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Construction Law/Entitlement for a New Rate/Price



General Conditions of Contract: FIDIC MDB June 2010

It specifies under cl. 12.3 on "Evaluation" as,
"However, a new rate or price shall be appropriate for an item of work if,
cl. (a) (iii) - this change in quantity directly changes the Cost per unit quantity of this item by more than 1% "

1.I am grateful, if you would kindly clarify the above cl.(a)(iii) using hypothetical figures for "change in quantity","Cost per unit quantity" and the percentage".

2. Whether the new rate is applicable for the full quantity available in the BOQ or only for the changed quantity ?

Thank you."

ANSWER: Hello Basil,

Thank you for your question.

Firstly, please note that all conditions under Sub-Clause 12.3 point a), respectively i) - iv) must be fulfilled cumulatively, i.e. all of them, not only iii).

Please see the "AND" at the end of sub-point iii).

So, you can establish a new rate for a certain item only if that item leads to a price variation that fulfils all these conditions.

Likewise, under point b) all sub-points i) - iii) must be fulfilled cumulatively.

Indeed, you can be in situation described under a) or under b).

In respect of your 1st point:

- "change in quantity" means increase or decrease of quantity of certain item, comparing to original quantity shown in the BoQ.

- "Cost per unit quantity" means the cost of each square/ cubic meter, tone, meter, etc, i.e. per measurement unit of that respective item.

- "1%", well, that should be clear, the cost variation should be at least 1%, either higher or lower.

As for hypothetical figures, I shall leave it for you to apply the explanation to your own case.

In respect of your second point, the Sub-Clause says "a new rate or price shall be appropriate for an item of work". Which to me, means the new rate is to be used for the whole quantity of the respective item, regardless if the quantity has increase (as you apparently are referring to), or decrease. Which is also possible, in both cases, up or down, the logic and calculations are going in exactly the same manner.

Hope that answer your question, good luck!

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


Thank you very much for your clear reply.

Meanwhile I am grateful, if you would kindly  clarify the following point too.

1.In usual cases, the cost per unit quantity or rate will not be changed, due to
 the alteration(increase/decrease) of the quantity of the item.
 Few cases to my knowledge, which would alter the rate are
 i. Escalated market prices of materials and cost of transport, if they were not
    purchased at the time of receipt of Variation Order.
 ii.Acceptable more expenses due to increase or decrease or idling labour.

    I am pleased to receive more valid reasons.

    Anyhow I suppose, it is not possible to get a new rate approved in most
    cases.(I am seeking your views.)
 Thank you.

ANSWER: Dear Basil,

Thank you for coming back.

I believe you are mixing the things.

1. If you speak about Sub-Clause 12.3, things are clear, for changing an existing unit rate of a certain item, based on variation of quantity of that item, such variation must fulfil the four cumulative conditions under point a).

2. If you speak about variation of market prices, inflation etc, you will fall under Sub-Clause 13.8 [Adjustments for Changes in Cost] and you can adjust the value of executed works only in respect of indices included in the formula.

Anything else, outside those indices, it is Contractor's risk.

3. Now, if you envisage other increased expenses, it depends what are those expenses and what is the reason you are incurring such increased expenses.

Likewise, if you think of cost of idle labour, or equipment. Why is that idle? Did the Employer caused you a delay? Or was it the Contractor that made some mistakes in their planning?

If there is any reason, falling under a Sub-Clause, you must issue a notice of claim and seek recovery of such costs, not to change the unite rate of certain item.

Hope that clarifies the matter, but should you have further queries, please come back with new details and will gladly help. Just please note I might not be able to answer too quick over the next three days, as I must deal with some private issues.

Good luck!

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

Sorry to disturb you again.
I fully agree with you what you have clarified.

My mere problem is, I can not think of any reason, which will tend to increase the unit rate due to the variation of the quantity in the item, either increase or decrease.

if you can kindly list few such reasons,it will solve the present problem.
As I think, such factors may be rare and it is not possible to gain advantage to the Contractor from this clause.

Thank you.

Dear Basil,

Thank you for coming back.

It seems to me you actually need to increase one or more unit rates, and are in search for a reason.

But in fact, it should be the other way around, you must have a reason and then act. And reasons are clearly described under 12.3 a).

As such, sorry, but can not give any reason, let alone a list of. But by your last remark, I guess you know that already.

If the Contractor has made a bad calculation of unit rates at the tendering time, or if something has been overlooked/ underestimated, they will have to live with.

Sorry, that is all I can help you with, unless you bring me some other information that can sustain you case.

Good luck!

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