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Construction Law/Contract Preliminaries



I am engaged in administering a construction Contract under FIDIC Red Book (1999), on the Engineer side.
In this Contract, the Contractor has priced Bill #1 (Preliminaries) as "Included", which indicates that they are included in the total Contract Price, but without indicating their value. The Preliminaries included in the BOQ are:
1. Allow and price for all direct and indirect costs and associated expenses necessarily incurred in complying with and fulfilling the Contractor obligations .... other than costs and expenses related to the following Clauses, which must be allowed and priced for separately hereinafter,
2. Performance Security
3. Programme and Cash Flow
4. Contractor's superintendence
5. Safety, Security and Protection of the
6. Insurance of Works and Contractor's
7. Third Party Insurance
8. Insurance Against Accident to Workmen
9. Avoidance of Damage to Roads
10. Opportunities and Facilities for Other
11. Contractor to Keep Site clear
12. Clearance of Site on Completion
13. Costs of Samples and Tests
14. Rights of Way and Facilities
15. Defects Liability Period, Completion, Cost and
Failure of Outstanding Work and Remedying
16. Access Route and Traffic Control
17. Site temporary offices/facilities
In this regard, please note that we have instructed a variation to the Contractor of additional piping length which was price in the Contract BOQ as 680 USD/m. the original quantity was 1,200 m,  while the additional quantity is 50 m.
When applying the Contract BOQ rates, the Contractor would be entitled for 34,000 USD (i.e. 50x680). However, the Client is arguing that since the Preliminaries were included in the Contract Price, they are assumed to be equally distributed on all BOQ items. As such, noting that the aforementioned variation does not entail an extension of time (i.e. should not affect the Preliminaries, in the Client's opinion), a percentage of the BOQ rate should be deducted to account for the Preliminaries since they are not increased due to the variation.
Noting that the Client is assuming the Preliminaries to be 10% of the Contract Price from (based on information from similar projects), he wants to calculate the variation additional compensation as follows: (Contract BOQ Rate x(1-0.1(i.e. the Prelim)) x the additional quantity) = (680 x 0.9 x 50) = 30,600 USD.

Is this approach - by the Client - correct?
My opinion is that since the Prelim are not priced, they are considered included in the Contractor's overhead (since they are indirect costs). Therefore, we cannot deduct them from the Contract BOQ Rates.
This is more the case, since the Contract states that the varied works will be evaluated based on the rates of similar items. So I have to evaluate it based on the 680 USD rate, not on the rate I presume after deducting the Prelim.
Also, I see that the argument that since there is no EoT resulting from the Variation, then the Prelim are not affected is nor accurate, since there are many items of it that are not affected by time (such as safety, insurances, clearing of site)

Please advise on the above.

Dear Mitri Hijazeen,

You do not mention the form of contract nor the applicable law, so the following comments will be generic in nature.  

Without more evidence, I would hesitate to support the Client's view.  Many of the items in the Preliminaries would be affected directly by an increase in quantities, except, perhaps item 2.  Further, the Client would have to justify his value of 10% for Preliminaries and which items specifically do not apply.  I suggest the Client should follow the Contract.  

Construction Law

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Peter M. Elliott


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 before submitting a question.


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
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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
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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')

Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

B Sc(Hons) in Civil Engineering

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