When is it reasonable for an agreement to propose a price adjustment for a circumstance that is not the responsibility of the owner? The short answer is when there are known events that generate very variable costs. Such variability can increase the contractor`s contingencies (for self-insurance), which can cause the contractor to wind if the risk arises at the lower end of the known domain. For example, consider a project in the Gulf of Mexico in September. The contractor may be required to set up excessive emergency amounts to cover the 1-in-3 risk of a hurricane. If it`s a quiet year at the end (a 2-in-3 chance), this contingency would be a gale for the contractor. The owner may decide that it is more likely to anticipate if he removes the weather contingency from the contractor`s compensation and only grants price adjustments for a hurricane if and when one of them arrives. Energy and service construction agreements have two approaches to managing adaptations: (i) An error or ambiguity that consists of not explicitly expressing the agreement in a written contract or expressing it clearly, as both parties have understood. (2) When a contractor suffers a loss (not just a reduction in expected profits) on the basis of a defence contract, the nature of the complaint will generally determine whether and to what extent the contract should be adapted. If the government first addresses its actions to the contractor and acts as another contracting party, the contract may be adapted in the interests of fairness. Therefore, if the actions taken by the state without government accountability increase the cost of the benefit and lead to a loss for the contractor, fairness may make some adjustment appropriate. There is also empirical evidence to support the view that comprehensive contracts increase profitability.
In the analysis of Completeness: A Text Based Analysis of Loan Agreements, Bernhard Ganglmair (University of Texas at Dallas) and Malcolm Wardlaw (University of Georgia) analyzed more than 3,000 credit contracts from financial institutions. They used “several contractual detail measures” to compare the performance of banks according to the details of their loan contracts: there is every reason to believe that similar benefits also exist for construction and service contracts that, like loan contracts, extend over many months or years. It goes without saying that the awardee is compensated for such risks in the form of additional payments (i.e. contingencies). For example, a contractor who bears weather-related costs is generally paid higher prices than a contractor who is entitled to weather price adjustments. With “Time-no-money”, the contractor insures himself against the weather. If these higher rates exceed the actual cost of the weather, the contractor gets a surplus of profits – which can be used as a rain fund (for future projects where weather costs may exceed the contractor`s eventuality). What are the reasons that should lead to a price adjustment and/or an adjustment of the plan after the selection of the adjustment approach that has been selected? The reasons for adjustment can be classified as inside or outside the owner`s control: the alternative to “time-no-money” – that is, price adjustments for circumstances beyond the owner`s control – means that the owner insures the contractor for these costs.