Construction Law/Construction law

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Question
Dear Expert,
A FIDIC MDB 2006 version Contract, English law.
Q:The Contractor submits his quote for a variation based on the quote submitted to him by a sub contractor. The sub contractor has included a mark up (OH & Profit)of 25 %. The main contractor added another 25% on the sub contractor's quote which already has 25%. Is the main contractor entitled to claim profit on the profit of his sub contractor? can he claim a mark up on the OH of his sub contractor? This amounts to paying 56.25% mark up by the Employer.
Thank you for your expert openion.
Mututantree

Answer
Dear Mututantree,

The short answer is yes.  It is right that the Contractor should add OHP to the quotation provided by his subcontractor.  He has done it for all other goods and services provided under the Contract.  The difference is that it is obvious in this case, but not so obvious in his original tender.  

The longer answer is that I would ask him and his subcontractor to justify the OHP percentage.  25% could be a little high.  I would suggest 15% in both cases.  Depending on the value of the item, it might be worth asking for a detailed breakdown.  If it is a relatively small item, then I would accept it, but tell the Contractor that I am watching him and to be careful in future, but that all depends on the personalities involved.  

Consider the Contractor's duties.  He has to provide services to the subcontractor, including insurance, watching and lighting, perhaps canteen and other social support.  He may have to pay the subcontractor and then wait for you to pay him.  He has to correct any faulty work by the subcontractor.  

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Peter M. Elliott

Expertise

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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