Construction Law/Evaluation of Variation
QUESTION: Dear Sir;
We have the following Clause in our General Conditions. Does it mean that it is an obligation to use the price of a similar item for a Variation or we can ask the C to submit a break down for the proposed price in case we see that the price of such similar item is inappropriate.
(the case is; the C was requested to submit his proposal for a variation of making provisions of central AC in a certain area. His study included supply & apply electrical cables in different sizes. Some of these sizes have priced items in the BoQ but we see them high prices. Is it an obligation to use them in view of the following Clause?)
Clause (44): EVALUATION OF VARIATIONS & CLAIMS ALTERATIONS:
"If the additional works have no similar items or quantities in the Contract, they shall be referred to the Bid Examination Committee or the Procurement Committee, as the case may be, to study the assignment of these works and the reasonableness of the prices submitted by the Contractor."
ANSWER: Dear Khaled,
In line with the Clause, all similar items under the Contract must be valued at Contract price except where the prices are inappropriate. The reason for their inappropriateness must not be "whether they were over priced" but the reason may be because of minor deviations like, thickness and sizes of cables, exceptionally varied distance / lengths, sizes and capacities of Cables (as you have cited in case of AC) and the likes.
Hope this clears your doubt?
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QUESTION: Dear Sir;
1- Do The distance and lengths (Quantity) affect the appropriateness of using the item for the new varied work? i.e. if the original item in the BoQ is exactly identical to the varied work but the quantities between then are different (let us say the original quantity is 500 m whereas the new one for AC shall be 50), if Yes, please tell me why?
2- If the original item is not exactly identical but it is on the same nature to the new one (i.e the original cable sizes in the BoQ are 4, 8, 12 sq. mm AND the new one for AC needs 16 sq. mm). Is it mandatory to use the existing prices in the BoQ as bases to the new one? OR I can ask the Contractor to submit a from-scratch breakdown specially if we see that the BoQ prices are higher than teh reasonable ones.
Thank you Sir and sorry for inconvenience.
ANSWER: Thank you Khaleed for the follow up questions.
1. The answer is Yes and No. It depends on the competency of who is preparing the Claim. For example, there are some materials items of the BOQ that comes in standardised lengths and where we have varied works quantities creating substantial wastages, extra over not required and extra burden on the Contractor can be justifiably used as a ground for "inapplicable rates". A very good example is - if cables come in standardised rolls of 100m and the varied works (or additional works) required would be just 50m, it then means that, the extra 50m has substantially become a burden on the contractor's cost and as such may have tendencies to increase the unit rates to absorb such substantial extras (not necessarily wastages but become of "no use" to the contractor at such moment and the contractor can turn in and handover such extra over to the Employer if he has no use for them. By doing this, he (the Contractor) may claim the cost or use the cost to adjust the unit rates thereby forming new rates that then, renders the Contract rates inapplicable.
2. For cable sizes or capacities, the principle of pro-rating may not always work out well as prices for cable sizes of 16 sq. mm may not necessarily translate to double prices of 8 sq. mm in the market and even from the manufacturer's price list. It is, however, good to do a further due diligence on these prices before using them to build up a new unit rate or before using the existing similar, but not same nature, to evaluate the cost implications of any variations to the works. I will always advise a double checking process on any pro-rating mechanism with the actual cost price of the materials and other resources required for executing the change. Where it is evident that the Contractor has priced low (whether in the unit rates or material or labour or plant component of the unit rates) in the contract rates and such rates are suitable to be used for prorating, such risk of "pricing low" must not be eroded by the variation but reasonable consideration must be given to it in establishing the new rate.
I hope the above is clear.
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QUESTION: Thank you Sir;
you gave me a wonderful analysis.
However and Lastly, in my first question how can you understand what stated in the Clause regarding the quantities:
"If the additional works have no similar items or similar quantities in the Contract, they shall be ....."
Similar items are understood for me to use them to value a variation however what do they mean by similar quantities, in your opinion??
Thank you Sir
Thanks again Khaleed.
The Clause you have cited means that, you may have similar items and similar quantities and you may have similar items with no similar quantities. Examples are as follows.
Similar items, similar quantities or no similar quantities:
- This is where you have an item, say of floor tiles in the contract as "15mm thick ceramic floor tiles ....." and stated quantities in the Contract as 150 square metres. However, the varied item could be same "15mm thick ceramic floor tiles in skirtings 100mm girth" and measured as 100 Linear metre.... here, you can see clearly that, the quantities are not same, one is in square m while the other in Linear m.
- Another example in MEP could be where you have insulation to pipes stated in the Contract as "Insulation to pipes as per specification" and stated as 1000 square metres while the varied work may be stated as "Insulation to 200mm diameter pipes" and probably measured as 300 Linear metres. Here again, the items of work are similar - as both are insulation to pipes but the quantities are not similar in terms of their units of measurement which will eventually determine the adjustments or and the new rates to be established.
Summarily, most Contract conditions would either resolve this issue or create disparity when a p[articular standard method of measurement is stated to be followed for measurements under the contract.
Hope this is clear?
Thanks and God bless.