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Construction Law/variation exceeding 15% of contract value

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Question
we are using FIDIC 87 in a road project. the project was awarded at 20 million. after completion the actual quantities resulted in a payment of 12 million. the questions are;

(1) what is the contractor entitled to claim for in this situation
(2) which clauses are applicable in this case
(3) considering 20 million and 12 million we have a difference of 40%. is the contractor entitled to be paid 25% which remains when you subtract the 15%

Answer
Dear Simon,

This case is covered under Sub-clause 52.3 which gives both side an opportunity to re-fix overheads and general expenses if the estimated contract amount is increased or decreased up to certain percentage  provided by contract. Fidic provides a measurable contract form however, when contractors calculate the cost of a project, they distribute various cost elements such as mobilization, site overheads, general overheads etc.

If we go through the Sub-clause 52.3, which stipulates that :” If, on the issue of the Taking-Over Certificate for the whole of the Works, it is found that as a result of:
(a) all varied work valued under Sub-Clauses 52.1 and 52.2, and
(b) all adjustments upon measurement of the estimated quantities set out in the
Bill of Quantities, excluding Provisional Sums, dayworks and adjustments of
price made under Clause 70,

but not from any other cause, there have been additions to or deductions from the Contract Price which taken together are in excess of 15 per cent of the “Effective Contract Price” (which for the purposes of this Sub-Clause shall mean the Contract Price, excluding Provisional Sums and allowance for dayworks, if any) then and in such event (subject to any action already taken under any other Sub-Clause of this Clause), after due consultation by the Engineer with the
Employer and the Contractor, there shall be added to or deducted from the Contract Price such further sum as may be agreed between the Contractor and the Engineer or, failing agreement, determined by the Engineer having regard to the Contractor’s Site and general overhead costs of the Contract. The Engineer shall notify the Contractor of any determination made under this Sub-Clause, with a copy to the Employer. Such sum shall be based only on the amount by which such additions or deductions shall be in excess of 15 per cent of the Effective Contract
Price.”
Simply, if you exclude Provisional Sums, Dayworks, Escalation and other adjustments under Clause 70, however include variation orders, to the amount on the issuance of “Taking Over Certificate” (which is at the end of the Project), you will find “Effective Contract Price” to be compared with amount agreed at the signing of Contract. If this amount in excess of 15 percent, then an amount may be agreed between the Contractor and the Engineer to be added to the Contract Price. This clause clarify an amount to be paid to the Contractor in case of decrease. For the calculation of this amount, the Engineer may ask substantiation and rate analysis to observe the site overheads and profit, calculation of overheads, mobilization cost, etc.

The Contractor entitlement is limited with his general expenses and overheads, and not loss of profit. The contractor also is not entitled to receive difference as pointed out as 25% in your case.

Best Regards

IRVALI

Construction Law

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ALI IRVALI

Expertise

FIDIC, Arbitration Procedures, Claim Management, Project Management.

Experience

I have experience of working at 6 countries in MENA region (algeria, Libya, Saudi Arabia, Oman, Pakistan)as the Regional Director and General Manager of a construction company. I have experience on various applications of FIDIC and construction law, arbitration procedures, claim management, project management.

Organizations
CEO of TURCON Construction presently. www.turcon.com.pk

Education/Credentials
M.S. Civil Engineer, Various Courses on Project Management, Seminars on FIDIC.

Past/Present Clients
National Highway Authorities of various countries, Water and Power Development Authorities, Karachi Port Trust, etc.

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