Construction Law/Price variation in LS contract
Dear Mr Manish,
Let me share the following event –
Recently we are awarded nine hospitals at different locations in our state. State Govt. is the client & it’s a “Design & Build” contract on turnkey basis.Out of nine hospitals four are only 5 storied and will follow isolated footings instead of pile foundation . A payment schedule on percentage basis were agreed with client upon completion of certain milestones which specifies as stated below -
a)On completion of 50% foundation ( Pile only) @ 5.5% of Contract value
b)On completion of balance 50% foundation ( Pile only) @ 5.5% of Contract value
Now here is a dispute. .As per Payment schedule it seems payment will be made against pile foundation only. Now instead of pile foundation if we adopt isolated footings client may ask for savings by saying that they bought the building including pile foundation and raft etc which is now changed to isolated footings which are more cost effective. So , client may treat this event as a part of “value engineering” to issue a variation order in their favour.
As a contractor are we entitled to get full payment as agreed ?
Contractually how to protect ourselves ? If you kindly advise, thanks
Regards - Kallol Seal , L&T- Kolkata , India
In a design and build turnkey contract the contractor not only has the obligation to design the works but he has the right to select a design that is fit for purpose.
Turn the question around - if the Employers requirements had indicated pad foundations for the 5 storey buildings but the ground conditions required piles - would they have paid you extra?
Provided the finished building is fit for purpose and complies with the Employers requirements then you design and build to the optimum economical result.
One simple way around the problem is skip the first two payment stages and wait for the third - presumably slab - to get the payment including the foundations.
You may have to arrange some bridge finance but that would be better than a long argument about value engineering.