Kathmandu – The government has introduced a special mechanism to adjust the prices of public construction contracts amid abnormal cost increases caused by disruptions to international supply chains.
The government has approved and implemented the Special Price Adjustment Procedure 2026 to provide relief to eligible contractors facing sharp increases in the costs of construction materials, labour, fuel, equipment and transportation due to international wars.
Under the procedure, public agencies can grant special price adjustments to contracts that do not have annual price adjustment provisions or an existing mechanism that adequately addresses the increase in costs, provided the circumstances are verified.
The adjustment will be allowed only when authorities determine that it is necessary to ensure the continuation of projects and protect the public interest, taking actual cost increases into account.
To qualify, tenders must have been invited before the supply chain disruption caused by international conflict began. The contract must have been signed and construction work started before the disruption. The contract period or defect liability period must also still be in effect after the disruption began.
Only contracts with abnormal price increases qualify
The procedure allows special adjustments only when the costs of construction materials, labour, fuel, equipment or transportation have risen abnormally.
An adjustment will be considered only when prices have increased by more than 10 percent compared with their levels at the start of the supply chain disruption.
If the increase exceeds 10 percent, the first 10 percent will be deducted when calculating the adjustment. The special adjustment must not exceed 25 percent of the original contract amount.
For contracts that already provide for price adjustments, the amount payable under the existing legal provisions and contract terms will be deducted. Only the remaining eligible amount can be provided as a special adjustment.
Contractors must apply within one month
Eligible projects will not receive adjustments automatically. Contractors must submit an application to the relevant public agency explaining why the existing price adjustment mechanism cannot adequately address the increase in costs.
The application must be submitted within one month of the relevant development ministry publishing a price adjustment notice. Applications submitted after that deadline will not qualify under the procedure.
Documents required for applications
Contractors must submit supporting documents showing the prices of the relevant construction materials and the actual quantities consumed in the public construction project.
Required documents include purchase invoices and, where available, other evidence of procurement, such as delivery records and supply agreements.
Applicants must also provide an update on the project’s progress as of the date of application.
How will adjustments be determined?
The relevant public agency must examine the application and determine the special price adjustment within 45 days.
The agency must notify its higher-level authority of the adjustment. These authorities will maintain consolidated records of special price adjustments granted by agencies under their jurisdiction.
Responsibilities of public agencies
Public agencies will identify the materials eligible for adjustment and examine contractors’ applications and supporting documents. They must verify the actual quantities of petroleum products and other construction materials consumed, based on approved norms and standards.
Where necessary, agencies may conduct site inspections and verify the prices of construction materials before determining the adjustment.
They must also ensure that contractors do not receive duplicate benefits and that payments are made only for adjustments verified under the procedure.
When will adjustments not be allowed?
Contracts for which compensation has already been imposed will not qualify for special price adjustments.
Adjustments will also be unavailable where the contract already provides for separate compensation or price adjustments for cost increases caused by circumstances beyond the contractor’s control, and the contractor has received or is entitled to receive compensation under those provisions.
The government says the new mechanism aims to prevent construction work from stalling because of exceptional international circumstances, ensure continuity of ongoing development projects and address imbalances in the construction sector fairly.
Construction entrepreneurs have long been demanding price adjustments. The government had also announced its intention to introduce such a mechanism in the budget for the current fiscal year.
