Construction Law/FIDIC Clause 12.3
This is in continuation of already replied answer,
Q1 is quoted rate by the Contractor for an BoQ item can called be "Fixed Rate"?
Q2 can the rate of an item be reduced if the quantities increased as per the provision of clause 12.3 of FIDIC red book?
Early reply will be highly appreciated.
ANSWER: Dear Tahir,
Thank you for your question.
1. The rate quoted by a Contractor in the contract BOQ is known to be "Contract rate". Except where the contract provide a basis for any change in this rate by reasons of variations.
2. The provision of clause 12.3 should not vary the contract rates but rather, it could influence the amount of the contract price. This influence would normally be worked out and result from additional costs in form of lump sum or certain percentage to take care of any extra cost or additional overheads unanticipatedly expended and or unrecovered (in case of variations of deduction / omissions) on the project or within or outside the contract duration and this would be added to the contract sum. However, the basis of any addition must also be justifiably agreed between the parties. In most conditions, certain range / cap is included for any adjustment in contract amount to be contractually okay. In summary, contracts rates or contract overheads cannot be reduced in a contract as this is the basis of the contract itself being the consideration thereof. Instead, amount for any items of work not done or instructed to be deleted can be reduced from the contract amount and certainly, not the contract rates.
I hope this clears your doubt and please accept my apology for late response.
---------- FOLLOW-UP ----------
QUESTION: thank you sir, for your valuable comments/reply.
i got what you wanna explain me generally. but i would like to bother you again with more specific approach.
our project the Engineer has decided to reduce the quoted rate of the contractor for an item, as per provission of the clause 12.3 of FIDIC. as all the condition described in the aforementioned clause are fulfilled. my question is very simple:
can the Engineer reduce the quoted rate of the contractor if all the condition of the 12.3 are fulfilled?
how the rate will be evaluated, because in the same clause it saya that new rate will be derived from the contractor already existing rate for similar nature?
what will be then for price adjustment after reduction/ application of new rate?
thanks for your so kindness in previous answers.
Thanks for your follow up question.
Q1 - The rates in Contract BOQ priced by Contractor are contractually fixed and not subject to any alteration (except is stated otherwise in any part of the contract) for use as long as the contract subsists.
Q2 - Clause 12.3 of FIDIC 1991 RED BOOK provides that only works that are varied in excess of 10% over the contract quantity would have it rate adjusted. This does not give license to reduce or increase rates of the original scope at will. what it means is that, any extra work in excess of 10% over the original scope would entitle the Contractor and empowers the Engineer to consider new rates. Please note, new rate does not only mean reduction or increase from or over the original rates. The determinant whether the rates (in such circumstance described in 12.3a &b) would be based on derivation from the original rates (if the items involve are similar to those in the contract BOQ) or a new rate for such scope of the varied quantum. For example: if you have 5,000 cubic meters of concrete @ $100 per cubic metre in the original scope and there were variation for additional quantity of 1,000 cubic meters (which obviously satisfied the condition in 12.3a); it means, the Engineer can consider (on the request of the Contractor) for an increased rate - as a new rate for only the 1,000 additional cubic meters) either by:
1. Asking the contractor to submit breakdown of the original rate backed up with receipts for procurement of the materials, labour and plant with Overheads and profit used in executing the original scope and compared with similar breakdown backed up with receipts for the 1,000 additional quantities. If nothing has changed (to the increase) in the comparison; then, there will not be basis to increase the rate. Similar procedure happens if the Engineer feels that; the quantity of the additional scope is such that; it would afford the Contractor to get discounts on the total contract. Few administrators believes that, the more the quantities, the more possibility to get discount in the rates for execution. However, one principal determinant of this principle is dependent on the timing of orders for such additional quantities. If the variation is instructed early enough an contractor has good room to change his orders (particularly for bulk orders); then, there could be possibilities of reduction in price / rates. Summarily, in whatever choice, there must be basis to increase / reduce the rates for any varied quantities of work instructed in excess of 10% as per clause 12.3.
I hope this is clear?