WHAT HAPPENS WHEN A RATE IN A BILL OF QUANTITIES IS TOO HIGH OR TOO LOW?

Somehow, the contractor has priced an item in the bills at a rate that is fundamentally wrong. Nobody spotted it and negotiations get a bit heated when a variation is instructed which increases the quantity of the item in question. If the rate is way too high, the Employer or his agents may feel that applying it to extra work would be unfair. If it is way too low, the contractor will lose money and therefore feel aggrieved.

The English case of Henry Boot Construction vs Alstrom Combined Cycles solved this back in 1999. The facts were that Alstom had employed Henry Boot to carry out civil engineering work on a power station. Because of a mix-up, the contractor's rates for temporary steel sheet piling were effectively twice what they should have been. When a variation order was issued to add more sheet piling, the contractor argued that the rates were contract rates and should apply. The Employer contended that the contract rate should be disregarded because of the error and that a fair valuation should be made.

The case ended up in the courts. The rules for the valuation of variations were similar to our standard forms of contract. Where the work is of similar character and executed under similar conditions to work priced in the bill of quantities, the contract rates will apply. The fact that they are too high or low is irrelevant. The parties to the contract have agreed in the contract that they will be used to value variations.

You can imagine Quantity Surveyors reaching for the escape clause and trying to show that the work is not of similar character and executed under similar conditions. But they should not try too hard. In Boot vs Alstrom, it was held that piling rates from one area of the site applied to additional piling instructed elsewhere.

The judge also made the point that "executed under similar conditions" did not refer to economic or financial conditions. In other words, the profitability or otherwise of a rate cannot be taken into account. Work is not executed under dissimilar conditions simply because the rate results in the contractor being paid more or less than might be considered fair. The only get-out is if the work really does not qualify to be valued under this heading.

Where work is not of similar character and executed under similar conditions to work priced in the bill of quantities, the contract rates have to be adjusted for the effect of the difference in character or conditions. If an instruction were issued for additional work that was 10% more labour intensive, the correct way to deal with this would be to analyse the original rate, establish the element of it that relates to labour, and add 10% of that to the rate. What should not be done is to correct any error in the original rate. The fact that the resulting rate may not be "reasonable" is irrelevant.

Where there is a change in the quantity of work, this may mean it is correct to change the rate. But again, the reworking of the rate should follow the same methodology and be based on the original high or low rate.

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