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Construction Law/Sub-Clause 12.4 (omissions) of FIDIC 1999

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QUESTION: Dear Mr. Peter

I have some queries about above mentioned sub-clause as follows:

1- an item is required to be omitted by the Employer while the Contractor has not yet started at all in execution of this item. It's apparently no cost has been incurred yet so according to sub-paragraph (a) no compensation entitled However, overhead (OH) is a part of cost (cost as far as I know consists of direct cost and indirect cost which is namely called overhead) .. i.e. is the Contractor is entitled to OH compensation against the share of the item omitted in the estimated OH of his tender offer?

2- Please refer to the clarification of this sub-clause in the Guide which gave an example of form work which has been already supplied by the Contractor prior omitting the item. The Guide says that the Contractor in this case is entitled to cost and profit. my question is why profit? cost and profit means the price quoted by the Contractor for this item. why do i have to pay the whole price of the item after omitting it whereas 12.4 says only cost???

Hope you understand what is confusing my mind Sir

Khaled

ANSWER: Dear khaled,

The intention of the clause is to restore the Contractor to the position he was in before the omission.  So if he has had some expense, such as buying formwork, he would have expected to make a profit on that item.  Thus you pay for the cost of the work plus profit.  If the omission is balanced by new work which allows the Contractor to recover his overheads and profit, then there is no need to recompense the Contractor for his loss of overheads and profit.  Clause 52 of FIDIC 4 allowed the Engineer to make an adjustment in the Final Certificate to cover any over or under recovery of overheads and profit, but the words are different in FIDIC 99.  



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QUESTION: Thank you Mr. Peter .. wonderful clarification however I still have further small queries:

1- In such form work example; how can we know the profit that to be added to the form work costs if the BOQ item is "Supply & Apply reinforced concrete all inclusive of form work, steel fixing, concrete pouring, workmanship, OH and total profit of the whole item" i.e. purchasing form work is a part from a big contractual item. Do we know that total profit of the whole item which was estimated by the Contractor upon tendering? DO we know the small profit that can be added to the form work cost only (for compensating the Contractor) ?

2- May you give me a  very short and quick opinion on my question No. 1 in my previous message?

Thank you so much Sir

ANSWER:  Dear khaled,

Q 1) The contractor has to prove his actual profit, not the assumed profit shown in his bid, using his audited accounts for several years.  That profit is then added to the actual cost of the materials and labour in making the formwork.  When I was doing estimating, we allowed 100% mark up on materials and 3 times basic take home wages for labour costs, but those factors would change with time and the country.  The Contractor has to show his breakdown for the BoQ item, including formwork and you have to make a judgement as to whether or not the proportion is correct for any given activity.  

Q 2) If the omission is balanced by new work which allows the Contractor to recover his overheads and profit, as included in his offer, then there is no need to recompense the Contractor for his loss of overheads and profit.  Clause 52 of FIDIC 4 allowed the Engineer to make an adjustment in the Final Certificate to cover any over or under recovery of overheads and profit, but the words are different in FIDIC 99.

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QUESTION: Dear Mr. Peter

for question (1) no further questions.

for question (2) : please tell me your answer in case the omission is not balanced or replaced by new work. i.e. Employer omitted a certain work totally without any substitute work and before any action take by the Contractor regarding this work on site or procurement or else?

Thank you and sorry for my repetitive inconvenience

Khaled

Answer
Dear Khaled,

Q 2) It is normal that the Contractor will allow in his offer for a variation in the final price of +/- 15% from the Accepted Contract Amount.  If the final variation is within this range, then there would be no change due to this omission.  If the variation is outside this range, then the Contractor must prove his loss of overhead recovery and profit.  There is a lot of case law on this subject.  I suggest that you visit the web site http://atkinson-law.com/ for articles on the subject.  

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Peter M. Elliott

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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

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