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Construction Law/Discount Rates on variations


Hello sir, I have read your answers and interesting to ask
my doubt from you.My project based on condition of contract 1987 Edition of FIDIC (Called white Book) and this is related to apply Discounted Tender rates for variations. When the contractor given a discount for measured works in the Tender stage and in the post contract stage when he claim for variations, are this discount applied for all the variations or Only the variations used Tender Rates?? It mean when contractor not using tender Rates(boq rates) which cannot applied, can he ignore the discount percentage from
variation which also at the end considered as Measured work.


Hello Pradeep (Oman):
Thank you for the inquiry.  In discussing the application of either Tender Rates for work under FIDIC-1987 (Red Book), or something called “Discount Rates,” your inquiry does not provide me with sufficient facts to render a well-grounded opinion as to whether the contract is structured to contain the tendered / BOQ rates to all measured works, or whether to apply a different schedule of rates to the varied work.  
Usually, the schedule of rates for open-scope varied work are higher than those applicable to the BOQ-limited quantities of work under any contract conditions, whether FIDIC-borne, or bespoke contract conditions, because the contractor has to take significantly higher risk for items of work not-well-defined and which are to be measured later.  Frankly, in all of my experience, I have never heard of discounted rates to be applied to the varied works, as such approach defies the economic reality of contracting business.  
Be it as it may, if the contract contains a typical clause stating that the Owner may vary the works within +/- 20% of the original contract price, the rates applied to the works lying within the 20% limit should be the tendered BOQ rates.  In such event, neither the Contractor, nor the Engineer, may re-negotiate the rates contained in BOQ, unless the contract authorizes the Engineer to fix rates provisionally, until an agreement could be reached with the contractor at which rates to execute the work.  
One must also remember that the Contractor is not authorized to execute the varied scope of work until the negotiated impact of the change has been agreed by both parties – in terms of price and time.  If the Contractor does not agree to the changed rates of work outside the 20% limitation, or if the varied work is of a drastically different character than the base contract work - the Engineer can fix the provisional rates & price / time, just so that the varied scope of work can be paid for on an interim basis on the contractor’s account, subject to the final adjustment of the contract price at a later stage.  
Look at the FIDIC-87, §52.1 - §52.2  together with §56.1 - §57.1 – method of measurement, which spell out the contractual mechanisms for executing such work.  Additionally, if the contract, such as what appears to exist on your project, contains a set of other rates applicable to the varied work to be measured – whether higher or lower / discounted, as compared to original BOQ – then the parties must execute the varied work under that regime.   Also consider that the contractor’s claim for the unpaid, or underpaid amounts, must contain evidence of the actual costs – and rates – actually incurred in executing the changed work, FIDIC-87, §53.2- §53.4, or else risk leaving some moneys spent on this varied work un-collected.
Personally – and this is just a question of style in administering any project - if I was advising the contractor in this case, I would prohibit the contractor’s on-site team from doing any varied work at contractor’s risk, because it appears that the contractual prerequisites have not been established in order to reach a knowing decision as to which rates would apply for the varied work, and the contractor alone is forced to assume the risk of payment therefore, which does not appear to be a sound contracting practice to me.
Without more site-specific facts, and without a detailed review of the contract conditions, I could not give you a more definitive answer.  I hope this helps to make your decision-making analysis easier.
Gerry Sverdlin, PE, Esq.

Construction Law

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Gerry Sverdlin


Questions I can answer or provide assistance to reflect the following subjects: contract terms and conditions, interpretation of ambiguity, construction management and practices, claims for costs and time, variation / change orders, disputes, dispute resolution techniques and organizations, claims for extra work or materials, delay analysis, disruption or interference, defective design and negligent supervision, construction risks and mitigation, warranties and insurance. Questions I can NOT answer: too numerous to list here.


Mr. Sverdlin provided over 20 years of services in dispute resolution and expert opinion of complex construction claims for extra work, delay & acceleration, defective design & installation, unauthorized deviations, differing site conditions, productivity loss, labor & material shortage, owner’s interferences, force majeure, bonding, warranties and insurance coverage. Mr. Sverdlin participated in dispute resolution proceedings regarding 10 mile sub-aqueous outfall tunnel at Deer Island Treatment Plant – Boston Harbor Project, and claims arising out of construction of the South Boston / South Bay Interchanges for the Central Artery/Tunnel Project in Boston, Massachusetts, USA, and multiple proceedings Middle East. Specialties: Mr. Sverdlin established expertise in construction contract preparation under EJCDC, AIA, FIDIC and agency-specific bespoke contract frameworks: procurement administration, resolving defects in scope of work coverage, specification and estimates, change order processing, project controls & cost recovery. Engineering practice encompasses design & procurement management of highway & rail transportation systems, wastewater treatment and drainage networks, key performance indicator regimen.

2011 - CIArb Member Grade 1999 - Attorney at Law – Massachusetts Bar, BBO # 642980 1992 - Registered Professional Engineer - PE: Lic. MA-36839 - Civil Affiliated Memberships: MBA - Massachusetts Bar Association DRBF - Dispute Review Board Foundation TASA - Technical Advisory Service for Attorneys

2010 - 2011 - American University in Dubai -Grad. Sch. of Business Administration Construction Contracts, Means & Methods, Claims & Changes, Project Controls March 2009 - Chamber of Commerce, Colombo, Sri Lanka – Construction Management Seminar Changes & Claims, EOT/Delay Damages, Loss of Productivity – Measured Mile 2000- 2007– Boston Architectural Ctr & Wentworth Inst. of Technology - Construction Law 1991- 1993 - Northeastern University, Boston, MA – Land Surveying, Sewage Disposal System Numerous continuing education specialty courses Suffolk University Law School - Juris Doctor, law -1993 – 1997 Northeastern University - MS, Construction / Public Works Management - 1993 Polytechnic University - BS, Civil Engineering 1982 – 1985

Past/Present Clients
Representative Projects Dubai International Airport UAE Muscat & Salalah Int'l Airports Oman South River Dredging Mechanical Scituate, MA Permitting / Boundary Dispute (Title V) Worcester, MA Hazardous Material Site Assessment New Bedford, MA Groundwater Pollution Monitoring Burlington - Woburn, MA Hazardous Material Disposal - Site Clean-up Wrentham, MA Sewer Rehabilitation Project – STEP Abu Dhabi, UAE Dubai Metro - Road & Transportation Authority, Dubai, UAE Boston Harbor Project - Deer Island MWRA - BHP Winthrop, MA 1,200 MGD Waste-Water Treatment Plant Doha North Sewerage Treatment Works Ashghal, Doha, Qatar 254K m3/d STP, 25-km triple force mains, 33-km Interceptor Sewers 10,000 l/s PS Central Artery / Tunnel Project - MHD / MTA Boston, MA 116 lane-miles Old Colony Railroad - Commuter Rail (Boston, MA 70+ mi) Cherry St. Reconstruction Full-Depth Bridgewater, MA 2.1 mi Scenic Roads Reconstruction Town-wide Wayland, MA 8.7 mi Strawberry Hill Rd Reconstruction Full-Depth Concord, MA 1.7 mi Craigsville Beach Rd Reconstruction Full-Depth Hyannis, MA 3.4 mi Water Main Replacement Southborough, MA EMAAR – Gulf III Towers, Dubai, UAE Mixed-Use Hi-Rise Peabody Properties Residential Hi-Rise Lynn, MA Bristol Properties Shopping Mall Attleboro, MA May Institute (children w/special needs) Institutional Randolph, MA Bear Hill Executive Park Commercial Waltham, MA Prospect Hill Executive Park Commercial Waltham, MA Residential Community Subdivision 128 lots Hopkinton,MA Retirement Community Subdivision Residential – 126-lots Warren,MA Independence Mall Retail Kingston, MA Mashnee Village Subdivision Residential – 54-lots Buzzards Bay, MA Hyannis Industrial Park Heavy Commercial

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