You are here:

Construction Law/APPLICATION OF DISCOUNT OFFERED

Advertisement


Question
Dear Mr. Femi Alofe,

I am grateful, if you would kindly provide clarifications to the following.

Contract: Civil Engineering Contract on Construction of Water Retaining Structures and Pipe Laying.

Applicable General Conditions of Contract:
  FIDIC FOURTH EDITION 1987
  Reprinted 1988 with editorial amendments
  Reprinted 1992 with further amendments

1.0 Related Contract Provisions:
 1.1 Preamble to BOQ - " The Contractor may allow a discount based on  the Grand Total Less Provisional Sums in the Grand Summary."

"The Contractor's value of work is calculated by deducting this discount from the Grand Total Less Provisional Sums."

 1.2 Form of Bid - "The Discount offered if any and methodology for   
     their applications are specified in the summary of Tender."

 1.3 The above are the only Provisions available in the Contract. Grand summary prepared by the Contractor as Tenderer, clearly and exactly shows how Discount was offered as per above 1.1 and 1.2.

2.0 Dispute Prevailing.
 2.1 Contractor's Contention: Reference 1.1 above,when Provisional Sums are withdrawn from Grand Total, what is available in the Grand Total in Tendering is only the value of BOQ items available at the time of Tendering.

Therefore the Contractor has offered Discount only to value of BOQ items available at time of Tendering and nothing else.

2.2 Client's Contention: Since this is a Measure and Pay Contract, it is implied, that the offered Discount is invariably applicable to any future Variations including Extra Works and Extra Quantities.

3.0 Please be good enough to advice who is Contractually Correct, with justifications.

Thank you in advance.

Answer
Dear Basil,

Good day and please accept my sincere apologies for responding late to your question. I had few challenges with my devices.

According to your question, the correct interpretation is what the Contractor has said that is, the discount given is only applicable to the measured works. However, the challenge here is that,  one of the parties stated how the discount should be applied. Please note that this is different from discount factor being applied to correct arithmetic error in the submitted tender figure and as such, except it is argued otherwise or stated otherwise somewhere in the Contract, the discount can be accepted as a lump sum to the original scope and therefore should not be extended to the additional scope. However, if the discount has been applied upon the contract rates and such rates are being used to evaluate the works, again, one party could assume that the implications of this is that the discount applied upon the rates is only meant to cover the quantity of work in the original scope and that, such discount are not to be applied upon the rates if they are to be used for additional works.

One way of solving this problem is that, since there is ambiguity in the interpretation and the contract is silent on its applicability, both parties would need to agree. They have one fact to know and that is, up to the value  of the measured works, the discount given should be taken 100% while additional scope may not be subjected to discount but if the discount is expressed as a percentage of the rates and adjusted, then, the discounted rates would become contract rates which would also be applicable to any additional works instructed.

I hope I am little bit clear. Let me know if you need more clarification.  

Construction Law

All Answers


Answers by Expert:


Ask Experts

Volunteer


Femi Alofe

Expertise

I can answer all questions relating to the followings: 1. Contract Administration - variations, contract clauses interpretation, all post contract procedures, valuations and certificates questions, extension of time issues and prolongation cost matters. 2. Contract Practice - Any questions regarding forms of contract like JCT, FIDIC & other Bespoke forms. 3. Quantification, measurements and Estimating questions 4. Contracts and construction law questions and dispute resolutions problems. 5. All FIDIC Conditions of contracts

Experience

Out of my 24 years experience in construction industry, i have the following specific experience: 1. Contract Administration - 15 years in contract administration with over 10yrs in Managerial positions covering africa and the middleeast. 2. Contract Practice - 15 years experience with over 10yrs in Managerial and expert positions covering africa, north america and the middleeast. 3. All pre-contract procedures, Tendering, Quantification, measurements and Estimating questions - 20 years experience. 4. Contracts and construction law questions and dispute resolutions problems - 15 years experience with over 10yrs in Managerial and expert positions and 5 years expert witness and active practice in arbitration proceedings covering africa and the middleeast.

Organizations
1. FAIQS - Fellow, Australian Institute of Quantity Surveyors, Australia 2. FRICS - Fellow, Royal Institution of Chartered Surveyors, UK 3. CCP - Certified Cost Professional AACEI, USA 4. PQS - CIQS, CANADA 5. ACIArb. - CIArb, UK 6. MNIQS - NIQS, NIGERIA 7. RQS - QSRBN, NIGERIA

Publications
1. AACEI RP on Estimating, 2010

Education/Credentials
1. B.Tech (QS) 2. RICS professional course, CEM - UK 3. MSc , UK NARIC 4. Professional Doctorate ( to commence 2016)

Past/Present Clients
1. Larsen & Toubro Ltd, Dubai UAE 2. Larsen & Toubro (oman) LLC 3. Archi + Web consortium, Abuja Nigeria 4. George Dike & Associates, Minna Nigeria 5. Public works Authority (Ashghal), Doha Qatar

©2016 About.com. All rights reserved.