Your Contractual Questions Answered.

Entrusty Group, a multi-displinary group of companies, of which, one of their

specialisation is in project, commercial and contractual management, has been running a
regular contractual questions and answers section for Master Builders members in the
Master Builders Journal.

In this instalment of this series, Entrusty Group will provide the answer to the frequently
asked question – Is the Contractor bound by his tendered rates, if the quantities
changed substantially?

In principal, tendered rates once contracted, shall hold firm for all variations, unless the
contract provisions allow for its adjustment due to difference in quantities, character,
conditions, etc.

Any adjustment will depend very much upon the QS/SO valuing the varied work under its
circumstances.

In answering this question, it is assumed that there is no change in the character and
condition of the varied work, other than the quantities change substantially.

Standard Forms of Contract (Relevant Clauses)

PAM Form of Building Contract

PAM 69 11(4) (a) or PAM 98 11.5(i), both provides for variation work of similar character
or executed under similar conditions to use prices in the Contract Bills for valuation of
the varied work.

There is no provision for variation due to substantial difference in quantities to be valued

differently.

However, depending upon the circumstances, one may be able to argue/construe that it
constitutes a change in condition. In which case, PAM 69 11(4) (b) or PAM 98 11.5(ii) may
apply.

It is worth noting that Clause 12.3 allows for any errors in description, quantity or omission
of items between the Contract Drawings and Bills to be corrected by the Architect. PAM 69
– Clause 12(2) went further to include a deemed variation provision.

Clause 13 further states that the Contract Sum shall not be adjusted or altered in any
way whatsoever other than in accordance with the contract provisions. Subject to clause
12.3, any errors shall be deemed accepted by the parties.

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JKR/PWD Form of Contract (203A – Rev 10/83)

Similar to PAM 69 Form, JKR Form provides the valuation of variations under Clause 25
(b) (i) using similar wordings.

In addition, it expressly states that quantities in BoQ are conclusive and not subject to
remeasurement, unless it is stated as ‘provisional’’. Clause 25 (c) provides for
valuation of such remeasured works including any variation shall be in accordance with its
rules (i) and (ii).

It is worth noting that Clause 26 (d) allows the SO to agree on the prices and rates in the
BoQ submitted by the Contractor as to their reasonableness before executing the
contract. Any adjustment and any arithmetical error or omission in it shall be
adjusted/rectified, without altering the tender amount, before its execution.

IEM Conditions of Contract

The relevant IEM clauses appear to allow the Engineer wide power to fix the rate or
price that he considers reasonable and proper, if they are not applicable to the varied
work.

Clause 24 (a) allows the Engineer to order all extra or additional work done or work
omitted and value them at the rates and prices set out in the Contract, if they are
applicable.

It also allows the Engineer to fix the rates or prices, which in his opinion, is reasonable
and proper in the event of disagreement.

Clause 24 (b) allows the Engineer to apply a suitable rate or price to be agreed by him
and the Contractor, if the nature or amount of any omission or addition renders the rate
or price contained in the Contract unreasonable or inapplicable. In the event of
disagreement, the Engineer is also allowed to fix such other rate or price, which in his
opinion, is reasonable and proper under the circumstances.

Based upon the above clauses, the Engineer can decide to fix a reasonable and
proper rate or price should he consider that the substantial quantities change
makes the contracted ones, inapplicable.

CIDB Form of Contract for Building Works

Clause 29.1 (b) states,

“a similar character to the work described in the Contract Documents (which can include
Drawings, Specification, BoQ, etc) and/or is not executed under similar conditions and/or
involves significant changes in the quantity of such work described in the Contract
Documents, using the Contract Rates as valuation basis but with a fair allowance for any
differences in conditions and/or quantity changes; or”

It is clear under CIDB Form that significant changes in the quantity is recognised and
the use of contract rates with a fair allowance for the difference in the quantity is
allowed.

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Relevant Case Law

In Dudley Corporation v Parson and Morrin Ltd (1998), the Court of Appeal held that
all final account quantities should be paid for at bill rates eventhough it was
underpriced. The Contractor had claimed for increased/enhanced rate on the excess
quantity when the rock excavation substantially exceeded the bill quantities.

In Henry Boot Construction v Alstom Combined Cycles Ltd [1999] BLR 123
Technology & Construction Court, the court held that the contractor was entitled to
use bill rates eventhough he has priced the item in the BoQ very high due to his
pricing error on a lump sum contract for piling work. The subsequent appeal in the Court of
Appeal(2000) upheld this decision.

Any pricing errors by the Contractor in the tender cannot be corrected by subsequently
setting aside the contract.

It is worth noting that Section 23 of the Contracts Act 1950 states ;

“A contract is not voidable because it was caused by one of the parties to it being under a
mistake as to a matter of fact.”

Conclusion/Solution

Most standard forms of contract allow the Architect/Engineer/SO (or the QS if he so

instruct) the power to decide on the applicable rates or prices depending on the
prevailing circumstances. In the case of substantial change in quantities, this may be
considered as a change in condition to allow for a revision in the rate/price or a fair
allowance as in the case of IEM and CIDB forms of contract, respectively

However, any error in pricing or rate may not be adjusted irrespective of the
quantities involved after the execution of the contract.

The next issue will be providing the answer the question, Must the QS take into account
signed daywork sheets by the Architect/ Engineer and can he then alter the
daywork quantities on reasonable basis?

The Entrusty Group includes Entrusty Consultancy Sdn Bhd (formerly known as J.D.
Kingsfield (M) Sdn Bhd), BK Burns & Ong Sdn Bhd, Pro-Value Management and Proforce
Management Services Sdn Bhd. Apart from project, commercial and contractual
management services, the group also provides risk, resources, quality and value
management and recruitment consultancy services to various industries, particularly in
construction and petrochemical, both locally and internationally.

Entrusty Group will provide a 30 minutes of free consultancy with prior appointment to
MBAM members on their contractual questions. Kindly contact HT Ong or Wing Ho at 22-
2 Jalan 2/109E, Desa Business Park, Taman Desa, 58100 Kuala Lumpur, Malaysia. Tel:
6(03)-7982 2123 Fax: 6(03)-7982 3122 Email: ntrusty@entrusty.com.my

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