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Henry Boot Construction Ltd v Alstom Combined Cycles Ltd
[2000]CA BLR247 and [1999]TCC BLR123
Daniel Atkinson 2001 04 November 2001

KEYWORDS:
ICE 6th Edition, Variations, Valuation, Clause 52(1)(b), Rule 2, mistake in rate, reasonableness, Lord Justice Lloyd.
In Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [2000]CA BLR247 and [1999]TCC
BLR123 the issue was the correct valuation of variations under Clause 52(1) of the ICE 6
th
Edition.
The issue reached the Court of Appeal on appeal by Alstom from the decision of HH Judge Humphrey Lloyd,
by which he allowed the appeal by the Henry Boot from an arbitration award of Mr John Tackaberry QC under
s.1 Arbitration Act 1979.
Henry Boot was the civil engineering contractor for a combined cycle gas turbine power station being built by
Alstom at Connah's Quay in Clwyd. The contract dated 21
st
March 1994, incorporated the ICE Standard
Conditions of Contract, 6th Edition. The power station consisted of four gas turbines each with its own heat
recovery steam generator. The gas turbines were situated in the Turbine Hall and the steam generators in a
separate area known as HGSR. The cooling towers were separated from the HGSR by a road, and cooling
water pipes were used to condense the steam. The condensed water came back to the HGSR where it was
turned back into steam by the exhaust gases from the gas turbines.. The system was therefore a combined
cycle power plant.
After receiving a tender from Henry Boot and before execution of the contract, Alstom decided to lower the
cold water pipework. Henry Boot wrote advising of its change in price for additional and different temporary
works. The change in price was 250,880. Alstom sought confirmation of the extent of the price and Henry
Boot stated that
"The sum of 250,880 was to allow for additional and different temporary works only, required
in the Turbine Hall due to the lowering of Bonna pipe-work in this area."
The tender was accepted including the sum of 250,880. In the subsequent arbitration it was found that the
sum of 250,880 covered the cost of additional temporary works in the Turbine Hall, but not in the HGSR area
and still less in the cooling towers. The former was to be corrected as an omission from the Bill of Quantities
under Clause 55(2) and the latter the subject of a variation order under Clause 51(1). The issue therefore was
whether the sum of 250,880 was to be used to value the variation for the temporary works in the cooling
towers.
The Arbitrator found that Henry Boot had calculated the sum of 250,880 by reference to the estimated
quantity of steel sheet piling required in the HRSG area as well as the Turbine Hall. By mistake henry boots
fax referred only to the Turbine Hall and the mistake was not picked up by Alstom. If the sum of 250,880 was
divided by the amount of sheet piling required in the Turbine Hall it gave a rate of 89 per square metre. When
the rate was applied to the sheet piling in the HGSR it gave a sum of 231,226 and when applied to the area
of the cooling towers it gave a sum of 2,284,128. These were the sums claimed by Henry Boot, whereas
Alstom argued that the sum of 250,880 should not be extrapolated in this way since it produced a "windfall
gain".
The second rule in Clause 52(1) provides that the rates and prices are to be used as the basis for valuation
"so far as may be reasonable". The Arbitrator decided that it was reasonable not to use a price where the
price has been reached by a mistake or error. He therefore declined to adopt Rule 2 in the valuation and
adopted the third rule of "fair valuation". HH Humphrey Lloyd QC allowed an appeal against the Arbitrators
decision and remitted the award back to the Arbitrator with a direction to make a valuation under Rule 2 using
the sum of "250,880 for sheet piling work in the Turbine Hall.
The issue then was the meaning and application of the second rule in Clause 52(1) in the valuation of
variations, where the applicable rate was known to contain a mistake. The first instance decision was upheld
by a majority.
Lord Justice Lloyd held that Rule 2 provided a half-way house between Rule 1 and Rule 3. Like Rule 1, Rule 2
is mandatory. It applies where the work covered by the variation order is of a different character from the
work priced in the Bill of Quantities, or is executed under different conditions. If the differences are relatively
small, the Engineer is obliged to use the rates set out in the Bill of Quantities as the basis for his valuation,
making such adjustment as may be necessary, to take account of the differences. If the differences are very
great, such as where excavation is to be in rock instead of clay, the Engineer may take the view that it would
not be "reasonable" to base his valuation on the rates contained in the Bill of Quantities. He then must adopt
Rule 3. It was held that this was the sole function of the words "so far as may be reasonable" in Rule 2. The
words called for a comparison between the work covered by the variation order and the work priced in the Bill
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of Quantities. The words did not enable the Engineer to open up or disregard the rates on the ground that they
were inserted by mistake. It was the use of the rates in the changed circumstances brought about by the
variation order that must be reasonable, not the rates themselves.
It was also held that Clause 52(2) created a limited exception to Rules 1 and 2 where the scale and or nature
of the variation makes it unreasonable to use the contract rates. It was an exception that proved the general
rule that the rates could not be displaced because they were inserted by mistake or were too high or too low
or otherwise unreasonable. The same applied to Clause 56(2) which enabled the Engineer to increase or
decrease the rates where the actual quantities executed for the item were greater or less than those stated in
the Bill of Quantities. These exceptions underlined the basic rule that the rates themselves were not subject to
correction.
Lord Justice Beldam agreed with the judge at first instance and Lord Lloyd. He held that Clause 52(1)(b)
contemplates cases in which it would not be reasonable to use the rates and prices in the Bill of Quantities. It
was the reasonableness of using the rates and prices and not the reasonableness of the rates and prices,
which has to be considered.
Lord Lloyd stated he was in complete agreement with the decision of Judge Humphrey Lloyd at first instance.
It is instructive therefore to examine the detail of that decision since it establishes the principles for valuation
and provides useful guidance on the interaction and operation of Clauses 52(1), 52(2), 51(4), 55(2) and 56(2).

Valuation of Variations
The valuation of variations requires both the value of the varied work and the effect of the variation on other
work to be considered, in Clauses 52(1) and 52(2) respectively.
Clause 52(1) applies three Rules to the direct valuation of the varied work. Rule 1 is to be found in Clause
52(1)(a). The principle is that if the varied work is of a similar character and executed under similar conditions
to work priced in the Bill of Quantities then such Bill rates and prices shall be used to value the varied work. It
was held that the intrinsic profitability or otherwise of the rate or price is not relevant in applying Rule 1. It was
immaterial that the Bill rate or price may appear "too high" or "too low". The work is not executed under
dissimilar conditions simply because the applicable rate may result in the contractor being paid more or less
than appeared to be "fair".
Rule 2 is at Clause 52(1)(b). The principle in this case is that if the varied work is of a dissimilar character or is
executed under dissimilar conditions to work priced in the Bill of Quantities, then the Bill rates and prices shall
be used as the basis of valuation so far as may be reasonable. It was held that the word "reasonable"
referred only to the extent to which it was feasible to use a Bill rate or price as the basis of valuation,
irrespective of the amount. The fact that the rate itself may not be reasonable was irrelevant. If for example
the contractor had mistakenly priced the contract under a misapprehension as to the capacity of plant, this
mistake could not be rectified through Rule 2, however reasonable it might appear to the contractor to do so.
Rule 2 requires the Engineer to break down the quoted rates into the elements of plant, materials, labour and
overheads, in order to make the appropriate adjustment. The Engineer is required to do so even if he does not
have from the contractor any build up of the rate upon which the new rate is based. In that case he will have to
arrive at a notional build up. He may be assisted in doing so by information obtained from the contractor's
contemporary records under Clause 52(4)(c). The elements of the rate are to be adjusted to make
appropriate allowances for the effects of the variation, but those elements unaffected by the extra effort are
not changed.
Rule 3 is also at Clause 52(1)(b) and applies if the other two rules do not apply. It requires a fair valuation to
be made. It was held that a fair valuation under Clause 52(1)(b) generally meant a valuation which does not
give a contractor more than his actual costs reasonably and necessarily incurred plus similar allowances for
overheads and profit. It was held further that fairness is an objective test which takes into account the position
of both parties. It is not clear from the decision how the profit and overheads are to be assessed; whether
these are to be based on the contractor's tender allowances, or whether the contractor has to show some
loss of profit or loss of contribution to his overheads.
Work which is not itself varied is subject to Clause 52(2) which supplements the principles set out in Clause
52(1). The valuation of the varied work itself is dealt with in Clause 52(1). If other work is affected by the
nature and amount of the varied work, then the relationship with the whole of the contract work must be
investigated. The investigation must show that the variation caused "any rate or price contained in the
Contract" for any item of work to be rendered unreasonable or inapplicable. Clause 52(2) then requires the
Engineer to fix such rate or price as in the circumstances he thinks is reasonable and proper. It was held that
this allowed valuation equivalent to a "fair valuation" under Clause 52(1)(b) but for other work. It is suggested
that this part of the decision was not intended to preclude valuation based on rate fixing using a breakdown of
quoted rates, but simply to emphasise that the Engineer could adopt a fair valuation if he considered this to be
reasonable and proper.
The decision distinguishes the effect of additional varied work on original measured work from the effect on
other work. It was held that if the varied work was not eligible to be valued as a fair valuation under Clause
52(1), then it could not be replaced by a fair valuation under Clause 52(2). This was based on the wording of
Clause 52(2) which applies only to a "rate or price contained in the Contract". This phrase was held to limit the
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application of Clause 52(2) only to rates and prices which were established by the contractor completing the
Bill of Quantities, and not those established by the Engineer under Clause 52(1) for instance, through Clause
51 or 55(2). This literal interpretation of the phrase leads to the odd situation that varied work or work which
was not properly described in the Bill of Quantities which is subsequently affected by further variations cannot
be the subject of a Clause 52(2) valuation. It is suggested that this does not reflect the intention of the parties
and that Clause 52(2) is not intended to distinguish the source of the rate or price, but applies to all rates so
affected whether established under the contract or stated in the Bill of Quantities.

Valuation of Changes in Measurement
The rates and prices in the Bill of Quantities are not only used to value variations but also changes in the
measure of the Works. These changes may involve changes in the item descriptions or changes in the
quantities of the work described in the Bill of Quantities.
Clause 56(1) requires the Engineer to ascertain and determine by admeasurement the value of the work done.
Clause 57 describes the method of measurement as CESMM and is intended to secure that Bills of Quantities
are prepared to a standard uniformity. It is recognised, in the important proviso at the beginning of Clause 57,
that the Contract may provide otherwise or there may be general or detailed descriptions of the work in the
Bill of Quantities or any other statements which clearly show to the contrary. It was held that, generally, the
contractor is entitled to assume that the Bill of Quantities has been prepared in accordance with CESMM and
that the items and quantities found in the Bill of Quantities are reasonably accurate descriptions and estimates
of the work shown on the Drawings and described in the Specification.
If the Bill of Quantities has not been prepared in accordance with CESMM, subject to the proviso in Clause 57,
then the error in description or omission from the Bill of Quantities is corrected under Clause 55(2). It was held
that Clause 55(2) represents an agreement by the parties that the rates and prices are to be used by the
Engineer to value the correction of the error or omission. Although Clause 55(2) adopts the same mechanism
for valuation of errors and omissions as is adopted for valuing variations, namely Clause 52, the work itself is
not a variation under the contract. All that has happened is that the Works required to be executed in
accordance with the other contract documents, primarily the Drawings and Specification, have not been fully or
properly set out in the Bill. A careful analysis of the decision shows that it was held that the Engineer cannot
use a fair valuation under Clause 55(2). It is not clear why there should be such a restriction since the Clause
itself has no such limitation. Indeed where an item description has been omitted there may be no appropriate
rate so that fair valuation is the only mechanism available to the Engineer. The proviso in Clause 55(2) is that
there will be no rectification of any errors omissions or wrong estimate in the descriptions rates and prices
inserted by the Contractor in the Bill of Quantities. This restates the fundamental proposition that the contract
rates and prices are not subject to correction, also found in Clause 11(3)(b).
If the take-off of quantities for an item in the Bill of Quantities was incorrect or the as-built quantities differ,
then Clauses 51(4) and 56(2) provide a remedy. No distinction is made between the two possible causes of
the change in quantities.
It was held that any increase or decreases in the original billed quantities is a variation through Clause 51(4)
since the clause states in effect, through the proviso, that no order in writing is required for them. It follows
that changes in quantities are to be valued in accordance with Clause 52.
It was held that Clause 56(2) does not apply to work which falls under Clause 55(2), namely errors or
omissions in item descriptions, but to changes in actual quantities compared to those stated in the Bill of
Quantities. If the change in the quantities in itself renders unreasonable or inapplicable any rate or price, then
an appropriate increase or decrease in that rate or price has then to be made. It was held that a fair valuation
cannot be made under this clause, but that valuation under Clause 56(2) operates in the same way as
valuation under Clause 52(1)(b) i.e. Rule 2.
Clauses 51(4) and 56(2) appear to overlap since they both operate when there has been a change in
quantities. It is suggested that valuation under Clause 56(2) is similar to Clause 52(2) in that it applies to other
work. The test is different. The distinction is not clear from the decision, but it is possible that Clause 56(2)
applies only to errors in the quantities in the Bill of Quantities and that Clause 51(4) only applies to changes in
quantities due to variation of the works through detailed drawings for instance. It is suggested that the better
interpretation is that neither Clause 51(4) nor Clause 56(2) are so restricted, but are both triggered by the
actual quantities simply being greater than those in the Bill, for whatever reason.

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