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Construction Law/Unit Price of particular Item on road construction project


This is about a road construction in Ethiopia, Africa.

Project: Yabello – Metagefersa Road Construction Project

Client: Ethiopian Roads Authority/ERA
Contractor: SHED General Construction PLC (Local Company)
Consultant: Transnational Engineers PLC ( my Company)

Contract Type: Measurment / BOQ, the Contract is governed by FIDIC Fourth Edition 1987 version.

Contract is signed in August 2011 and more than 50% is accomplished to date.

My Question is: about a unit price of one particular item (Reinforcement bar).
During the Contract signing the Contractor has offered 280,000 Birr/ton for Reinforcement steel bars.

Item No.   Description   Unit   Contract Qty   Unit Price   Amount
33.12 (b)   High-tensile Steel Bars   ton   16.31    280,000.00   4,566,800.00

Though the Contractor has won the competitive bid with the overall project cost of 133,500000.00 Birr (Birr= Ethiopian money), there was a Pre – Contract Negotiation Meeting before signing the Contract, whose minutes will be part of the contract documents.
1)   According to The Minutes of Pre-Contract Discussion held on August 01, 2011; No. 5 says the following:  
“The Client, ERA noted that the rate given for pay items 33.12 (b) Steel Reinforcement, high tensile steel bars ETB 280,000.00 per ton is very high. Hence, ERA requested the contractor to submit cost breakdown. The contractor submitted price breakdown for the above bill items i.e. Bill item 33.12 (b) Steel Reinforcement, high-tensile steel bars.

ERA reviewed the rates and found it to be unrealistic. However, since the total offer of this bidder is found to be the best offer for this project as per the multiple bids evaluations of 12 Contractors, ERA accepted this unit rates only up to the quantity given in the Bill of Quantity i.e. 16.31 ton for Bill item 33.12 (b) Steel Reinforcement, high-tensile steel bars.
Nevertheless, ERA and the Contractor agreed the unit rates, if there is any additional quantity under these bill items during the construction period, the rate shall be adjusted to 28,000.00 ETB (ETB Twenty Eight Thousand only)

2)   According to Conditions of Particular Application, Sub-clause 2.5 Priority of Contract Documents; “The Minutes of Pre-contract Discussion” is one of the documents that form the contract document, and prevails the conditions of Contract in precedence.

1.   The actual quantity on the project site now is above the original BOQ quantity i.e.

Unit   Description   Contract Qty   Actual Qty.   Difference
33.12 (b)   High-tensile Steel Bars   16.31 ton   44.20 ton   +27.89 ton

Contractor’s Position: So, in principle we should pay the excess quantity from BOQ, with 28,000 Birr, however the Contractor thinks this is not reasonable.
And consequently, claims the rate adjusted during the pre contract negotiation shall be abandoned and the original rate i.e.280,000.00 shall be used throughout.
Consultant’s Position: the rate fixed during the pre contract negotiation is inconsistent with Clause 52.2, which says rate shall be adjusted only when quantity reaches 25% above the BOQ quantity and 2% of overall project cost. The original cost shall apply upto this point and rate shall be adjusted for the rest
Client/ERA: wants the pre contract negotiation shall apply.

So the question is which rate shall apply for the increase in quantity as indicated in the tabulation above?

Dear Samson,

Thank you for your question.

Once the Contractor had the lowest bid, i.e. based on that high price for steel, they should have never accepted to lower the rate above BoQ quantity.

Simply because that was his offer based on which he won.

But since they accepted that, that is the true will of the parties and no one can undo that, except the parties themselves, i.e. if ERA accepts to wave that negotiation. Which I guess, shall not be the case.

As such, while they have my full sympathy, Contractor shall be paid up to the original quantity in the BoQs at the original rate and whatever is above that, at the rate agreed in the negotiation.

They made a terrible mistake, but now they are bound by what they agreed. Hope next time they will stay straight in their boots and no longer agree such things.

As for quoted Sub-Clause 52.2, as you said yourself, negotiation agreement supersedes the Conditions of Contract.

Trust that answer your query.

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