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Construction Law/Variation Claim in a Lump Sum Contract

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Question
Mr.Elliot,

Here is my question:

Let’s say we have a lump sum (+/-5% re-measurable) subcontract with an EPC contractor with a condition of “any change in quantities/dimensions resulting with a change in price less than 10% shall not be considered as a variation”. And we have a change in work scope/dimensions with an effect of 15%, hypothetically. Are we eligible to claim cost of this 15% or only that ‘additional’ 5% which is above 10% margin?

May EPC contractor say “Subcontractor accepted that risk of 10% and it is buried in their contingency” or not?

What is the common practice and understanding -considering it is not defined in further detail in the contract? Is this 10% margin just defines the eligibility to proceed with a claim or it really means that all parties should have considered that risk beforehand?

Thanks.

Answer
Dear Can Koseoglu,

Please accept my apologies for the huge delay in responding.  I have been looking after an energetic 2 year old after her other grandfather broke 4 ribs.  

You do not mention the form of contract, nor the applicable law.  EPC contracts are renowned for the lack of potential claims, with all risk on the Contractor or sub-contractor.  

FIDIC 4 Clause 52.3 states 'Such sum shall be based only on the amount by which such additions or deductions shall be in excess of 15 per cent of the Effective Contract Price.'  It is possible that your clause will be interpreted in a similar manner, so that you can claim only those costs above 10%.  

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Peter M. Elliott

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First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol www.eotprotocol.com before submitting a question.

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Value . . .
It's unwise to pay too much, but it's unwise to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.
. . . John Ruskin (1819 - 1900)
"We are too poor to buy something cheap"
.Romanian Proverb 2002
A lean compromise is better than a fat lawsuit. George Herbert (English poet 1593-1633)
I said it in Hebrew, I said it in Dutch,
I said it in German and Greek:
But I wholly forgot (and it vexes me much)
That English is what you speak!" Hunting of the Snark - Lewis Caroll
Match your presentation to the reader!
The joy of food lasts but an hour, of sleep but a day, of a woman, but a month, but the joy of a building lasts a lifetime. Syrian proverb.
Comments and observations leading to improvements in the translation of FIDIC Red & Yellow books into Romanian prior to approval by FIDIC (reference 'Preface to the Romanian edition')

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Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

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B Sc(Hons) in Civil Engineering

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