You are here:

Construction Law/provisional sum and OHP

Advertisement


Question
Dear Sir,
I work on a project at the Contractor side executed under FIDIC Red Book 1999 converted to lump-sum. The Engineer claims that the OHP rate stated in the Appendix to Tender (10% in our case) applies both to items (a) and (b) of SC 13.5, which consequently obliges the Contractor to apply this rate on all varied work items including those executed without the use of sub-contractors. We claim that this rate shall only apply to 13.5 (b), thus only to Plant, Materials or services to be purchased from nominated (or not nominated) subcontractors and not to the works. What means the "or otherwise" statement in SC 13.5 (b)?

Answer
Dear Francis,

This clause refers to work valued under a Provisional Sum, but not other variations.  Clause 13.5.a refers to work done by the Contractor's staff under a Provisional sum, rather than being done by a subcontractor. Clause 13.5.b refers to work done by subcontractors, for which it is normal to get three quotations.  'Or otherwise' in this clause refers to work which is done by subcontractors, or suppliers, who are not nominated.  The Appendix to Tender refers specifically to clause 13.5(b).  If it was intended to apply to other clauses, those clauses would have been included.  

I guess that you are claiming more than 10% for OHP on other variations and the Engineer is querying your prices.  Profit has to be proved using audited accounts.  Few contractors have made more than 3% profits in recent years.  Overheads refer to off-site overheads, as the on-site overheads are included in the Prelims.  If you think that your prices are correct, then justify them in an objective manner.

Construction Law

All Answers


Answers by Expert:


Ask Experts

Volunteer


Peter M. Elliott

Expertise

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.

Experience

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')

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

Education/Credentials
B Sc(Hons) in Civil Engineering

©2016 About.com. All rights reserved.