Construction Law/Additional Payment in DB
Hope things are working wonderfully fine with you.
I wish to thank you for helping me to take your advice as and when the need arises. You always have been a big help.
My question today reads as follows.
It is about a road project. The Contract is based on the Conditions of Contract for Design –Build and Turnkey, First edition, 1995 prepared by FIDIC.
During the course of execution, change has occurred in the Employer’s requirement of the control points, then, variation was initiated in effect.
The change caused increase in the length of the project road.
Further to the extension of time request the contractor requested additional payment based on schedule of payments, which specifies in percentage the financial components of the contract price.
My question relates to the correct way of determining the additional payment.
The payment schedule says that measurement and payment provisions of the construction shall be lump sum basis and shall be paid upon completion of each of the work items as per percentage proportion provided therein.
THE CONTRACT DOES NOT INCLUDE SCHEDULE OF RATES.
For road works, the contractor claimed additional payment based on adjustment factors he worked out on the basis of the increased length against the total length originally envisaged [Factor: increased length/original length].
For pavement works, the contractor considered estimated quantities to determine the difference [as increased length x width minus original length x width] and work out adjustment factors. For the bridges, the contractor took original and revised span lengths.
The adjustment factors were applied to the original value of work items to calculate the additional payment.
How acceptable is the above approach by the Contractor?
What method should one follow to determine the additional payment for the increased length in the absence of SCHEDULE OF RATES in the contract?
As the design is already completed, can the rates be worked out from the amounts given for each item and the quantities known at this stage for the original length?
As usual, I am deeply indebted in advance to your knowledgeable advice.
Good day and thank you for your question.
The first thing I would like you to understand is that, once there is no detailed breakdown of rates, the methodology to evaluate variations become subjective. There may not be a right or wrong once the procedure is logical. Having said that, it does not mean that there may not be the best approach particularly depending on the role the person evaluating is playing. For example, some methodology may be advantageous to Contractor while some may be to the employer. Some could give you a rough and approximate evaluation while some would give you a more precise evaluation considering all the risks embedded in the Contract while arriving at contract price.
The contractor methodology is one logical approach which could be followed in the absence of no other way or when it is practically impossible to break down the sum of the original amount into various work items and elements. But an alternative way of evaluating in such circumstance is to request the contractor to breakdown and submit price analysis of the original amount agreed for the original scope. Since obviously now, you would have got contract drawings based on the original scope, the contractor should be able to prepare a detailed Bill of quantities and now inserting his rates on all the items an pricing them to meet the agreed amount for the works. Where the rates are unreasonable, it must be adjusted to reflect reasonable rates. Where the sums arrived at is more than the agreed sum because of the reasonable rates used, this would be adjusted by a factor to bring it down to the original sum. If less, same principle is applied to bring it up to the agreed sum. The factor so established is the risk factor contained in the original agreed amount which must not be eroded.
Finally, both methodology, the one contractor used and the one I am suggesting may eventually result to no substantial difference in the outcome. If this is the case, it means you have been able to do a due diligence to verifying that the contractor s methodology is okay.
I hope am a bit clear.