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Construction Law/GC-12.3 [Evaluation] - Interpretation of

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QUESTION: Conditions of Contract: FIDIC MDB Harmonized Edition, June 2010

There was an item in the BOQ which was overpriced by the Contractor. The quoted unit price in the BOQ was 1000 which was actually estimated to be 200 (i.e., 800 was included in this unit price as an allowance to cover the costs of some indirect items which were not relevant to this particular item). The Engineer initiated a Variation in this item (by changing specifications) and the estimated unit price of the new work comes out to be 500 (versus the original 200). Total quantity was fixed to be 10 Nos.

The following figures were agreed among the Parties:-
Quoted BOQ Rate = 1000
Actual Estimated Rate of the Item extracted from breakdown of above quoted BOQ Rate = 200
New Estimate = 500

Also, Parties were principally agreed that Unit Rate shall be revised. However considering the provisions of Sub-Clause 12.3 to adjust the BOQ Rates, which of the following will be the appropriate interpretation of "reasonable adjustment" for calculating new unit rate:

The Contractor’s Perspective:
a) Differential cost for ‘doing the work’ shall be adjusted and the ‘excessive allowance’ included by the Contractor in the quoted unit prices should remain as it is i.e,

New Unit Rate = Quoted BOQ Rate (1000) – Actual Estimated Rate of the Item extracted from breakdown of Quoted BOQ Rate (200) + New Estimate (500) = 1300

The Engineer’s Perspective:
b) The increase from 200 to 500 is the ‘adjustment’ as prescribed by GC 12.3 and the excessive amount which was included (to cover other indirect items) in the pricing of Unit Rates shall not be considered to be Contractor’s right anymore i.e,

New Unit Rate = New Estimate (500) - Quoted BOQ Rate (1000) = - 500
[In this Case there will be a reduction in the Accepted Contract Amount]

ANSWER: Dear Muhammad,

I have answered several questions on this theme.  All rates must be in the logic of the Contract.  Henry Boot v Alsthom is the relevant case.

Perhaps the Contractor gambled that you made a mistake in the quantities and was going for a windfall gain.  Perhaps he made a mistake in his offer, but that mistake should have been corrected in the tender evaluation.  You cannot change it now.  What do you do if the Contractor complains that another rate is too low and he is losing money.  Do you increase the rate?  I doubt it.

---------- FOLLOW-UP ----------

QUESTION: Dear Sir,

Thank you for your advice.

I forgot to mention that Contract is a Lump Sum type. Does that affect the assessment of rate? Because as per the Contractor, he had to include contingencies for Contract's associated Risks in the BOQ items' unit rates and considering the lump sum nature of the contract, the evaluation of the variations should not be done on the quoted BOQ rates as most of them include some additional allowances for uncertainties and risks.

Answer
Dear Muhammad,

There is even less reason to adjust a rate if the contract is a lump sum. BoQ's have no place in a lump sum contract unless the use of such BoQ's is clearly defined.  I suggest that you have no basis for changing any rates and that you will risk a long and expensive claims resolution procedure if you do change them.  

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Peter M. Elliott

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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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