FIDIC 99 Redbook - A commentary and a practical guide to Sub-Clause 12.3 [Evaluation]contracts
FIDIC Redbook 99 is a remeasured contract, i.e. the Employer carries the risk of changes to quantities in the Bills of Quantities. Sub-Clause 12.3 requires the Engineer to agree and/or determine the Contract Price by applying the appropriate rate and measurement for each item of work.
There are three rules for the rates of each item of work, which are stated in the second paragraph. These rules are:
- The rate specified in the Contract.
- If there is no rate specified, then the rate or price specified for similar works.
- Else, under specific conditions, a new rate shall be appropriate.
Rule 1 #
The most straightforward rate for an item of work is the rate specified in the Contract for such item. This is the basis on which additional quantities are valued, hence not any additional quantities are considered as variation. This ground may also be used to value variations that include work items with rates included in the Contract.
Rule 2 #
However, if a rate for an item of work is not specified in the Contract, then the rate of similar work shall be applied. "Similar work" is, however, an open provision and is not easily defined.
Similarity of work is, defined in sub-para 12.3 (b) (iii) as "similar character" and carried out under "similar conditions". This s closely related to the principle of similarity provided for in Sub-Clause 52.1 of ICE 5.
Therefore, similarity should be construed to more than merely physical characteristics of the item (for example piping diameter or quality of concrete), but also the conditions under which the work is executed.
For example, work carried in summer is executed under different conditions than work carried out in winter. Similarly, work carried on ground level is not similar to work carried out at height.
However, the economic factor (profitability/loss) is not considered a dissimilarity. For instance, an item of work is not considered dissimilar if its rate would result in the contractor being paid much higher or much lower than what is considered fair and reasonable price. This is discussed in the case of Henry Boot Ltd v Alstom Combined Cycles Ltd.
One of the dissimilarity of conditions factors are the timing and sequence required to carry the work. Another important factor is the time required to carry the work in respect of the time required to carry out a similar value of work.
To further explain, consider a works contract valued at $100,000, to be completed in 10 weeks. This equals a turnover of $10,000 per week.
Consider varied works are valued at $30,000 and carried out in 5 weeks. At the turnover rate of the original contract they would require ($30,000/$10,000) = 3 weeks to carry out. This means that the varied works covers the time-related general overheads valued at the same rate of the original works for 3 weeks, and leaving 2 weeks of time related costs not recouped.
This would make the varied works carried under different conditions compared with the original works.
Rule 3 #
The third rule provides that a new rate is appropriate under some special conditions relating to varying quantities or some circumstances in varied works.
Ground (a) - Varying Quantities #
To have an entitlement to a new rate under this ground (a), there are four criteria that should all be met. These criteria are:
- If the measured quantities are varied (either positively or negatively) by 10% from the quantities in the Bills of Quantities. This enforces that the quantities in the B/Q are only an estimate. However, the Contractor is entitled to rely on the estimates of the B/Q and base his rates and methods on these quantities.
- If this difference multiplied by the rate per unit in the B/Q exceeds 0.01% of the Accepted Contract Amount. This is to avoid changing rates for minor adjustments in comparison to the Accepted Contract Amount.
- If this difference affects the Cost incurred executing the work in excess of 1%.
- The item is not specified as a "fixed rate item".
Ground (b) - Variations #
To have an entitlement to a new rate under this ground (b), the varied works are instructed under Clause 13 and cannot be evaluated in accordance with Rules 1 and 2 above.
Derivation of New Rates #
New rates are derived from relevant rates and prices in the Contract with adjustments to take amount of the matters described in Ground (a) or (b), as applicable. If no Contract rates are relevant, then the new rate shall be derived from the reasonable Cost of executing the work together with reasonable profit.
The derivation of new rates are commonly known as "Star Rate".
The derivation of new rates usually give rise to disagreements between the parties. If the parties fail to agree a rate, the Engineer could proceed to provide his fair determination of the new rate. Until such agreement or determination, the Engineer shall determine a provisional rate to be included in the interim payment certificates. This is a very important right that Contractors more often than not forget about or disregard, instead taking their time negotiating variation rates and amounts.
The content of this commentary is not legal advice. You should always consult a suitably qualified professional regarding any particular legal issue. This blog and all its articles (including this article) shall not be construed in an way as legal or professional advise.
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