SETTLEMENT OF DISPUTES REGARDING THE USE OF REAL WAGES IN THE PRICE ADJUSTMENT FORMULA THROUGH BANI

Abstract

Price Adjustment is a mechanism to protect the parties in a construction contract from unexpected price fluctuations, which must be designed from the beginning of the Project planning. This paper discusses the error in using the construction labor cost index using real labor wages. This error is even worse when in the price adjustment application, the basic price index (n = 0) is not adjusted to its base year when compared to the price in month n (n > 12). After more than 3 years of price adjustments, the employer just found out. This finding resulted in a different calculation from the contractor. The large difference in results (differences) made the parties not reach an agreement, so they agreed to ask for an opinion from BANI. Finally, BANI gave a binding opinion that the construction worker wage cost index element should use Nominal Wages instead of Real Wages, with considerations including: Real wages consider two factors, namely wages received actually with the inflation rate of goods prices (purchasing power), while Nominal Wages better describe the real costs incurred by contractors to pay Labor wages.