employer. The Employer shall
indemnify and hold the Contractor harmless against and from the consequences of any delay or failure to do so,
unless the failure is caused by the Contractor’s failure to comply with sub-paragraph (c) below;
(b) the Contractor shall give all notices, pay all taxes, duties and fees, and obtain all other permits, permissions,
licences and/or approvals, as required by the Laws in relation to the execution of the Works. The Contractor shall
indemnify and hold the Employer harmless against and from the consequences of any failure to do so unless the
failure is caused by the Employer’s failure to comply with Sub-Clause 2.2 [Assistance];
(c) within the time(s) stated in the Specification the Contractor shall provide such assistance and all documentation,
as described in the Specification or otherwise reasonably required by the Employer, so as to allow the Employer to
obtain any permit, permission, licence or approval under sub-paragraph (a) above; and
(d) the Contractor shall comply with all permits, permissions, licences and/or approvals obtained by the Employer
under sub-paragraph (a) above.

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

FIDIC 2017 – Sub Clause 1.13 Continued…

If, having complied with sub-paragraph (c) above, the Contractor suffers delay and/or incurs Cost as a result of
the Employer’s delay or failure to obtain any permit, permission, licence or approval under sub-paragraph (a)
above, the Contractor shall be entitled subject to Sub-Clause 20.2 [Claims For Payment and/or EOT] to EOT
and/or payment of such Cost Plus Profit. (Previous forms only indemnifying)
If the Employer incurs additional costs as a result of the Contractor’s failure to comply with:
• (i) sub-paragraph (c) above; or
• (ii) sub-paragraph (b) or (d) above, provided that the Employer shall have complied with Sub-Clause 2.2
[Assistance],
the Employer shall be entitled subject to Sub-Clause 20.2 [Claims For Payment and/or EOT] to payment of these
costs by the Contractor.

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS
FIDIC 2017 – Sub Clause 13.6
Subject to the following provisions of this Sub-Clause, the Contract Price shall be adjusted to take account of any increase or decrease in
Cost resulting from a change in:
(a) the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws);
(b) the judicial or official governmental interpretation or implementation of the Laws referred to in sub-paragraph (a) above;
(c) any permit, permission, license or approval obtained by the Employer or the Contractor under sub-paragraph (a) or (b), respectively, of
Sub-Clause 1.13 [Compliance with Laws]; or
(d) the requirements for any permit, permission, licence and/or approval to be obtained by the Contractor under sub-paragraph (b) of Sub-
Clause 1.13 [Compliance with Laws], made and/or officially published after the Base Date, which affect the Contractor in the performance of
obligations under the Contract. In this Sub-Clause “change in Laws” means any of the changes under sub-paragraphs (a), (b), (c) and/or (d)
above.
If the Contractor suffers delay and/or incurs an increase in Cost as a result of any change in Laws, the Contractor shall be entitled subject to
Sub-Clause 20.2 [Claims For Payment and/or EOT] to EOT and/or payment of such Cost.
If there is a decrease in Cost as a result of any change in Laws, the Employer shall be entitled subject to Sub-Clause 20.2 [Claims For Payment
and/or EOT] to a reduction in the Contract Price.
If any adjustment to the execution of the Works becomes necessary as a result of any change in Laws:
• (i) the Contractor shall promptly give a Notice to the Engineer, or
• (ii) the Engineer shall promptly give a Notice to the Contractor (with detailed supporting particulars).
Thereafter, the Engineer shall either instruct a Variation under Sub-Clause 13.3.1 [Variation by Instruction] or request a proposal under Sub-
Clause 13.3.2 [Variation by Request for Proposal].
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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS
FIDIC 99
“Laws” means all national (or state) legislation, statutes, ordinances and other laws, and regulations and by-
laws of any legally constituted public authority.
SBD 02
“Laws” means all legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally
constituted public authority.
What are legally constituted public authorities?
Preambles to BOQ
Should not contradict but complementary

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

VAT
• Input VAT Reinforcement Steel Purchase Rs. 120.00 (per Kg) @ 8% = (Rs. 9.60)
• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00
Other inputs (Assume no VAT input) Rs. 35.00
OH & Profit Say 20% Rs. 37.00
Rate Rs. 222.00
• Output VAT Rs. 222.00 X 8% = Rs. 17.76
• Difference to IR = Rs. 8.16
Value Addition Tax (30+35+37= Rs.102 @ 8% = 8.16%)
VAT Input Output Situation Arises only if Registered in VAT System. Then VAT Invoices can be
Raised. If not registered input VAT becomes part of the Cost.
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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

When Unregistered in VAT (Input VAT Becomes a Cost)

• Input VAT Reinforcement Steel Purchase Rs. 120.00 + 120 X 8% = Rs. 129.60
• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00
Other inputs (Assume no VAT input) Rs. 35.00
OH & Profit Say 20% Rs. 38.92
Rate Rs. 233.52
It is not Rs. 222.00 X 1.08% = Rs. 239.76
VAT Applicable Goods and Services XXX
VAT Inapplicable Goods and Services XXX
Initial Contract Price / Contract Price XXXX

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

Changes applicable to contract administration are;

• Reduction in VAT percentage from 15% to 8% with effect from 1st
December 2019, and
• Increase in VAT registration threshold from Rs. 1 million to 25 million
per month from 1st January 2020. (12 m to 300 m per annum)
Compilation_of_Tax_Levy_Notices/01 - VAT.pdf
Subsequently,Voluntary VAT registration allowed for companies of lesser turnover.
Corporate clients / Employers may insist for VAT registered companies.

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APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS
Appendix A
Scenario 01 - All Parties VAT Registered

At Import Supplier Subcontractor Contractor Employer

1 Basic Cost 50.00 50.00 120.00 222.00 416.40
2 Value Additions (VA)
2.1 Processing / finishing with
VAT applicable input cost 20.00 35.00 50.00 10.00
VAT @ 8% of total input cost 9.20
2.2 Do without VAT applicable
or disallowed inputs 30.00 30.00 75.00 5.00
Net Price 100.00 185.00 347.00 431.40
2.3 OH & Profit (20%) 20.00 37.00 69.40 86.28
Selling Price 120.00 222.00 416.40 517.68
VAT @ 8% 4.00 9.60 17.76 33.31 41.41
Price with VAT 63.20 129.60 239.76 449.71 559.09

VAT Output 9.60 17.76 33.31 41.41

VAT Input 4.00 9.60 17.76 33.31
VAT inputs in 2.1 1.60 2.80 4.00 0.80
VAT Remittance to IRD 13.20 4.00 5.36 11.55 7.30

IRD - Inland Revenue Department

Assumed; Imports only for item 2.1 and no input VAT in OH & Profit in all examples

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS
Appendix A
Scenario 03 - Some Parties VAT Registered and Some are Not

At Import Supplier Subcontractor Contractor Employer

VAT Rgd. Not Rgd. Not Rgd. VAT Rgd.
1 Basic Cost 50.00 50.00 129.60 236.88 439.06
2 Value Additions (VA)
2.1 Processing / finishing with
VAT applicable inputs 20.00 37.80 54.00 10.00
VAT @ 8% of total input cost 9.20
2.2 Do without VAT applicable
or disallowed inputs 30.00 30.00 75.00 5.00
Net Price 100.00 197.40 365.88 454.06
2.3 OH & Profit (20%) 20.00 39.48 73.18 90.81
Selling Price 120.00 236.88 439.06 544.87
VAT @ 8% 4.00 9.60 - - 43.59
Price with VAT 63.20 129.60 236.88 439.06 588.46

VAT Output 9.60 - - 43.59

VAT Input 4.00 - - -
VAT in 2.1 1.60 - - 0.80
VAT Remittance to IRD 13.20 4.00 - - 42.79
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APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

Appendix A
Scenario 02 - All Parties VAT Un-registered

At Import Supplier Subcontractor Contractor Employer

1 Basic Cost 50.00 63.20 137.76 246.67 450.81
2 Value Additions (VA)
2.1 Processing / finishing with
VAT applicable inputs 21.60 37.80 54.00 10.80
VAT @ 8% of total input cost 9.20
2.2 Do without VAT applicable
or disallowed inputs 30.00 30.00 75.00 5.00
Net Price 114.80 205.56 375.67 466.61
2.3 OH & Profit (20%) 22.96 41.11 75.13 93.32
137.76 246.67 450.81 559.93
VAT @ 8% 4.00 - - - -
Price with VAT 63.20 137.76 246.67 450.81 559.93

VAT Remittance to IRD 13.20

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

Contractual Effect (VAT Registration Deactivated)

Contractor’s Claims (Under Sub Clause 13.6 of SBD / 02 or 13.7 of FIDIC 99)

1 • From Supplier to Subcontractor

2 • From Subcontractor to Contractor
3 • From Contractor to Employer
Subsequently, Voluntary VAT registration allowed for companies of lesser turnover. Claims may be
rejected on this ground.
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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

Contractual Effect (Contracts of which Rates are with VAT)

Employer’s Claims (Under Sub Clause 13.6 of SBD / 02 or 13.7 of FIDIC 99)

Rates and prices reduction

Input VAT component of Goods and Services should be reduced.

15% 8%
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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

Contractual Effect (Contracts of which Rates are with VAT)

When Unregistered in VAT Saving
• Input VAT Reinforcement Steel Purchase Rs. 120.00 + 120 X 15% = Rs. 138.60
Rs. 138.60
• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00
Rs. (129.60)
Other inputs (Assume no VAT input) Rs. 35.00
Rs. 9.00
OH & Profit Say 20% Rs. 40.60
Rate with VAT Rs. 243.60 Rs. 243.60
• Input VAT Reinforcement Steel Purchase Rs. 120.00 + 120 X 8% = Rs. 129.60 Rs. (233.52)
• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00 Rs. 10.08
Other inputs (Assume no VAT input) Rs. 35.00
OH & Profit Say 20% Rs. 38.92
What about OH?
Rate with VAT Rs. 233.52

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

NBT
1st November 2019 to 30th November 2019
• The NBT applied to Contractor (main contractor) has been removed in the above period.
Hence, the 2% NBT included or considered in the performing contracts and contracts with Base
Date on or before 31st October 2019 should be deducted from the amount due.
From 1st December 2019
• The NBT is abolished from 1st of December hence the NBT related costs in construction inputs
will not be there. Further, NBT for contractors also will not be there anymore. Consequently,
both NBT components shall be deducted in adjusting the Contract Price of performing contracts
and of contracts with Base Date falling on or before 30th November 2019 for the effect.
Compilation_of_Tax_Levy_Notices/02 - NBT.pdf

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APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS
Period Main Contractor Sub-Contractor

Prior to January 2011 Exempt from NBT Liable for NBT

1st January 2011 till 31st July 2017 Exempt from NBT Exempt from NBT

On or After 1st August 2017 Liable for NBT Exempt from NBT
(Please refer Note 1)
1st November 2019 till 30th Nov. 2019 Exempt from NBT Exempt from NBT

After 1st December 2019 – Abolished NA NA

(Services by a construction contractor if such service is provided under a contract agreement

executed prior to August, 1st 2017; - Exempted).

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

NBT adjustment issues

• Base Dates of the contracts should be checked carefully. Base Date prior to 1st August 2017, after that till
31st October 2019, then from 1st November to 30th November 2019, thereafter from 1st December 2019
should be administered separately.
• NBT is not there in all construction inputs but in some of them. Therefore, such items should be evaluated
of the Contractor and Subcontractors,
• Some NBT applicable items as per previous tax regime would have already been procured or paid for,
• The NBT component in construction inputs is 2.04% whereas the other NBT applicable for contractors
was 2% when calculated it from the amount due for payment as the base,
• The retention held from the amounts with NBT before and now what should be done,

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS
NBT adjustment issues
• Variations in future should not include NBT but previously including NBT and monitoring them separately,
• Materials on Site would include with NBT items and without NBT items depending on when they were
bought,
• Daywork rates in the performing contracts includes NBT,
• In price fluctuation payable contracts, the NBT reduction of such inputs will be realized with reduction in
indices but not the other NBT on contractor as per the NBT applicability since 1st August 2017, Input
percentages calculation will have to be done again.
• In design and build contracts consultancy services NBT also now abolished,
• Prime Costs defined will now be changed, and
• If the base value to apply taxes and duties in the imports are changed with this NBT abolition there would
be a change in Cost in which as well.

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

When Unregistered in VAT Saving

• Input VAT Reinforcement Steel Purchase Rs. 120.00 + 120 X 15% = Rs. 138.60
Rs. 138.60
• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00
Rs. (129.60)
Other inputs (Assume no VAT input) Rs. 35.00 Rs. 9.00
OH & Profit Say 20% Rs. 40.60
Rate with VAT Rs. 243.60 Rs. 243.60
Rs. (233.52)
• Input VAT Reinforcement Steel Purchase Rs. 120.00 + 120 X 8% = Rs. 129.60
Rs. 10.08
• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00
Other inputs (Assume no VAT input) Rs. 35.00
OH & Profit Say 20% Rs. 38.92
Rate with VAT Rs. 233.52
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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

VAT & NBT NBT

Rs. 98.00
• Input VAT Reinforcement Steel Purchase Rs. 117.60 (per Kg Rs. 2.00
• NBT Rs. 2.40 Rs. 120 @ 15% (Rs. 18.00) Rs.100.00

NBT
• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00 Rs. 117.60
Other inputs (Assume no VAT input) Rs. 35.00 Rs. 2.40
Rs. 120.00
OH & Profit Say 20% Rs. 37.00
Rate Rs. 222.00 2/98 X100 = 2.04%
2.40/117.60 X 100 = 2.04%
• Output VAT Rs. 222.00 X 15% = Rs. 33.30
• Difference to IR = Rs. 15.30
VAT Input Output Situation Arises only if Registered in VAT System. Then VAT
Invoices can be Raised.

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

VAT & NBT

• Input VAT Reinforcement Steel Purchase Rs. 117.60 (per Kg
• NBT (Abolished from 1st December 2019) Rs. 0.00 Rs. 117.60 @ 8% (Rs. 9.41)

• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00
Other inputs (Assume no VAT input) Rs. 35.00
OH & Profit Say 20% Rs. 37.00
Rate Rs. 219.60
• Output VAT Rs. 219.60 X 8% = Rs. 17.57
• Difference to IR = Rs. 8.16

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

When Unregistered in VAT Saving

• Input VAT Reinforcement Steel Purchase Rs. 120.00 + 120 X 15% = Rs. 138.60
Rs. 138.60
• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00
Rs. (127.00)
Other inputs (Assume no VAT input) Rs. 35.00 Rs. 11.16
OH & Profit Say 20% Rs. 40.60
Rate with VAT Rs. 243.60 Rs. 243.60
Rs. (230.40)
• Input VAT Reinforcement Steel Purchase Rs. 117.60 + 117.60 X 8% = Rs. 127.00
Rs. 13.20
• Value Addition Labour for cut and bend, fixing etc. Rs. 30.00
Other inputs (Assume no VAT input) Rs. 35.00
OH & Profit Say 20% Rs. 38.40
Rate with VAT Rs. 230.40
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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

Other Changes in Laws

Income Tax on Construction Industry
• This has been reduced from 28% to 14% and administration of same under the contracts may not be
necessary if this change is done to enhance the performance of contracting sector but not expecting
reduction in construction cost. A clarification from the authorities are necessary in order to
administer the change.
• There can be argument that this is not with regard to Cost but profit. “The Contract Price shall be
adjusted taking into account any increase or decrease in Cost”
• But, “Contractor shall pay all taxes”, preamble says rates include all taxes, then?
Economic Service Charge
• The above has been abolished and in administering the contracts. No effect other than on cash flow as this
is kind of a withholding tax.
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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

Other Changes in Laws

Reduction in Telecommunication Levy

• This may result in reduction in such costs but administrating will be costlier than paying it.
Cancellation of Sand Transport Permits
• This will result in reduction in sand prices. In price fluctuation payable contracts, it will be reflected in such
payments. In fixed rate and lump sum payment methods this has to be a detailed calculation if it is to be
administered.
Removal of Condominium Properties VAT
Removal of Certain Withholding Tax

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

General Details Increase Decrease (If Increase (If Decrease Net

Rates are VAT in NBT Effect
with VAT) Deactivated)
A B C D
Item / Quantity in Unit PAL VAT Rate VAT Threshold NBT on A-B+C-D
Materials Relevant IPA (15% to 8%) Materials
Concrete 50 m3
Water 1 Item
Proofing
ABC 250 m3

Encourage VAT Registration based on supply / value chain situation

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

• Can the Sub Clause for “Adjustments for Changes in Legislation”

be deleted from the Contract or made inapplicable?

• Can the Parties to a Contract decide that changes to “Laws” will

not be considered by them?

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 APPLICATION OF RECENT TAX CHANGES IN CONTRACT
ADMINISTRATION OF CONSTRUCTION CONTRACTS

• If contractors intend to claim any additional cost due to the changes in tax laws as mentioned
above they shall send notice of claim in due time as per the Conditions of Contract. (Directory
notice under CIDA / SBD / 02 Sub Clause 19.1 and mandatory notice under FIDIC Sub Clause
20.1). Employers may also give notice of Contract Price adjustments on account of relevant tax
reductions under Employer’s Claims.

• The best practice would be to administer these changes in a fair and reasonable method for
government and private sector construction contracts. Rather than waiting to raise audit
queries later, in government contracts a directive may be issued describing how these
changes should be administered in a simplified method.

• If further changes to come in these taxes in near future, the contract administration will render
rather difficult in terms of payment management.

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Professional is Ordained to Exude
That the knowledge is Used to
Make;
a Better World and Others Happy.
It is Immoral
to Use Knowledge for Vengeance.
________________

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Thank You.

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