Construction Law/New rate under FIDIC 2002 red book
After a long time.I have a question for you.
In one of the FIDIC red book 2002 agreement , The one BOQ item of construction of cement concrete drains is included in BOQ wrongly the quantities are very much less than required to execute at site as per drawings (unit of quantity denoted as meter in place of Kms in the BOQ).The contractor has quoted the rate at very much higher side and the BOQ item is not satisfying the conditions of Sub clause 12.3 of FIDIC red book 2002 for new rate of the BOQ item.The drawings and specifications are on priority of Schedule of items(BOQ) in the contract.
1. Please clarify that;If the contractor has executed the work as per drawings which is very much more than BOQ. Then contractor is asking for the payment as per quoted rates.
a. Whether contractor has the right to ask the payment on the basis of of quoted rates or not?
b. Engineer has denied to pay the amount and ask to the contractor for new rates of the Item. Action of Engineer is correct or not as per the provisions of FIDIC documents as the item is not satisfying the provisions of sub clause 12.3 of contract agreement.
The provisions are;
"Any item of work included in the Bill of Quantities for which no rate or price was specified shall be considered as included in other rates and prices in the Bill of Quantities and will not be paid for separately.
However, a new rate or price shall be appropriate for an item of work if:
(a) (i) the measured quantity of the item is changed by more than 25% from the quantity of this item in the Bill of Quantities or other Schedule,
(ii) this change in quantity multiplied by such specified rate for this item exceeds 0.25% of the Accepted Contract Amount,
(iii) this change in quantity directly changes the Cost per unit quantity of this item by more than 1%, and
(iv) this item is not specified in the Contract as a “fixed rate item”;"
Thanks in advance for reply and valuable guidance
Good day. Thanks for your question. Please accept my apology for late response.
Now to your questions.
1. If the contract is a LUMP SUM FIXED PRICE contract and the Contractor has executed the work in line with the Contract drawings; then; the Contractor must be paid as the the contract price.
2. The Contractor has the contractual right to be paid in line with what he has quoted.
3. The Engineer will be acting in error if he denies the Contractor of his contractual right to the price quoted. Under the contract; there is nothing that gives right to the Engineer to vary the rates or contract price as agreed under the contract except only where there is a variation that change the scope - quantity; character and workmanship of the works which renders the contract rates inapplicable; irrelevant or unreasonable to be used to value such variation.
Other Hints / added help:
In an instance where there are variation and new items (in addition to the original scope are instructed), then, we will naturally rely on the principle that; the intent of any contract is for parties to deal and carry out the contract "in good faith" which for all intents and purposes, demands that; contract should be transacted in "honesty, transparency and in a credible manner". As such, you would need to justify the unreasonability of the rates by ascertaining the fact that the error so referred to is a "material error" which would not have ordinarily been intended to be part of the "material risks" anticipated or intended to have been contracted by both parties during the procurement of the contract. One of the way of ascertaining this is to demand from the Contractor to provide the rate analysis for the unit rate per (m) meter and also another analysis for the unit rate per Km (Kilometer)for the item concerned and then, compare them. From the analysis, the error would normally and naturally be obvious in the cost breakdown of the unit rates. What you are likely to find out is either the material cost becomes unreasonable or other costs i.e. plants, labour, overheads and profit become substantially unreasonable,irrelevant and inapplicable to be used for valuing any change in the Contract. The second to the last paragraph of the clause 12.3 explained this process (I guess this is not deleted in your contract). Any unreasonability in (1) above would then, make the rate irrelevant; inapplicable or inappropriate in line with the provision of Clause 12.3 but this unreasonable and the inapplicability only applies to valuation of variation on such item of work.
Referring to my answer in (3) above, no change in unit rates is allowed for the original scope of the works except when the specification changes. All original scope of works must be valued in the original quoted rate. The reason why the rate cannot be changed for the original scope (as in your case) is that, the Contractor has and could have probably considered a lot of risks along the process of building up the pricing of the BOQ and acceptance of the contract. If then, the rate is change due to a unilateral action of the Engineer; then; the contract could be said to have been BREACHED. Remember, the principle of contract denotes the following:
1. There is offer - i.e. the scope of the works to be done as in the description
2. There acceptance - Acceptance of the offer
3. There is consideration - The agreed price based on the rates quoted in the BOQ or as may have been finalised under the contract.
And therefore, no one of the parties to the contract has a unilateral right to deviate from what has been agreed and signed under the contract and if there is any variation to such; it has to be remunerated with appropriate consideration as well.
I hope the above is clear.