Valuing variations retrospectively

If variations cannot be properly measured they can be valued on a 'daywork' basis (clause 5.7 of JCT Standard Building Contract with Quantities (SBC/Q 2016) and clause 13.6 of FIDIC). Valuation using daywork essentially provides the contractor with reimbursement of the cost of labour resources, plant used (calculated on a time worked basis) and materials purchased plus a percentage addition for site and head-office overheads and profit.

Dayworks are typically used for valuing minor items of varied work, particularly where the work content and/or duration is uncertain. For example, variations requiring repairs, location of services and/or standing time would typically be recorded and valued on a daywork basis.

The processes for valuing variations on daywork are usually strictly stated in the contract. Typically the contractor must provide vouchers (in the form of timesheets) to the employer's architect or contract administrator not later than the end of the week following the week that the work was carried out. The voucher must identify the names and roles of all resources and record the time spent on the variation each day together with the plant used and the materials purchased. For compliance with these processes and to ensure consistency, most contractors keep standard pro-forma daywork sheets on site.

Daywork vouchers are often signed by the architect or contract administrator 'for record purposes only'. This provides an agreed record that the labour and plant hours and the materials quantities recorded are accurate. It does not necessarily confirm that the work is actually a variation or that, if it is a variation, it is to be paid for on a dayworks basis.

This cautionary approach provides the opportunity to accurately record the resources engaged on particular activities without the need to establish entitlement to payment on a daywork basis. Establishing these facts retrospectively could prove very problematic.

Where variations are to be valued on a dayworks basis the signed voucher is valued by the employer's quantity surveyor. The valuation of the labour, plant and materials recorded on the sheet is to be valued at the 'prime cost' plus the percentage additions quoted in the dayworks section of the bills of quantities. If these essential components are not provided in the contract, seek specialist contract advice before attempting to value change using daywork.

See the BCIS publication Definition of Prime Cost of Daywork carried out under a Building Contract.

JCT Minor Works Contract

The JCT Minor Works Building Contract (JCT MW) does not contain specific rules for the valuation of variations similar to JCT Standard Building Contract.

Clause 3.6.2 of the Minor Works form states that the parties should endeavour to agree a price for a variation prior to the work being carried out but, failing that, clause 3.6.3 provides for the valuation to be carried out by the architect or contract administrator on a ‘fair and reasonable basis using any relevant prices in the priced Contract Specification/Work Schedules/Schedule of Rates’. Under this clause an assessment for loss and expense should be included in the valuation of the variation.

Variations Under FIDIC

Variations and adjustments are covered in clause 13 of the FIDIC conditions. Variations can be initiated by the engineer, after undergoing any necessary employer approval process, or by a contractor’s proposal. Clause 13.1 prevents the contractor from altering or modifying the permanent works unless and until the engineer instructs and approves a variation.

Clause 13.2 deals with contractor’s value engineering proposals and requires the contractor to submit a written proposal which, if adopted, will:

• accelerate completion;
• reduce cost to the employer;
• improve efficiency or value to the employer; and
• otherwise be of benefit to the employer.

Value engineering proposals may result in additional cost to the employer yet be of benefit. If a proposal when adopted reduces the employer’s cost then contractor is entitled to a fee amounting to 50% of the saving.

It is the engineer who administers variations under FIDIC. After determining the scope of a variation the engineer will request the contractor to respond in writing and provide:

• details of how the variation will be executed;
• any effect on the contractor’s programme and the time for completion; and
• a pricing proposal based on the measurement and evaluation rules in clause 12.

Clause 12 rules use rates in the bills of quantities as the basis for evaluation of measured works and variations. Bill rates are used in valuing variations which involve works of a similar nature and carried out under similar conditions. Clause 12.3 describes when and how new rates shall be determined. These fall into 2 categories:

Changes in quantity (there are 4 conditions to be satisfied before an existing bill rate is rendered inappropriate):

• change in quantity must be greater than 10% of the quantity in the bills of quantities;
• the change in quantity exceeds 0.01% of the accepted contract amount if the bill rate is applied;
• the change in quantity must change the unit cost by more than 1%; and
• the item is not a fixed rate item.

Other:

• work instructed as a variation under clause 13;
• no rate or fixed price exists in the contract; and
• none of the existing rates or prices are appropriate.

Should the contractor consider that as a result of an omission he or she will incur a cost that is not covered by any remaining sum(s) he or she should make a claim for reimbursement of the unrecovered cost.

Clause 13.6 allows for the valuation of variations on a daywork basis but only if a daywork schedule is included in the contract and the engineer agrees to adopt this method.

Should the contractor believe other events or changes in conditions have had an effect on the contractor’s progress and/or costs for which the contractor considers he or she is entitled to an extension of time, additional payment or both the contractor must follow the procedures set out in clause 20.1, which commences with submitting a notification to the engineer.