Hi guys, I would like to seek for your opinions on the scenario as follow:- thanks in advance.

There is a huge variation order in a project to omit all the turfing area and change to premix pavement. The original quantity in the Contract for the premix pavement was 60 percent of overall area and the remaining of 40 percent was turfing area. As the premix area had increased, there will be corresponding increase in the quantity of bituminuous material as well. As now the bitumen price had increased before issuing the VO to the Contractor and this is a fixed price contract where there is no provision of fluctuation clause in the contract, I'm wondering whether Contractor is entitle for any compensation? As the Contract rate for the premix pavement in the Contract are based on old market price during tender.
2 months ago

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Kasimu Olalere MNIQS RQS, Mesfin Yeshanew and 5 others like this
11 comments

Follow David

David Mutch Aaron, it looks like the Contractor has a problem, I would argue that you are entitled to use the contract rate to value this variation. As a Contractor's QS myself I alway felt it was unfair to loose money on a variation but if there is no fluctiation clause than that is the contractors risk. He should have tied up the subcontractor or the material purchase earlier and therefore passed the risk of price increases to the subcontractor or the suppliers. You state the quantity of pavement has increased from 60% to 100% of the area - the contractor may be able to get a more competative price due to this increase (economies of scale, more economic use of plant), depending on what the area is in m2? If the variation is issued before any remedial work or redundant work is carried out, I do not think the contractor has any claim for compensation, would depend on the client being lenient and allowing an enhanced rate to be used.
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Follow Aaron

Aaron Lu Thank you very much David Mutch for your valuable comment.Actually i have another project facing quite similar case.The contractor was granted an EOT for a period of 10 months.There is also no provision for fluctuation clause.We agreed to pay the Contractor for additional preliminaries cost and idling cost over the period of delay and the assessment is based on actual cost incurred to the Contractor.This we called as Loss and Expense claim in my country.However,I'm still doubt whether the Contractor has the ground to claim for fluctuation in material price due to the EOT.Thank you in advance.

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Follow John

John Kihara Aaron, The fluctuation clause freezes the price for works anticipated at tender. If there is a substantial variation that comes at a time when prices have changed, the Contractor should use the variation clause to quote for the new work at rates prevalent when the additional works were ordered. The Contractor will successfully argue that the risk he assumed for fluctuation was for the tendered work and any reasonable variation but not for unforeseen additional work which goes beyond reasonable expectation.
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Follow Farooq Shah

Farooq Shah Bawa The contractor is not liable to complete the work at the same rate for the 40% additional work this will be treated as new work and new agreed rates.
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Follow Justice

Justice Okoe-Martey MRICS Aaron,all forms of contracts, standard or bespoke ones will typically have a Variation Clause providing details of how variations should be assessed! Non-adversarial ones will normally talk about demonstrable cost (an open-book concept).Not sure of what provision you have in yours.I must say that, in the absence of fluctuation clauses,Contractors can always invoke the Power of Claim for unreasonable costs associated with Variations to a contract.I believe its good to be firm but fair!
2 months ago Like

Follow Hadjireen

Hadjireen Usoof Here I see as follows. a. Two items were included in original contract. 1. Turfing and 2. premix pavement. Their proportion was 40:60. Now the variation introduced as omission of turf and increase of premix.

how can we resolve with increase of price along with the quantity. Well we must study how the variation clause has been drawn in your contract. Increase of quantity replacing an equivalent item (purpose of use - pavement) then, the contractor can request for increase in price for the increase of quantity treating that increase as extra work, presenting his workings as how he has built up his new rate, supported by actual purchase invoice or quotation by the supplier of premix. The contract manager would also know the previous price as well as the present price and would be able to justify claim. This way of handling is justifiable in my opinion.
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Follow Roger

Roger Lincoln Has the variation affected the programme? If so is the price increase relevant? There are more technicalities but this should get you on your way roger. PS check out our web site http://www.the-commercialdepartment.co.uk/
2 months ago Like

Follow Hadjireen

Hadjireen Usoof Why not be in this arena and discuss the issue rather than getting directed to other places of marketing interests.
2 months ago Like

Follow Gregory

Gregory Fendt Reference David Mutch's comment - Aaron, refer back to supplier of premix for more competitive sub contract rate, economy of scale as David points out. If you cannot obtain a better rate then you are stuck with the contract rate. Further, turfing is faster than preparing surfaces and laying premix.....an EOT claim will succeed IMO so best to negotiate a fair and reasonable settlement on that scenario.
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Follow Mohammed

Mohammed Azad Hossain Dear Aaron: You did not mention that whether you are using FIDIC or else in this Contract. If FIDIC then what version? Any entitlement or compensation etc. will depend on the Contractual terms and Conditions. If you cannot find your entitlement or solution, the Contract then you can knock the door of the Court/Common Law. There are two scenarios here: (1) whether you are entitled to get any compensation for the increase in premix asphalt area by VO and (2) Whether you are entitled for EOT. Generally LS/Fixed Price Contract does not have any Fluctuation Clause. But, the Fluctuation Clause does not have any relation with Variation (so far my knowledge is concerned). The Fluctuation or Escalation clause is generally included in FIDIC and normally calculated based upon the basic indices of prices published by central government. There are particular formulas defined in the FIDIC to arrive at the escalation to be paid. However, the same are subject to minor change from country to country. Variation on the other hand will be for any deviation out of contractual documents within same project's scope of work is variations. Variation may be for cost or time or both implications. You must read variation clauses to claim within a time frame. However, in valuing Variation, the Engineer uses the Contract/BOQ Rate (agree/approved). In this case, he will use the contract rate of premix as Add Variation and Contract rate for turfing for Omission variation. But if the variation is substantial and effects your program, then you have the right to claim additional money and time for the additional works, which has impacted your time frame. In Kuwait, we are using Local Govt Contract Conditions based on FIDIC and there is a sub clause in particular condition that if the varied work/item is (+) or (-) 25% of its original quantity, the Contractor has the right to get varying rates but not the contract/agreed or approved BOQ item rates.
2 months ago Like

Follow Tony

Tony Lewis Aaron, this is a common scenario. You are obliged to carry out or to pay for the the works at the tendered rates as per the original tender quantities. If by variation the quantity increases or decreases then you would expect the rate to be renegotiated. Commonly this is not the case and and most contractors/clients wil just do a simple+/- % calculation. Lets assume you had an error in your premix rate (very very low)... you would be obliged to provide the tendered quantity at the rate offered and then renegotiate the correct rate, the contract will not allow you to be punished by the client asking for double quantity if you have a disaster rate....also...a client would negotiate downways if the contractor had a very very high rate... The overall result is that the variation and its payment cannot affect the amount of profit that the "contract" has allowed the contractor to bid for. Which is why we do the job in the first place....Profit!!. From your point of view the profit would be argued as % of the tender. To say that profit is actual "$$$" is incorrect as this fixes the "amount of profit" such that any increase in contract sum would merely retain the amount of profit but deplete the "margin". EOT is also required due to programme implications. As Mohammed said above, some contract define a varying rate, which follows my arguement above...although when I worked with Libyan conditions all variations up to + or 15% of the contract sum were included with no effect on the resultant contract sum until the 15% figure was exceeded. So "yes"...the rate should be correctly renegotiated as the the variation has varied the costs which the contractor willn incur. Also....if your turfing rate contains large overhead or profit element (for you or the subco)...it is to be negotiated on the amount of the rate to be deducted. Rememeber the final account ALWAYS starts with the contract sum and then adds and deletes the correctly valued variations.....to achieve the agreed actual value of the works performed. The tender & tender rates belong to the contractor and cannot changed by engineer....variations are available to negotiate.
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