Construction Law/LumpSum contract
QUESTION: Hi Florin,
I need your help on a particular case regarding Lumpsum Contracts.
We have been awarded a lumpsum contract wherein drawings were given and we were to generate BOQ. During the execution of the project certain issues regarding payable amount have been raised by the client as under;
1. BOQ qty is more than that as drawn out from the tender drawings. Thus client is seeking deduction in the contract price.
2. BOQ qty is 100, Tender drwg qty 80 and GFC drwng qty 110. What shall be the final payable qty. Client intents to pay for a total of 110( our stand point is 100 + (110-80)
3. BOQ qty 40, tender drawing qty 60, GFC qty 70. Client intents to pay 40 + (70 - 60)
4. We had added certain items in the BOQ which were not in the drawings and subsequently are not executed. Client intends to deduct such amounts from the contract price.
Request you to please provide as to what shall be correct analysis and what shall be our argument to defend our interest.
I do acknowledge that there were errors in offtaking quantities on our part, however this being a lumpsum contract should not the risk of quantities( + or - ) be to our account. Please note that the changes in GFC quantities are due to changes in clients requirements.
Many thanks for your time and advise.
ANSWER: Hello Taran,
Good to hear again from you, thank you for your new question.
If it is a Lump Sum Contract, then the price you have tendered and signed the Contract for, is the price that shall remain unchanged, unless there will be some variations or other similar reasons.
Firstly, why did the Employer requested such BoQs? The regular reason is because employers want an instrument to justify the interim payments.
Then, Contractor is to execute the Works, as depicted by Drawings, Specifications and any such other documents in the Contract.
Finally, I understand you first tendered, signed the Contract, then you were requested to produce the BoQs. and then all discussions stirred up.
Thus, to answer your queries:
- payable price is the one shown in the signed Contract. It can only vary in case of Variations, or claims for delays or other issues that may give you an entitlement.
- if you added some items that were not included in the tender documents, but included in your offer, it obviously means your price includes those items and Employer has indeed a point when willing to deduct them. I would say the matter can be defended however, but one would need all related specific information for a fully fledged answer.
Trust that answer your question and gives you an indication on which direction to follow.
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QUESTION: Thanks Florin for a very prompt reply.
Actually, the BOQ was made at the time of quoting our prices and subsequently the contract was awarded. Will this change the understanding of a lumpsum contract?
Also, from your reply, what I understand is that if there is an increase in the quantity of item, as a result of changes brought about by the client, the additional quantity payable shall be the difference between the tender drawing quantity and the final drawing qty and shall not be linked with the BOQ at all. Is this understanding correct?
As for the items added by us in the BOQ were precautionary and did not warrant a mandatory usage. Eg. we added valves to be added with pipes although not required as per tender drawing.
ANSWER: Hello Taran,
That might change the situation, it depends on how were these BoQs defined at the time when they were requested.
In respect of additional quantities, normally, under a Lump Sum Contract, that is a Contractor's risk and there is no additional payment at all.
But again, due to that requirement for BoQs, things may change very much.
Please tell me when were the BoQs requested:
a) prior submitting the tender;
b) after submitting the tender, but before signing the Contract?
Please provide me as well, if possible, with the exact request of the Employer for the BoQs. I need to know what definition did they give to BoQs, what were they intended for.
Let's try exploring the situation together for clarifying the case and then get to the right answer, as any detail may change entirely the situation.
Look forward for these details.
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QUESTION: Hi Florin,
THe sequence of events that led to award is as follows:
1. Tender was floated which had a BoQ, which according to the client was a tentative one and had asked us to modify the same as and where required.
2. We submitted our proposal along with the revised BOQ
3. Negotiations with the client followed and we were given a target lumpsum amount for the whole scope.
4. we then revised our breakup(BOQ) to arrive at the target lumpsum price and then subsequently the job was awarded.
The quantities in the BOQ submitted by us were not the same as in the drawings, this was done to add contingencies to cover any overlookings from our part.
How do we now address the following scenarios:
1. drawing qty - 100, our BOQ qty - 130, Executed qty(GFC) - 100: How much is paid?
2. Drawing qty - 100, our BOQ qty - 130, Executed qty - 150(THis change is as a result of variation, say change in the cable route, and is due to clients changed requirements): What gets paid?
Please note that the Contract is based on FIDIC RED BOOK 1999 and clause 12.2 has been modified vide COPA as under;
""Delete the whole of sub-paragraph(b) and substitute with
(b) in addition to other methods of measurement as mentioned in specs ..... use IS standards.
(c) the contract shall be under Lumpsum basis without any remeasurement paid on work done assessment basis for which contractor shall provide all substantiation and workings to support his valuation.
(d) After the award of the work based on Good for Construction the contract shall eb revalidated Lump sum basis without any further liabilities to the Employer till completion of the works. THe payment shall be made as per the agreed final Bill of quantities.
(e) the lump sum may include some provisional or prime cost sums which will be adjusted in line with the actual costs plus a % add on.(to be shown in BOQ)
(f) THe lump sum shall be adjusted should any variations be issued, these variations shall be valued using BOQ rates.""
Forgive the inconvenience for a long reading.
Thank you for coming back, you seem to have a nice nightmare over there!
Before answering, there are still many things to clarify:
1. Tender Dossier and BoQs:
A BoQ was inserted in the Tender Dossier and then, while you were preparing the offer, amended several times.
Then after submitting your tender, you were requested to reduce your total price, hence you modified the unit rates. Assume you had by then, some agreed quantities.
2. Sub-Clause 12.2
You say: "Delete the whole of sub-paragraph(b) and substitute with ...". I understand 12.2 a) remained and 12.2 b) was entirely replaced.
But then you say "(a) Deleted".
Which "(a)" was deleted?
For avoidance of doubt, Sub-Clause 12.2 reads:
"(a) measurement shall be made of the net actual quantity of each item of the Permanent Works, and
(b) the method of measurement shall be in accordance with the Bill of Quantities or other applicable Schedules"
3. Clause 14. Is there any amendment of Sub-Clauses 14.1 and 14.3?
4. How on earth, can you use Red FIDIC, for a Lump Sum Contract?! sorry for my rhetorical question.
To tentatively answer your two questions:
4.1 In a logical Lump Sum Contract and if your contract was turned that way, it should be paid 100. By the way, what is GFC? Better refrain from such abbreviations that I might not be familiar with.
4.2 In case of variation requested by the Employer, you should deduct the price per linear meter and determine the value of that Variation, which should be added to the Contract Price, i.e. increase the Lump Sum.
Please look at these requests for additional information and get back to me. Do we seem to move in the right direction?