Kobus le Roux

Planning and Construction Contract Expert

JBCC rescue – What happens when work is omitted and the actual work is less than what you tendered for?

By Kobus le Roux

At tender stage your Bill of Quantities (BOQ) contains 100,000m3 of excavation.  A substantial amount by any measure.  As a result, you negotiate deftly with your local subcontractor who is more than eager to provide a bulk discount, a trip to Italy for you and the spouse and an inerasable entry on the Christmas card list.

As you commence and progress on site, the revised drawings alter your travel plans as the excavation is suddenly reduced to a mere 500m3.

How do we deal with this situation under the JBCC contract?  It has become quite a common occurrence for many of our clients over the past years that the actual quantities differ significantly from the tender BOQ.  The problem, as you may have gathered, is that a contractor may suffer loss as a result of changing quantities. Let’s do a quick exercise so you have a firm grasp of the pain point experienced by contractors in this regard.  I’ll use a theoretical rate build-up for 100,000m3 of earthworks. I’m going to keep it very simple in order to illustrate the point.

Machine No Establishment cost Total Cost/day Production Working Days Total cost Cost/m3
30t Excavator 2 R10,000 R12,800 1,200m3/day 84 R1,085,200 R10.85/m3

The contractor’s cost in this instance is R10.85/m3.  If the earthworks is reduced during construction to 500m3 for instance, the actual cost will escalate to R45.60/m3.  See calculation below:

Machine No Establishment cost Total Cost/day Production Working Days Total cost Cost/m3
30t Excavator 2 R10,000 R12,800 1,200m3/day 1 R22,800 R45.60/m3

If we keep the contractor to his BOQ rate, this reduction in quantity will cause a substantial R34,75/m3 or a rounded total R17K loss for the contractor, just in terms of cost.  If a 10% profit applied, it will cause a further R106K loss in total profit!

Undoubtedly, my example would constitute the extreme and not the norm, but the aim is to illustrate the principle and when we start having numerous and frequent reductions across trades, it quickly adds up.

To understand the contractor’s options under the circumstance, one must remove a few common misconceptions and focus on the provisions of JBCC as follows:

An issued drawing is a contract instruction

This basic principle seems to escape even seasoned professionals from time to time. If I have to note the amount of times I’ve been met with blank stares after mentioning this…  When facilitating a JBCC training course, I always emphasise that 90% of disputes are solved in clause 1.0, the definitions and interpretation.  No one seems to read it and it is a dark secret of JBCC experts all around.  The definition of a contract instruction is: “A written instruction issued by or under the authority of the principal agent to the contractor, which may include drawings and other construction information” (own emphasis added).

So, having established that a drawing issued by the principal agent to the contractor is indeed a written contract instruction we can now proceed to look at how these instructions are valued.

How to value an instruction for a reduction in work

Under clause 17.1.2, the principal agent is given authority to issue alterations to the work – design, standards or quantity.

Where an instruction is issued by the principal agent the adjustment to the contract value as a result is determined by means of clause 26.2.  Very important to note is that the parties may agree beforehand on the adjustment but once issued, the contractor must continue with the work.  There is no provision under JBCC for a price to be accepted before work can be carried out.  This is a quasi-practice employed by many professionals and it is very risky.  Work must carry on irrespective of an agreement on price.  Clause 26.2 provides the basis of how work shall be priced after an instruction is issued. Unfortunately, here we find one of those common semantic difficulties in JBCC that somehow failed to receive the required attention (even after 4 revised editions!).  The clause states that contract instructions for additional work shall be determined as follows:

  • Work of similar character and similar conditions – USE BOQ RATE
  • Work not of similar character – USE BOQ RATE AS BASIS AND ADJUST TO SUIT THE CHANGED CIRCUMSTANCE
  • Where the above methods don’t apply – USE RATE BUILD-UP + 10%
  • Work omitted – USE BOQ RATES AND ADJUST FOR CHANGED CIRCUMSTANCE

Even though we find the reference to additional work, sub-clause 26.2.4 does refer to work omissions and hence, it has become common cause that work omitted is valued in exactly the same manner.

Hence, when there is an omission of work which varies the circumstances under which the remaining work is to be carried out, the rates for remaining work may be adjusted.  Where a work reduction makes it uneconomical to use heavy equipment for the remainder of excavations for instance, it would certainly constitute such a change and necessitate a rate adjustment.

What if the professionals differ in the interpretation of what constitutes a circumstance change?

You are always covered by the ghost clause 26.6.  When a contractor suffers expense and/or loss for which provision was not required, he shall have a right to claim such expense and/or loss subject to a 20-working day notice from when he became aware.

Be reasonable!

Remember that in all disputes and litigation the focus is on proof and reason.  Sometimes we make assumptions to state our case and these assumptions must be reasonable and any recoverable losses must be provable.  If you aver that a reduction in brickwork is going to cause you loss, you must provide factual documentation to prove it.  This may be a letter from your supplier at tender stage, indicating a discount based on your quantity for instance.  It also highlights the importance of a proper construction programme / construction schedule that shows accurate durations based on production rates.  These documents become what is known as contemporaneous documents and they carry a high value in proving losses later on when it matters most.

If you have any specific questions or unique circumstances you would like some clarity on, feel free to ask your question to our team of experts at info@lerouxconsulting.com.

 

This article was compiled by  Kobus le Roux for Le Roux Consulting, all rights reserved. Please contact us for your professional project planning, project control, claims or adjudication assistance services in the heavy civil and building industry.

https://www.lerouxconsulting.com/

Kindly note that our posts on social media do not constitute professional advice and the comments, opinions and conclusions drawn from this post must be evaluated and implemented with discretion by our readers at their own risk.

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