Construction Law/Prime Cost Item

Advertisement


Question
Dear Sir,

In one of our Contract which is based on FIDIC MDB 2010 Conditions of Contract, an item ‘provisions of performance security/ guarantee’ has been included as a prime cost item (provisional sum). The following provision is contained in preamble of the Bill of Quantities;

“For items shown as ‘Prime Cost’ the Contractor shall provide evidence of the exact amount of the direst cost paid for the item by the Contractor and that the item has been procured at a competitive market price. This amount shall be paid by the Employer. The provisional Sum shown fir these items is indicative only”

We (The Contractor) have provided performance security to the Employer covering the period upto the end of Defect Notification Period. We have incurred cost for arranging performance security more than the prices stated in the BoQ.

My questions are as follows;

(i)   Are we entitled to recover actual cost in arranging performance security as this cost is priced at the risk of the Employer?

(ii)   Is it possible that provisional sum exceed the cost provided in the Contract and how this exceeded cost can be covered in the Contract price?

Regards,

Umer Shabbir

Answer
Dear Umer,

There is no provision in FIDIC for Prime Cost sums, only Provisional Sums, so I do not know how to deal with Prime Cost Sums.  

1. you are entitled to recover actual cost if the item was described as a provisional sum and you received an Engineer's instruction to spend the money.  

2. It is possible for the expenditure on a provisional sum to exceed the sum allocated in the BoQ, if there is an Engineer's Instruction.  The Accepted Contract Sum is fixed, but the Contract Price is adjusted to match the sum due to the Contractor, usually by reducing the contingencies.  

Construction Law

All Answers


Answers by Expert:


Ask Experts

Volunteer


Peter M. Elliott

Expertise

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

©2016 About.com. All rights reserved.