Construction Law/CAR Policy extension
Dear Sir, I would like to ask you about the extension of time and the prolongation items, that need to extended for the extended period.
The issue is related to the liable Party (the Employer or the Contractor) to bear the cost for the extension of the Contractors All Risk Insurance Policy. The payment form the Employer is not under a separate BoQ Item in the Contract, but the total premium cost is distributed over all civil work items in the BoQ (included by the Contractor as a % of the direct cost in the price breakdown of each item, as explained below). Now the case is that the works have exceeded the contract estimated value, meaning to say that the Contractor has received more than the contract price (the Contract works were insured for the contract value, which is less than the actual value of the works executed). The policy has expired, but the Employer has not yet asked for the extension. If required by the Employer, then who will bear the cost for the extended period.
My opinion is that the project was delayed mostly because of the (i) Employers failure to make Contractors due payments in time 9ii0 and for some increased scope of work and therefore the time for completion was extended and hence I consider that this cost shall be to the account of the Employer. However I am concerned about the Employers observation that as the Contractor has executed more works during this period of completion inclusive of the extended period than the contract price and has thus received actually more amount for insurance through each BoQ item, which was included therein, as described above. (for your consideration, the price breakdown of each BoQ item consists of :
1 manpower cost (both local and expatriate)-direct cost
2. material cost-direct cost
3. equipment cost-direct cost
4. supervisory staff cost; 5.13% of above (1+2+3)
5. other direct cost (site offices and vehicles cost); 1.49% of above (1+2+3)
6. other direct cost; 9.47% of above (1+2+3), inclusive of:
i. CAR; 1.14% of the above (1+2+3),
ii. Bank guarantees; 1.42% of above (1+2+3)
iii. interest; 3.99% of above (1+2+3) and
iv. unforeseeable; 2.92% of above (1+2+3)
7. overhead; 2.56% of above (1+2+3) and profit; 6.41% of above (1+2+3)
The CAR Policy amount was almost USD 4.726 million (paid to the Insurer) @ 5.64 per 1000 for a contract price of USD 838.063 million. Now the Contract price has risen to almost USD 925 million due to increased quantities.
Please advise me as how to pursue the matter from Contractors side. Waiting for your valuable response. Regards
Dear Muhammad,Hope you will be O.K
You have rightly assessed that the cost of CAR should be bear to the Employer for the extended period and such practice is in vogue in the construction industry in general.
Although the Contractor has considered the insurance cost in his offered BoQ rates,but he may take the plea that it was for the original contractual period and as per original scope of work and such rates are not suit him for the extended period.He may take stand that practically the expenditure does not exactly match as per tentative breakdown and he is bound to cover the cost of insurance for the original contract period only.
Engr. Arshad Mahmood