Construction Law/loss of OH & P

Advertisement


Question
Hi ,Dear,
We are the Main Contractor for Road construction project to which FIDIC May 2005 MDB Harmonized edition is applicable.it is a re-measured contract.
Original Contract price 600 US $ Million and final contract sum is 450 US $ Million due to reduction in quantities of BOQ at actual execution.
Meantime some of critical items were increased (Asphalt Surfacing Works) and EOT was approved by the Employer.
1. Part of the Overhead (OH) and Profit planned from the Contract has lost due to reduction of Contract price.
2. Additional OH has incurred due to prolongation.
Can you please provide points to handle the proper contractual claim such as loss of overhead and applicability of Cl 12.3 (a) and 12.4 w.r.t this situation.
We have already given the notices(Cl 20.1) for loss of OH and Profit due to reduction in Contract price and additional payment for prolongation.
Thank you
Rohana

Answer
Dear Rohana,
According to Sub- Clause 13.3 each variation shall be evaluated in accordance with Clause 12.

Sub-Clause 12.3, “Evaluation” stipulates that “  … a new rate or price shall be appropriate for an item of work if:
(i) the measured quantity of the item is changed by more than 25% from the quantity of this item in the Bill of Quantities or other Schedule,
(ii) this change in quantity multiplied by such specified rate for this item exceeds 0.25 % of the Accepted Contract Amount,
(iii) this change in quantity directly changes the Cost per unit quantity of this item by more than 1%, and
(iv) this item is not specified in the Contract as a “fixed rate item”;

First of all you have the situation of item (i) and (ii). This clause refers to change of the cost, in accordance with (iii) above, therefore you need to justify the increase of related items making your cost of this items.


Sub-Clause 8.4 clearly states that any entitlement to extension of Time for Completion shall be subject to a claim in accordance with Sub-Clause 20.1.

As to the cost related effects there is no such express reference to Sub-Clause 20.1. It follows from the wording in Sub-Clause 13.3 that except in relation to the matters extraneous to the valuation process, there is no need to wait for a substantiation of a claim as referred to in Sub-Clause 20.1. Instead the Engineer shall proceed in accordance with Sub-Clause 3.5 without any intermediate step.

You did not mentioned that your new amount of Contract reduced due to Omissions or mistake on the Bill of Quantities? But in any case , Sub-Clause 12.4, item (a) stipulates that " the Contractor will incur (or has incurred) cost which, if the work had not been omitted, would have been deemed to be covered by a sum forming part of the Accepted Contract Amount; then the Contractor shall give notice to the Engineer accordingly, with supporting particulars..."  

As a brief, you have two case, EOT due to increased items such as Asphalt and caused increase on your prolongation cost and you did not recover your OH and Profit due to reduction of the amount of the Contract Amount.

Upon your submission of notices, the Engineer is required to ask particulars to substantiate your claim.

These are the guidelines and if you provide more details, I can be more precise on claim structure.

Best Regards

IRVALI  

Construction Law

All Answers


Answers by Expert:


Ask Experts

Volunteer


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.

©2016 About.com. All rights reserved.