Conditions of Contract

The Conditions of Contract document shall clearly define the scope of work to be performed, the goods to be supplied, the rights and obligations of the Borrower and of the supplier or contractor, and the functions and authority of the engineer, architect, or construction manager, if one is employed by the Borrower, in the supervision and administration of the contract. In addition to the general conditions of contract, any special conditions particular to the specific goods or works to be procured and the location of the project shall be included.

Provisional sum 

A provisional sum is an allowance, usually estimated by the cost consultant.  That is inserted into tender documents for a specific element of the works that is not yet defined in enough detail for tenderers to price. This, allows tenderers to apply mark up and attendance costs within their overall tender price and make allowance for the work in the contract programme.

Example: Where a provisional sum might be appropriate is when work is required below an existing structure, where                   the ground conditions cannot be determined until the existing structure is demolished and the ground                           opened up.

Provisional sums can be ‘defined’ or ‘undefined’:

  • Defined provisional sums are considered to have been accounted for within the contractor’s price and programme. In effect the contractor is taking the risk that their estimate will be sufficient.
  • Undefined provisional sums are not accounted for in the contractor’s price and programme. This means that the client is taking the risk for the works and the contractor may be entitled to an extension of time and additional payments.

Provisional sums are provided for in different ways in different forms of contract, and some forms of contract can be a little vague about how provisional sums should be handled, in particular regarding adjustments to the programme.

Provisional sums place either the contractor or the client at risk of unexpected costs or delays. Agreeing the cost of such work or extensions of time that might be claimed can result in tension between the contractor and client. For this reason, they should only be used as a last resort, they should not be an easy fall-back position for consultants (who are not bearing any of the risk) when designs are incomplete or information is difficult to obtain.

Provisional sums should not be confused with Prime cost sums, which are allowances for the supply of work or materials to be provided by a contractor or supplier nominated by the client. Prime cost sums might include items that have already been purchased by the client, such as equipment, or a specific installation by a company with a strong existing relationship with a client organisation.

Prime cost

  • In general terms, the ‘prime cost’ is the sum of the direct cost of materials and labour associated with a production process. It is the direct cost of the inputs to a process that are necessary to create the output. If the prime cost can be lowered, the process may become more profitable.
  • In construction, the term ‘prime cost sum’ (PC sum) is an allowance for the supply of labour, plant and materials to be provided by a contractor or supplier that will be nominated by the client. The allowance is exclusive of any profit mark up or attendance (such as material handling, scaffolding and rubbish clearance etc.) by the main contractor.

Variations 

Variations in construction contracts can mean changes to the terms of the contract or  changes to the scope or character of the works. That price shall be added to or deducted from the contract sum. A variation is usually effected through an instruction from the principal’s architect or superintendent. Such instructions are usually required to be in writing. Whether this is a pre-requisite to the contractor’s right to recover payment will depend on whether the requirement is a condition precedent.

It is common enough to have provisions, as these are here, more or less stringent, saying that no extra work shall be paid for unless it is ordered in writing by the engineer, and if such conditions are properly made, and there is nothing fraudulent or iniquitous in the way they are carried out, these conditions would be quite sufficient and effectual.

Dayworks 

Dayworks are bound to come up from time to time since it is impossible working from a Bill of Quantities to cover all eventualities. Daywork is work for which the contractor is paid on the basis of cost of labour, materials, and plant plus an agreed percentage for overheads and profit. Payment in this way is usually reserved for items that cannot be measured and priced in the normal way.

All contracts normally provides that the first point of reference for the evaluation of variation orders, change orders or additional works instructions is the existing contract rates and prices. However, in the event that the work is different in nature or no similar item exists in the bill then only may dayworks rates be applied. Daywork payments may arise in contract variations for items such as breaking up unexpected obstructions excavations or for the adjustment of provisional sums.

There two types the Daywork rates can be priced in the bill.

Option ‘A’– Percentage Addition, is based upon the traditional method of pricing labour, plant and material in                               dayworks, and allows for a percentage addition to be made for incidental costs, overheads and profit, to                         the prime cost of labour, plant or material applicable at the time the dayworks is carried out.

Option ‘B’ – All Inclusive Rates, includes not only the prime cost of labour but also an allowance for incidental costs,                    overheads and profit. The all-inclusive rates are deemed to be fixed for the period of the contract.                                    However, where a fluctuating price contract is used, or where the rates in the contract are to be index-                            linked, the all-inclusive rates shall be adjusted by a suitable index in accordance with the contract                                    conditions.

Daywork is measured in a Lump sum contract

  • Rates will be included in the contract for material, labor, plant and contractor profits.
  • During execution of the works contractor should submit quotations for Engineer’s approval.
  • Works can be executed after getting approval in writing from the Engineer.
  • After completion of the works the contractor should submit to the Engineer along with IPC (Interim Payment Certificate) all the invoices, vouchers and receipts of goods, equipment and plant involved in the work.

Daywork is measured in an Item rate contract

In an item rate contract the item rates are not available within bill of quantities for extra items to be executed, method of day works can be adopted as an option.

 

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