Ali Elbanhawy

Senior Manager at EHAF Consulting Engineers

Extremely high unit rate

Hi,
In a lump sum Contract there is an item which is priced extremely high (ten times the
market rate) in one of the two buildings in the project. For a similar item in the other
building the unit is entered wrongly by the designer as “number” not “meter” as
should be and it does not make sense to use it. We want to carry out a similar item as
a variation in another building in the same project. Can we ignore the extremely high
rate and develop a new rate?Show less

ANASTASSIOS KARAKATSIANIS MRICS, MCInstCES As Ehab states, in a lump sum

Contract, the unit rates are to facilitate the monthly Interim Payments (in conjunction with
progress) and for valuing variations. Since you have two vastly different rates (for whatever
reason), in both value and way of measurement, for the same or similar items in the two different
buildings, you can request and have these rates deemed inappropriate/inapplicable for the
valuation of the variation and propose a new, calculated on first principles, rate. Show less

Timothy Hosking Uncomfortable explaining it to the client after work has started. We have a
law preventing undue enrichment so additional work can, in theory, have rates renegotiated.
Reviewing the original rate can be instigated (had a client try that on a project I took over 1/2
way through) but that opens the way for the contractor to review lean or loss rates balanced for
cash flow.Show less
1d
Eng. E J Basil Jayasiri Perera Strictly speaking, in a pure lump - sum Contract, the parties
agree to a fixed price for the completion of whole project. As per some comments above,
rates/prices indicated against respective BOQ items or any schedule of rates/prices included in
the Contract are used to determine interim progress payments and for valuing Variations. Some
comments above also has provided this information correctly. Apart of above, there may be
various other conditions imposed, without knowing which, it is not possible to state the exact
answer requested.

Eng. E J Basil Jayasiri Perera Contd. from above.

Further there are some conflicting points in Ali Elbanhawy's original post.
1. According to the first sentence of his post, there are only two buildings in the
project.
At the end of the post it is mentioned that, there is a third building also in the
same project.
These may lead to take distinct decisions in this regard.
2.In the third line it is mentioned about a "designer". Is it the Drafter of the
Employer, who prepared the BOQ?

These are pertinent points in taking the exact resolution.

Anyway I suppose, the action to be taken,

1. Considering the contents of the Contract
or
2. Mutual agreement
3. Apart of all the above, any appropriate rate can be applied for any item of
work, if the rates are used merely to determine interim progress payments, as
noted above.Show less

Tom Cahill BOSIET, ACIArb, MRICS, BScQS 1/2

Ali Elbanhawy
One thing to consider's this. Often when people build up rates (especially for a lump sum) they
reverse engineer them. There's two reason for this, either:
1. they are simply deciding on a figure and then make things more expensive to make the figure
what they want (often with things that can't change in quantity unless there's a scope change
which would enable them to recoup any costs associated with this dubious excercise; and,
2. they tactifully make full use of the law of contracts and massively overcharge on times (largely
ones that won't change in quantity save a extra ordinary scope change) and this then allows
them to capitalise on a percieved or actual certainty that the client's not tendered for one or
more rates' quantities correctly, therefore there's one or more rate that they want to obscure
from the employer's consideration, as the employer's probably put too little down in terms of the
dimensions, so when the inevitable squabble and...

Tom Cahill BOSIET, ACIArb, MRICS, BScQS 2/2

they can then clobber the client with some massive amount of cost for some otherwise innocuous
items which are high in unit rate yet low in quantity due to the contractor taking advantage of the
client's inevitable one or two accidents in quantities which happens on every job, no matter
where it is or in whatever aspect of whatever segement of teh construction or engineering
industry.

The crux of the matter is, they may not even care about the rate being changed, as they were
only chancing it for actual work and whilst: yes, they wanted a variation, it owuld be for extra
quantities of planned works as opposed to additional aspects of works which were not initially
agreed upon, thus inherrently requiring further quantities of materials.

Please ANYONE, if I'm not making my point clearly enough, I'm happy to reiterate.

Gowtam Chekhori MSc MRICS Is it a lump sum contract with a priced bill or something
similar? has the contract already been signed? were the rates discussed before signing the
contract? Are the variation works being carried of similar nature? are the works being carried in
 the same conditions? is there substantial change in quantity that would warrant a rerating of the
item? these are all questions that must be answered before a definitive answer can be given.
regards. Show less
1d
Subodh Goel Though L S contracts do not allow to make scrutiny of the rates which, if at all, is
required if the bid is unrealistic high, then it has to be done at pre award stage. Still it depends on
the relationship between parties and if both are convinced about extremely high rate, then
contract can be novated with consent of both. It happens at times, either intentionally or by
mistake, exorbitant high bid is submitted with the purpose of taking benefit of LS bid in which
quoted item rate does not matter. But contractor in order not to spoil relations in the hope of not
labelled as opportunist and thus grabbing more opportunities from client, agrees to genuine
proposals.
Similar is the case of wrongly mentioned " unit" and if it is bonafied mistake, which can be
verified from market conditions, then it can be corrected. Further every contract consists of
clause for correction of errors. If intentions are fair, there is always a ray of light at the end of
tunnel. Show
1d
Alastair Paice FCMI Seems like the contractor was anticipating the variation in the third
building when pricing the first one so I would recommend the approach of applying a market rate
in the negotiation.
15h
Rajneesh Kumar MScQS, MCInstCES, MIS, ACIArb. In LS Contract, No BOQ rates are
applicable, Any VO can be assessed on market price on base date of the contract. Since the
contract is LS and quantities and rates are not considerable for the purpose of assessing a VO.
The contractor may have underpriced a item which the employer is not going to revise then how
he can revise a over priced item. Show less
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