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Construction Law/provisional sums and prime cost sums in LS project

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Question
Dear Mr.Sivaraman

we have a lump sum project , form of contract is fidic red book 1999.


our employer has directly appointed a main contractor to execute a fitting-out work on existing hotel.
he made a contract agreement based on letter of Award.

below are some info before addressing my questions:

1) it was agreed that MEP work will be professional sum. and the amount for that provisional sum was declared by the employer.

2) the contractor handed over the priced BOQ to the employer and in the BOQ he has 11 Bill Nos.

3) the MEP work was Bill No 10 with same amount declared previously.

4) also there is an appendix for provisional sum placed separately in his commercial submission

5) and there is another appendix for PC-Rates also separately placed in his commercial submission

6)the whole " commercial submission" came through cover letter mentioning the quotation total sum.

the questions are:

1) In defining the contract price (for the project) the provisional sum will be included? as you know contract price will have many implications later on ... example the advanced payment percentage will be calculated from the project contract price ... the contractor mentioned the total sum for his quotation (including the PS for MEP).
this is ryt ? or we should deduct the provisional sum amount from the contract price?

2) in the PC-Rates appendix he did not include final prices for the listed items he mentioned unit-rate? is this ryt? we have lump-sum contract.

3) in his submission he mentioned the below 2 statements
A) "Variance in site dimensions will be charged on pro-rata basis accordance to our unit rate given"

do you think this statement sounds right? the rates given are only indicative for schedule of payments as it is a lump sum contract?

what do you think?

B)he made exclusions for " any other items not priced in the attached BOQ" ... now again is this right? BOQ in lump sum project is not used to define scope or to pay against included in (BOQ) items.

I mean anything in the whole contract mentioned in Particular conditions,drawings,specs and any other contract document and not mentioned in BOQ the contractor is still obliged to execute? right?

thanks and regards"

Answer
Dear Mr Hadi,
Sorry for late response.
My clarification is on the assumption that the contract referred by you is a FIDIC contract.
As per clause 14.1 of FIDIC, the lump sum contract model is opted only when the tender has complete details available and the contractor can arrive at the tender amount with available details and the chance of variation is unlikely.
1. Under this pretext, the contract sum means, the sum of all amounts quoted by the contractor for the completion of project. This abviously includes the provisional sum also. Otherwise, we have to go for a price adjustment and carry out the effect of that adjustment everytime any item from the provisional sum BOQ is operated. This makes the process difficult and we will loose the track towards the end of the project.

2. The PC rate appendix should have a quantities and the final amount which is part of the contract amount. If he has given the unit rates only, it cannot be part of contract sum and will lead for price adjustment everytime one item from this appendix is operated. There is no right or wrong here. It depends on our understanding and agreement with contractor and based on the clarity of tender documents and possibility of operating the items in PC rate appendix.

3. Statement 'A' is NOT acceptable in the lump sum contract as this logic kills the purpose of lump sum contract and goes back to remeasurable contract. The unit rates are for the purpose of arriving the interim payments and help us to make the adjustments in case any variation is sought by owner during the course of contract.
Statement 'B' is also NOT acceptable as this also supersedes the logic of 'lump sum' contract. Your understanding is correct.
Lump sum contract delivery  model is one wherein the risk of quantity variation is transferred to the contractor for the given drawing and specification against the agreed lump sum price. The contractor who can take the risk for the lowest price bags the order. Propably, the contractor does not understand the essence of this contract delivery model OR the contractor does not want to take the risk of quantity variation.

I hope I have clarified your doubt.
regards,
r sivaraman  

Construction Law

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