Quarterly Construction and Engineering Briefing

1 Quarterly Construction and Engineering Brie ng Issue 1: Spring 2006. Valuation of variations under JCT standard forms of contract (or THE DYING ART OF FINAL ACCOUNTING'). This briefing gives DAQS' view of the reluctance, or refusal of the QS, and/or the other standard forms of contracts and interpretation and application of the rules for Contractor and/or the Subcontractor to subcontracts which contain provisions for valuing measurable variations embodied in understand and properly apply the rules recognising that adjustments should be made the JCT 1998 and 2005 Standard Forms of set down in the respective contracts for for variation work of dissimilar character Building contract ( JCT 2005' and JCT 1998'). the valuation of the execution of additional and/or executed under dissimilar conditions;. or substituted work, or for dealing with and significant changes in quantity. In fact, as the Guide to JCT 2005 at Approximate Quantities in the contract Bills.

2 Confirms, no material amendments have Instead, the parties involved in valuation THE VALUATION RULES JCT. been made in JCT 2005 in relation to the often prefer, or agree, or acquiesce to 2005 AND JCT 1998. basis of the Valuation Rules set down in JCT dumping' the valuation dispute into the loss It is helpful to consider the rules in the form 98 and therefore JCT 2005 and JCT 1998 and expense claim, generally on the basis of a basic cascade chart as shown at figures have essentially been considered together that they cannot agree what constitutes 1 and 2 below: for the purposes of this briefing. dissimilar character and/or conditions, or what is a fair allowance or a fair valuation. It appears that they convince themselves QUANTITY SURVEYOR'S ROLE. INTRODUCTION The QS is given the sole obligation All too often, disputes over adjustments that the resolution of their differences lies under the contract to value additional or of the contract Sum occur between in the evidencing of actual cost and should substituted work which can be properly contracting parties (whether commercially or therefore be dealt with under the loss and valued by measurement, and also to measure in adjudication, arbitration or litigation) in the expense claim.

3 And value work for which an Approximate operational part of the Construction chain, Quantity was included in the contract Bills, Employer/Contractor and Contractor/ This is not only a problem confined to in accordance with the rules set down in Sub-Contractor. Those disputes are usually the JCT Contracts which are the subject the contract . artificially widened or exacerbated by the of this briefing, but also extends to most ADDITIONAL OR SUBSTITUATED WORK. Stage 1 Additional or substituted work is of similar character to, is executed under Valuation determined by similar conditions as, and does not YES. rates and prices set out in contract Bills significantly change the quantity of, work set out in the contract Bills NO. 2 Additional or substituted work is of Rates and prices for the work set out in similar character to work set out in the contract Bills shall be the basis for contract Bills but is not executed under YES determining the valuation and valuation similar conditions thereto and/or shall include a fair allowance for such significantly changes its quantity difference in condit ion and/or quantity NO.

4 3 Additional or substituted work is not of similar character to work set out in YES Work valued at fair rates and prices contract Bills Figure 1. APPROXIMATE QUANTITY INCLUDED IN contract BILL. Stage 1A Approximate Quantity is a reasonably accurate Rates or prices for Approximate Quantity YES. forecast of quantity of work required shall determine the valuation NO. Rate or price for the Approximate Quantity 2A Approximate Quantity is not reasonably shall be the basis for determining valuation accurate forecast of quantity required YES and shall include a fair allowance for such difference in quantity Figure 2. The Contractor has the right to be given estimated on the basis that all the cladding could be applied to conventional rates in the opportunity to be present when it is work would be carried out in summer, but such circumstances. That factor could be necessary for the QS to measure work for additional cladding of the same type was applied to the original contract rates and the purpose of Valuation.

5 Instructed which had to be carried out prices. Thus a fair allowance takes into during the winter period. account the market view of what is a fair Although likely to be paid by the Employer, adjustment for dissimilar conditions prevailing the QS has express obligations to act fairly The work here is of similar character but the but only applies it to the contract rates. That in applying the Valuation Rules by exercising conditions under which it is executed differ is fair because it maintains the contract his professional judgement to arrive at a from those anticipated in the contract Bills. basis whilst taking an objective view of the fair allowance for additional or substituted Therefore, an adjustment to the Bill rates allowance to be made. Therefore, if the work not executed under similar conditions should be made by the QS by way of a Contractor had underpriced the brickwork to those set out in the contract Bills, or fair allowance.

6 Rates, then it would get no relief from those for determining a fair valuation where the underpriced rates, but would recover only work is of dissimilar character (see ). So far as changes in physical conditions are the effect of the dissimilar conditions. The Employer has contracted with the concerned, Keating on Building Contracts Contractor that the QS will act fairly and Seventh Edition in commentary on the DISSIMILAR CHARACTER. professionally where the Rules expressly Valuation Rules in JCT 1998 gives a number If Stages 1 and 2 of Fig 1 do not apply require him to do so. of examples where physical site conditions and the additional or substituted work is may differ: established to be not of a similar character SIMILAR CHARACTER AND Wet compared with dry to work set out in the contract Bills , then CONDITIONS High compared with low Stage 3 of Fig 1 applies with the work being If, as Stage 1 of Fig 1 illustrates, the additional Confined space compared with ample valued at fair rates and prices.

7 It is again or substituted work is of a similar character working space suggested that fair means fair to both to work set out in the contract Bills; is Winter working compared with parties, in the context of the contract executed under similar conditions from summer working between the parties. those which can be derived from the contract ; and does not significantly change In terms of making an allowance which Take, for example, a brick faced multi-storey in quantity then the Bill rates must be used is fair (which must mean fair to both block, where the facing bricks are specified in its valuation by the QS irrespective of parties), the question is already answered as wirecut, of completely regular size, shape whether or not the rates in the Bills are by the allowance being made on the basis and colour and laid with a flush joint. overpriced or underpriced; and irrespective of the contract rates. Therefore some form of actual costs incurred.

8 Of percentage uplift to the contract rates A variation is instructed to change to could be contemplated. In these cases, handmade rustic facings laid with a recessed the QS could consider market rates, not joint, together with a stringent specification DISSIMILAR CONDITIONS in themselves, ( contract rates are to be The starting point for Stage 2 of Fig 1 is requiring colour, shape and size brick adjusted), but to decide how to adjust selection within strict tolerances and from that the additional or substituted work is the contract rates to take account of the several packs concurrently. This, of course, of similar character to, but the conditions dissimilar conditions. Standard rates can would be likely to lead to a situation of under which it is executed are different from assist. For example, if a contract exists high wastage and low productivity by the work set out in the contract Bills. An for Construction of a brick bungalow, and bricklaying gangs.

9 Example of this would be where it can be additional brickwork one level higher is established that the Contractor's rates in instructed, then the QS can look to, for How, therefore, should the QS fulfil his the contract Bills for external cladding were example, Wessex to see what height factor obligation to arrive at fair rates and prices in applying Stage 3 of the Valuation Rules at Fig 1? PREFER YOUR DAQS NEWSLETTER BY EMAIL? Please let us know by email to No reference is made in the Rules to evidence of actual cost being a valuation Each newsletter will also be published on our website factor, nor is there any express reference 2 Quarterly Construction Brie ng Issue 1: Spring 2006. to the Contractor having to keep records given in Sections A40-A50 of SMM 7, : be derived from the express conditions to underpin the QS' judgemental valuation. Management staff to set out and supervise of the contract . Yet it would clearly be in the Contractors' Scaffolding interests to produce invoices for the Distribution of blocks and mortar to Take for instance a variation to change purchase of the varied bricks (which worksite location the external cladding of standard profile probably form 60% of the variation rate), Clearing away of waste and rubbish and standard sheet sites, and which could calculations of wastage, and measured mile' Protection of adjacent work be installed from an access scaffold, to records of labour productivity.

10 Armed with complex rainscreen cladding in non-standard this information and his own professional In making the allowance the QS is not bound sheets with every sheet site measured, and judgement, the QS should be able to arrive to using the rates and prices for Preliminaries which requires an independent scaffold at a fair rate for the variation. in the contract Bills; nor can he insist upon tied through the building, considerably evidence of additional costs incurred; or restricting access and working space for On the other hand, it may be dangerous, records to evidence the resources used. follow-on trades plastering. The change for instance, to take the Contractor's in conditions would make the plastering actual labour costs as evidence of reduced Once he decides that the types of item itself (where it was executed in such areas productivity because the Contractor may are appropriate, he is bound to use his of restricted access and restricted working not be able to engage sufficient bricklaying professional skill and judgement to arrive space) subject to the Valuation Rules, with gangs of the right skill level to cope with the at the allowance.