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RIAA Barker Gillette has secured a significant victory before a Dispute Avoidance/Adjudication Board (DAAB) in a complex dispute concerning FIDIC price adjustment mechanisms under Sub-Clause 13.7 of the General Conditions in FIDIC’s 2017 Red Book. The decision awards almost USD 4 million in recoverable overpayments, with projected savings of around USD 20 million over the project lifecycle. 

The dispute arose from a PKR 17 billion (approx USD 90 million at the time of execution) contract for the rehabilitation of irrigation infrastructure on the Indus River. The project marked the first such rehabilitation in several decades. This approximately five-year project was executed in September 2022 between a public sector Employer and a joint venture of two foriegn contractors under FIDIC Red Book 2017 conditions.

At the heart of the matter lay the contract’s payment terms. The contract price, though denominated in PKR, splits payments 50:50 between local currency (PKR) and foreign currency (USD). This structure reflects the contractor’s anticipated cost base: local inputs paid in Rupees, imported equipment and materials paid in Dollars. The Contractor originally submitted its bid with Table B (Foreign Currencies) marked ‘N/A’ throughout. The Employer accepted this bid through a Letter of Acceptance.

However, during a subsequent document collation undertaken after contract execution, a different version of Table B appeared. Critically, the page containing the correction factor formula (Z₀/Z₁) was omitted from this collation.

The Contractors claimed entitlement to FIDIC price adjustment on the foreign currency component using PKR indices without the correction factor. This approach would apply Pakistani inflation rates to Dollar-denominated payments. Consequently, it would generate windfall profits from Rupee devaluation entirely unrelated to actual cost increases on foreign inputs.

RIAA demonstrated that the Schedule of Cost Indexation operates as an inseparable component of the FIDIC price adjustment mechanism. The correction factor exists precisely to normalise the currency mismatch in FIDIC price adjustment calculations when PKR indices are applied to USD payments. Without it, a contractor purchasing equipment abroad in Dollars would receive inflated adjustments based on Pakistani unskilled labour wages and local cement prices. Central to our submissions was the principle that price adjustments must reflect actual rises and falls in ‘Cost.’ 

The November 2025 decision confirmed that correction factors must normalise currency mismatches. When calculations yield values below 1.0, the contractor receives less than the base foreign currency amount. This ensures genuine cost-based adjustments rather than one-way windfall profits. As a result, the immediate recovery of USD 4 million represents overpayments from the contract’s initial stages. Furthermore, consistent application of the correction factor should save an approximate USD 20 million over the remaining duration—representing a significant portion of the total foreign currency component.

“This ruling preserves the fundamental purpose of Sub-Clause 13.7—to adjust payments for actual cost movements, not windfall profit from currency fluctuations,” commented Mayhar Kazi, Partner at RIAA Barker Gillette. “Additionally, it establishes important precedent for World Bank-financed projects utilising the Bank’s standard tender documentation and FIDIC standard forms.”

The matter was led by Mayhar Kazi (Partner – Pakistan) and the team also included Sheheryar Malik (Associate), and Doost Muhammad Jan (Junior Associate).

For expert guidance on construction disputes under FIDIC contracts, please contact Mayhar Kazi today.

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RIAA Barker Gillette is Pakistan’s premier law firm, with an on-the-ground presence in four major cities in Pakistan: Karachi, Islamabad and Lahore and affiliated offices in Dubai (DIFC) and London. 

The firm practices in all areas of corporate, commercial and dispute resolution law. Leading international legal directories consistently recognise the firm as a top-tier law firm in Pakistan.

RIAA Barker Gillette is the exclusive member firm in Pakistan for Lex Mundi, the world’s leading network of independent law firms with in-depth experience in over 125 countries worldwide.

RIAA secured a decisive victory for a leading public sector entity before a Dispute Board established under a FIDIC Red Book 2010 construction contract for the Greater Karachi Bulk Water Supply Scheme (K-IV Phase I). The FIDIC contract dispute involved defeating a Joint Venture Contractor’s price adjustment claim with major implications for Pakistan’s infrastructure sector.

The Contractor challenged the Engineer’s determination before the Dispute Board, a mandatory prerequisite to arbitration under Clause 20.6. The Contractor sought upward price adjustment under Clause 13.7 (Adjustments for Changes in Legislation), arguing a Sindh Revenue Board tax exemption issued after contract execution constituted a “change in law” event.

The Contractor claimed the exemption rendered its input tax unrecoverable, whereas at contract execution it could adjust input tax against output tax. The Contractor argued this effectively increased costs, warranting price adjustment under the contract’s change in law provisions.

We dismantled this argument by demonstrating that the Contractor had misclassified its services under the Sindh Sales Tax on Services Act 2011. Construction services fell under Tariff Heading 9824.0000, attracting 5% rather than the claimed 13%. This misclassification meant the Contractor’s premise about increased costs was fundamentally flawed.

We successfully argued the SRB exemption did not constitute a “change in law” triggering Clause 13.7. They established the employer maintained all required financial arrangements. The Contractor’s notice threatening work reduction violated contractual procedures.

The Dispute Board dismissed all claims and upheld the public entity’s position entirely. The decision is binding on both parties pending any arbitration. Under Clause 20.4, the decision must be promptly implemented unless revised through amicable settlement or arbitral award. The ruling confirmed contractors cannot claim price adjustments in FIDIC contract dispute proceedings based on tax classification errors.

“This decision reinforces the importance of precision in tax classification within commercial transactions and fortifies the position of public entities engaged in major infrastructure projects across the country,” said Hasnain Naqvee, Senior Partner at RIAA Barker Gillette.

The ruling clarifies how change in law provisions operate in FIDIC contract disputes in the context of sales tax on services.

The matter was led by Saffi-Ul-Hassan (Senior Associate & Litigation Head – Lahore) under the guidance of Hasnain Naqvee (Senior Partner – Pakistan).

For assistance with complex infrastructure contract disputes, contact Hasnain Naqvee today.

This article is not legal advice; it provides information of general interest about current legal issues.

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RIAA Barker Gillette is Pakistan’s premier law firm, with an on-the-ground presence in three major cities in Pakistan: Karachi, Islamabad and Lahore, and affiliated offices in Dubai (DIFC) and London. 

The firm practices in all areas of corporate, commercial and dispute resolution law. Leading international legal directories consistently recognise the firm as a top-tier law firm in Pakistan.

RIAA Barker Gillette is the exclusive member firm in Pakistan for Lex Mundi, the world’s leading network of independent law firms with in-depth experience in over 125 countries worldwide.