Contractual Procedures

Contractual Procedures
Unit Handbook
BTEC HND in Quantity Surveying & Building Economics

- Distance Mode
Contents
Introduction
Unit Outline
1. Post contract duties of a Quantity surveyor
1.1 The role of parties
1.2 Tendering process
1.3 Post contract responsibilities of various parties
1.4 Self-Assessment
Cost control by Quantity surveyor

2.1 RIBA plan of work
2.2 Stages of cost control
2.3 Control during construction
2.4 Self-Assessment
Contract administration
4.1What is Contract Administration
4.2 Various steps undertaken by a Quantity surveyor in contract Administration
4.3 Self-Assessment
Interim valuations variations and fluctuations

4.1 Preparation of interim valuations
4.2 Administering variations
4.3 Rise and fall formulae and its administration
4.4 Self- Assessment
Prime cost sums Provisional sums and Day works

5.1Definitions of Prime cost Provisional sums and Day works
5.2 Implementation
International College of Business and Technology

Edexcel International UK
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6 Construction claims
6.2 Definition of claims
6.3 Claimable situations
7 Final Accounts
7.2 Preparation of final accounts
7.3 Discharge
7.4 Cessation of employers liability

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Introduction
This is Unit 41542Y and is namely Contractual Procedures. A student should spend at least 60
hours on this unit which comprises of completing this unit Manuel as well as reading various text
books pertaining to this module. The aim of this unit is to provide the student with a sound
understanding of the post contract duties of a quantity surveyor. The unit develops the understanding
on cost control and cost monitoring and prepares the student to apply them during the post contract
phase of the project.
PART I
Post contract duties of a quantity surveyor
Cash flow forecasting and Monitoring
Cost control
Assignment
PART II
Interim valuations, Variations and Fluctuations
Prime cost sums Provisional sums and day works
Contractual claims
Final Accounts
Dispute resolution
Assignment

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Unit Outline:
Unit level
Unit hours
:5
: 60
Description of the unit

The aim of this unit is to provide the student with a sound understanding of post-contract duties of a
quantity surveyor. The unit develops the understanding on cost control and cost monitoring and
prepares the student to apply them during the post-contract phase of a project.
Summary of Learning Outcomes

To achieve this unit a student must:
1. Understand and apply post contract quantity surveying functions
2. Present competency on post-contract cost management methodologies and practices
3. Develop knowledge and skills required for contract administration in the post contract
stage
Contents
Post-contract quantity surveying functions
Introduction: Contractor selection to facilitate effective post-contract management; Capacity in
terms of financial, technical and human resource base, problems arising due to selection of noncompetent contractors; Interpretation of conditions of contract; Interim valuations; Prime cost sums,
provisional sums and day works; final accounts.
Post contract cost management
Cash flow forecasting and monitoring; cost controlling.
Variations and fluctuations; construction claims; dispute resolution, communication and
documentation.

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Outcomes and assessment criteria
Outcomes
1. Understand and apply post
contract quantity
surveying functions
2. Present competency on
post-contract cost
management
methodologies and
practices
3. Develop knowledge and
skills required for contract
administration in the post
contract stage
Assessment criteria
To achieve each outcome a student must
demonstrate the ability to :
Appreciate the need to select suitable contractors
for successful management and completion of a
project
Explain problems and difficulties that the client
may face if a suitably qualified contractor is not
selected
Identify the role of QS in post contract
management
Distinguish the post contract management
functions
Application and interpretation of contractual
clauses for specific contracts
Identify key issues in interim and final
valuations
Perform cost adjustments to prime cost /
provisional sums
Assess interim and final claims
Develop cash flow forecasts
Monitor cash flows
Reconcile planned versus actual cash flows
Identify strategies for cost control
Preparation and evaluation of variations and

fluctuations
Preparation and evaluation of other claims and
documentation
Ability to communicate and negotiate to reduce
disputes
Ability to maintain systematic records and
documentation

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RESOURCES
SUGGESTED READINGS
ASHWORTH, A., 2005, Contractual Procedures in the Construction Industry, 5th ed.
Prentice Hall.
THE AQUA GROUP, HACKETT, M. and ROBINSON, I., 2003, Pre-contract Practice and
Contract Administration for the Building Team, Oxford: Blackwell Publishing.
OTHER RESOURCES
Technical journals.

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1.
Post contract duties of a Quantity surveyor
1.1 The roles of parties:

General:
The following diagram illustrates the pattern of contractual relationship that exists between the
various members of the design and production team on conventional or traditional form of contract.
This may change depending on the type of contractual arrangement and the form of contract used.
Engineer
Collateral warranty/Nominated sub contract
Subcontractor
The Architect
Main Contract
Client
The Head
contractor
Collateral warranty
Quantity
Surveyor
Supplier
It should be noted that only the parties to the main contract. That is the client and the contractor may
be sued on this contract. The contracts between the client and or employer and his /her professional
advisers are usually based on standard agreements produced by the respective professional
institutions.
There may be an agreement or a collateral warranty that would permit the client to sue a
Subcontractor or supplier direct if the need arises. Also the clients professional advisers could be
liable to the contractor in tort notwithstanding the absence of a contractual link. Thus, if the architect
was to exceed his/her authority without the knowledge of the contractor, the contractor could
recover any loss suffered in an action for breach of warranty of authority.
The Client / employer
The success of the design will depend to a large extent upon the clarity with which the client
organization states its present and future requirements. Therefore clients' role is to provide clear
brief and make available, the funds necessary for the project.
The Architect
The architect is traditionally appointed first by the client although now there are many occasions
when the initial appointment may be made to a project manager or to any other consultant. The
architects' role is to interpret the clients brief and translate it into a viable building with in the stated
constraints. The architect would also be responsible for obtaining the necessary approvals for
planning compliance with regulations and for supervising the erection of the building. The architect
is required to give periodical supervision as may be necessary to ensure that the works are being
executed generally in accordance with the contract. The powers of the architect are limited by the
term of the building contract and provided he/she does not exceed his/her authority, the client is
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bound by the architects acts. The architect like any other professional is liable to the client if he/she
carries out the duties in a negligent way. That is - Fail to use proper skill and care.
The Quantity surveyor
The client will usually make the appointment of the quantity surveyor either direct or on the advice
of the architect. If the architect or any other agent of the client makes the appointment it is important
to ensure that the principle is aware of his/her actions.
The main function of the quantity surveyor includes cost planning the design, preparing bills of
quantities, evaluating tenders, and the financial administration of the contract. This includes making
interim valuations, valuing variations, where instructed by the architect, assessing the amount of loss
and expense claims. The quantity surveyor, Like any other professional, owes a duty of care to the
client to carry out his/her work and may be liable for professional negligence if fails to do so.
Other consultants:
The other consultants appointed at the same time of the appointment of the quantity surveyor are
structural engineers, mechanical and electrical engineers and any other specialist consultants
depending on the complexity of the project. They may be hydraulic engineer, geo-technical
engineer, and interior designer, building surveyor, land surveyor and landscape architect.
Main contractor
Traditionally the contractor is appointed to be in charge of the construction of the whole project and
co-ordinate the work of the various subcontractors. The main contractor is responsible for
construction and delivery of the project according to the standards, workmanship and quality
stipulated in the contract documents and according to the legal and statutory requirements. The main
contractor is liable for defects in the subcontractors work. The relationship between the main
contractor and the subcontractor depend on the terms of the sub-contract signed between the two
parties and the responsibilities of each party depend on the contractual arrangement selected for the
project.
Suppliers
The main contractor purchases most of the material required for the project from the suppliers.
However the architect may nominate a particular source/firm for the supply of certain items. The
roles of various parties connected with the building contract have been briefly outlined above.
However good team coordination and successful communication systems between each member of
the team are necessary if design and construction processes are to be effectively organized to
achieve efficiency.
Self assessment
1. Briefly discuss the roles of various persons connected with a building contract?
2. How and when does each of these persons fit into the overall design and construction process of a
project?

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1.2Tendering Process
It is the process by which a client/employer procures a building project.
A Tender
A tender is the final price or offer which is submitted to the client by the contractor and is a
sum of money for which he prepared to carry out the work and will include not only the
estimate but also the a margin of overheads and profit
The conversion of the estimate into tender is undertaken by the management at an

adjudication meeting where aspects other than pure cost are considered
Ethics in the tender process
The code is based on ten ethical principles
Tendering at all levels conducted honestly
Parties must conform to all legislative obligations including those required by Trade
practices and consumer Affairs laws
Parties should not seek and submit tenders without a firm intention to proceed
Parties should not be engaged in any practice which gives one party an improper advantage
over the other
Parties should not be engaged practices such as collusion on tenders, inflation of prices to
compensate unsuccessful tenders, hidden commissions or secret arrangements
There should not be conflict of interest among parties
Conditions of tender must be the same for each tenderer on any particular project
Tender documents must specify the clients requirements and indicate the criteria for
evaluation
The confidentiality of all the information provided must be preserved
Any party with conflict of interest must declare as the conflict is known to the party
Tender documents
Must clearly define the contractual obligations of parties
Provide details of all work covered under the tender
Draw attention to any special conditions or obligations from normal practice
Must provide any supporting information required
Nominate person to provide necessary information
Should provide positive encouragement to tenderers allowing the option while

submitting a conforming tender
Contractor selection
Open tenders
Selective tenders
Pre-registered tenders
Invited-or pre-qualified tenders
Negotiated tenders
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Decision to tender by the contractor
The contractors estimating capabilities are scarce resource
Producing of tenders cost money
Great care must be taken before committing to the costly estimating operation
Criteria influencing the decision to accept or reject an invitation to tender
Genuineness of the invitation
The nature, the size and complexity of work
Three year continuous job may be tempting but with limited resource and equipment a
realistic contractor may not over stretch
Tackling one large job may limit himself/herself in the market for the next two years
The regular clients may forget him/her
The type of work may not be suitable

The principal parties involved?
Who the client is?
Who the architect and quantity surveyor is?
Attitudes of the parties?
The consultants track record in terms of dispute generation and resolution
To keep good relations resulting in the possibility of further work

The value of the main contractors own work, PC sums etc
The quantum of work to be carried out by his/her own work force
Number of nominated sub contractors (Administrative problems and target dates)

Time allowed for tendering
Time available to prepare tender with a reasonable degree of accuracy (Only determined by
the estimator)
Firm or fluctuating price required
Contractor may not be ready to accept the risk or pricing firm price contracts
Only interested in a fluctuating price basis
Large degree of risk in attempting to predict what inflation is likely to be in an unstable

economy
Contract details
Important factors such as the contract period, starting date
whether any phased work exists
access to site, site conditions

Location
working conditions all having a bearing on the suitability of the project

Current work load
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Number of contracts he/she engaged in
Economic, Industrial and political climate
Market prices (Boom times the demand for material and labour forces the prices to go up)
Industrial relations (Labour productivity, industrial disputes and stoppages)

The decision to tender
All above information must be recorded by the estimator and submitted to the management to
discuss the possibility of submitting a tender. If after due deliberations the management decides to
tender then the acceptance to the invitation to tender must be submitted to the architect for the
dispatch of the tender documents.

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Chapter 1 - Self assessment questions

1. What should the contractors estimator consider prior to agreeing to tender for a project ?
2. What consideration should he make if the project was to be built on the slopes of Nuwara-eliya?
3. If you are selected to participate in a tender to Construct the Presidents residence in Pelawattha
in Kotte, what Economic, industrial and political factors would you Consider in the decision to
accept or reject an Invitation to tender?

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Assignment one
Task:
1.
Select a Tender document of your own choice for a low cost commercial/ industrial project.
2.
Evaluate the invitation to tender in the document and identify the criteria in the invitation to
tender, tender documents and conditions of contract that will influence a decision to tender
identify construction and estimating workload conditions that will influence the a decision to
tender
Assuming the following conditions
That you are a medium size construction company
At present you find yourself stretched to 75% of your capacity.
There is the possibility of a down tern in the construction industry due to introduction
of construction levy VAT, due to budget proposals.
3.
Identify the company conditions that will influence a decision to tender and prepare a response to
the Invitation
NB: The penalty for late submission will be 5% of the awarded mark for each day or part day
late excluding weekends cheating and collusion will be dealt very strongly according to
international standards.

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2.
Post contract responsibilities of the parties
2.1 Employer/Engineers responsibilities
Selection of the contractor
Preparation of the contract document
Award of contract identifying important aspects of the contract

2.2 Contractors responsibilities
Send the letter of acceptance
Get ready mobilization
Commencement at site
Get the bonds and guarantees
Get the relevant insurances
Submit the program

2.3 Quantity surveyors responsibilities
It is the responsibility of the quantity surveyor to help in the preparation of the contract documents.
The Contract document consist of in order of precedence the following:
Letter of acceptance
Contract agreement
MOU if any
Conditions of Particular application
Contract data
General conditions of contract
Copies of guarantees and bonds
Insurance
Drawings
Specifications
Bills of quantities
Any other pertaining documents

2.4 Preparation of the contract document
In preparation of contracts it is necessary to eliminate any possibility of contract documents being
rejected.. It is responsibility of the quantity surveyor to make sure that the documents are well
prepared. The reasons for rejection of a document can be identified as:
Blanks
Ambiguities
Erasures
Alterations
In order to avoid rejection, the following rules must be adhered to:
The blanks must be ruled and initialled
Ambiguities must be cancelled and initialled
Erasures must not be permitted

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Alteration should be made in ink or in the case of large alterations they should be completely
re-typed and pasted over the appropriate area of the contract and initialled.
Where an alteration has been made in error, the passage in error is marked stet. That means
let it stand as before and necessitates initialling.
What are Contract documents?
The size and the complexity of the project determine the amount of documentation that is
included in the contact documents. The list of documents included is unique to each contract.
Some of the likely documents that are included are as follows:
Agreements and conditions A printed standard document signed by both parties with the
pages and changes initialled by each party and the special conditions and schedules filled in.
The drawings the drawings may comprise of Architectural, Engineers drawings,

Mechanical services drawings and Landscape The drawings that are included in the contract
document will be the original tender drawings without any changes or amendments. The
drawings will be numbered and listed as a part of the contract documents.
Specification This is a document to be read in conjunction with the drawings. The purpose
of the specification is to give a written description of the works described in the drawings in
terms of the standard, workmanship and the quality of the work expected from the
contractor. It conveys the intentions of the Employer and informs the public authorities on
details not shown on the drawings.
Bill of quantities - It describes materials and workmanship in sufficient detail for pricing
and represents the quantities of work to be executed. Bill of quantity may or may not be
included and its inclusion will depend on the conditions of contract chosen for the project,
Schedule of rates The schedule includes the material and labour costs including overheads
and profit margins for a particular work section or sections. The schedule is generally used if
variations occur in the contract.
Program of work The program stipulates the work to be carried out with in the agreed time
schedule It generally fits in with the Employers planned occupancy of the building at
stipulated time during the contract
Insurances The contract conditions stipulates various insurances to be taken by the

contractor during the life of the contract such as Workers compensation, public risk etc. The
insurance covers may require to be taken in both contractors and the Employers name. In
this instance, an endorsed cover note may form part of the contract documents.
Evidence of Liquidity On larger projects the contractor may be required to give a Bank
guarantee for a nominated amount. In this instance the endorsed bank guarantee may form
part of the contract document.
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General conditions of contract
The general conditions of a contract list the conditions under which the contract for a
building is administered. Generally the various conditions that are stipulated comes in the form of a
pre-printed document and covers areas such as Statutory obligations, Possession of site, Site
conditions, Materials and Workmanship, Access to site, Sub-letting, Rise and fall, Progress
payments, Prime cost and Provisional sums, Variations to the contract, Insurances, Delays and
extension of time and Practical completion.
Conditions of Particular application/ Special conditions of contract
The special conditions of contract cover those aspects that are unique to that particular
project. The standard printed forms available may not be adequate to cover all the special aspects
that are unique to that particular project. Therefore these forms generally include a blank sheet
headed Special conditions to type in the special arrangements, charges, conditions and
commitments that is negotiated. Once it is written or typed, it is signed and countersigned by the
respective parties and they become part of the contract.
Some examples of special conditions may include extended defects' liability periods, bonus
or penalty payments.
After Award of the contract- The responsibilities of the Engineer and its team
Monitor the program
Any delays claims should be submitted in time according to the program and evaluated by
the Engineer
Billing should be done on a monthly basis or as per the agreement by contractor and checked
by the consultants QS
Cash flows monitored by both parties
Project completed
Issue/Request for completion certificate after carrying out test of completion
Release of first half of the retention
Beginning of defects liability period
Rectification of defects
Final completion certificate
Release of final moiety or retention

Forms of contracts used in various countries
In Australia
The JCC contract formulated by the Royal Australian institute of Architects and Master Builders
federation of Australia
In The United Kingdom
In the United KINGDOM JCT1998 edition private with quantities and many other forms
In UAE & Other Middle Eastern Countries
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The conditions of contract for construction for building and engineering works designed by the
Employer FIDIC 1999 formulated by international federation of `Consulting engineers

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1.0
Under a construction contract what consideration is given by

a) the client
b) the contractor
2.0
What factors could harm a contract and render it void or void able?
3.0
Who are the parties to construction contract? Refer FIDIC 1999 ( red book)
4.0
Who may be the agents of the employer?
5.0
List four of the commonly used contract forms and describe when they are used?
6.0
List and describe most commonly used documents in the formation of a contract for a
building?

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3.
Cost control by Quantity surveyor during post contract stage
3.1 RIBA Plan of Work

The following information is taken from "Services Supplement: Design and Management" from the
RIBA publication "Standard Form of Agreement for the appointment of an architect"(SFA/99)
available from RIBA Bookshops
Reference: (http://www.ribabookshop.com) and you should refer to the whole document.
The following RIBA plan of work identifies the stage of work of an architect. This is given so that
the quantity surveyor is informed of the various stages at which he will have to carry out cost
preparation, management and control during the life of the project.
3.2 Architect's design services:
1.1
Receive client's instructions
1.2
Advise client on the need to obtain statutory approvals and of the duties of the Client under
the CDM regulations
1.3
Receive information about the site from the Client (CDM Reg 11)
1.4
Where applicable co-operate with and pass information to the Planning Supervisor
1.5
Visit the site and carry out an initial appraisal
A
1
2.
B
1
C
1
2
3
4
5
Appraisal
Carry out studies to determine the feasibility of the Client's requirement
a)
Review with client alternative design and construction approaches and the cost
implications
OR
b)
Provide information for report on cost implications
Strategic Brief
Receive strategic brief prepared by the client
Outline Proposals
Commence development of Strategic Brief into Project Brief
Prepare Outline Proposal
3a)
Provide an approximation of construction costs or
3b)
Provide information for cost planning
Obtain Client approval to Outline Proposals and approximate construction cost
Co-operate with Planning Supervisor where applicable
D
Detailed Proposals
1 Complete developments of Project Brief
2 Develop the Detailed Proposal from approved Outline Proposals
3.
3a) Prepare a cost estimate or
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4
5
6
3b) Provide information for preparation of cost estimate

Consult statutory authorities
Obtain Client approvals to the Detailed Proposal showing spatial arrangements, material and
appearance, and a cost estimate
Prepare and submit application for full planning permission
E Final Proposals
1
Design Final Proposals from approved Detailed Proposals
2
2a) Revise cost estimate
2b) Provide information for revision of cost estimate
3
Consult statutory authorities on developed design proposals
4
Obtain Client approvals to type of construction, quality of materials, standard of
workmanship and revised cost estimate
5
Advise on consequences of any subsequent changes on cost and programme
F Production Information
1 Prepare production information for tender purposes
2.
2a)
Prepare schedules of rates and/or quantities and/or schedules of works for tendering
purposes and revise cost estimate, or
2b)
Provide information for preparation of tender pricing documents and revision of cost
estimate
3.
3a) Prepare and make submissions under building acts and/or regulations for other statutory
requirements
OR
3b) Prepare and give building notice under building acts and/or regulations (not applicable in
Scotland)
4 Prepare further production information for construction purposes
G Tender documents
1
Prepare and collate tender documents in sufficient detail to enable a tender or tenders to be
obtained
2
Where applicable pass final information to Planning Supervisor for pre-tender Health and
Safety Plan
3
3a)
Prepare pre-tender costs or
3b)
Provide information for preparation of pre-tender cost estimate
H Tender Action
1
Contribute to appraisal and report on tenders negotiations
2
If instructed revise production information to meet adjustments in the tender sum
J Mobilization
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Provide production information as requested for the building contract and for construction
K Construction to Practical Completion

1
Make visits to the works in connection with the Architect's design
2
Provide further information reasonable required for construction
3
Review design information from contractors or specialists
4
Provide drawings showing the building and main lines of drainage and other information for
the Health and Safety File
5
Give general advice on operation and maintenance of the building
L After Practical Completion
1 Identify defects and make final inspections
2
2a)
Settle Final Account or
2b)
Provide information required by others for settling final account
NB:
If the architect is to provide cost advice Alternative A applies

If a quantity surveyor is appointed Alternative B applies
Stages of cost control

The important aspects of a contract are to manage the contract with in the following constraints:
Time
Cost
Quality
Cost is our responsibility as a Quantity Surveyor whether you are contractors Quantity surveyor or
the consultants Quantity surveyor. There is a close relationship between planning and management.
The quantity surveyor uses the Bill of quantity as the management tool in managing the project.
In managing the time of a construction project a construction program prepared by the contractor
and accepted by the engineer Is used to mange the time since the all activities required to complete
the project is identified and relationships between different activities and durations are identifies
and can be easily monitored. If deviations occur, the remedial action could be taken to mitigate the
delay.
There is a close relationship between cost and time. Delay in the completion of the project inevitable
means increases in cost. The costs on a project depend on the quantity of the work duration of the
work and site establishment costs. In order to monitor the cost the quantity surveyor must prepare a
resource based estimates
During a project there will be deviations from normal or average circumstances and these will vary
due to the site location design complexity political and economic factors. To manage these it is
important to identify these at early stages by the quantity surveyor.
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The main function of a quantity surveyor once work has commenced at site is to carry out project
financial control. It is important to make sure that variations claims or extras do not raise the project
cost at the final account stage above the budget of the employer.
The following must be practiced by the quantity surveyor during construction phase:
Liaise with the contractor at regular intervals for the valuations of variations
To agree to re-measurement of work and discuss claims submitted by the contractors.
All variations that have a cost effect is informed to the employer and is aware of and cost
overruns
All variations as much as possible must be finalized at each interim valuations
Requires close collaboration between the architect and the quality surveyor and other
consultants including there presence at sit meetings
Early consideration should be given to expenditure against provisional sums and prime cost
sums
Quantity surveyor must produce monthly forecast of all expenditure and to predict and
monitor the cash flow
The receipt of periodic financial reports enables the employer to keep a track of expenditure
and be prepared for any future financial commitments
It is the responsibility of the quantity surveyor to keep the employer informed of the
financial commitment and when he is required to make payments
The design team in particular it is the responsibility of the quantity surveyor to effectively
control the expenditure on variations, contingency expenditure, provisional and prime cost
sums, evaluate quotations, monitor completion to time and claims.

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1.0
Read the RIBA plan of work and identify and discuss that stage at which costs of a project is
prepared by a Quantity surveyor and at what stages they are controlled.
2.0
How do the consultant quantity surveyor and the contractors quantity surveyor brief their
respective managements on the progress of the project? What methodologies would he/she
use?
3.0
When a building project is implemented what factors will have an effect on the cost on the
project? Discuss them briefly.

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Payments variations and fluctuations
4.1 Payments
In construction contracts payments may be classified into two categories
Interim payments
Final payments
Interim payments
Interim payment occurs through out the contract construction period. They constitute the primary
mechanism by which the contractor gets paid for the work carried out. This becomes the cash flow
between the employer and the contractor. Generally the interim payment will occur at pre
determined intervals. These payments are determined by the value of the work carried out by the
contractor during this period. In general they may be called monthly valuations. How ever this is
determined in the tender document. Some times the interim valuations can be called stage payments
or mile stone payments paid at specific times when the contractor achieves the various stages of
completion. (e.g. Completion of substructure etc)
In order to arrive at stage payments it is advisable for the quantity surveyor to carry out a contract
sum analysis so that unrealistic stage payments are not given in the contract. A contract sum analysis
will become the basis for valuing variations. Where a project is subjected to stage payments and
where there is no detailed pricing document, in such cases variations can be valued at Fair rates, day
works or by obtaining quotations from the contractor and approving them prior to executing the
variation.
Under most contracts the commonly used document to value interim payments are the bill of
quantities , the schedule of rates, It is important define the time period of submitting a interim
valuation and the time period for evaluation by the consultant and the time period for honouring the
payment by the owner. This usually stated in the contract document. The engineer to the contract
usually issues the interim certificate however this varies form contract to contract and this should be
verified
Contents of an interim certificate
The value of work carried out according to the drawings specifications and the contract
Document ( the value of permanent work executed
Materials and goods on the site
Material off site if any
Any other items in the bill of quantities including those for contract equipment temporary
works day works etc
Claims. fluctuations if any in which the contractor may be entitled to under the contract
In preparation of monthly certificate the amount is subjected to deduction for retention. When a an
consultant/Engineer to the contract issues a certificate stating the sum due to the contractor from the
employer that certificate is condition precedent to the contractors entitlement if either party is
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dissatisfied from the sum certified and if discussion does not result in a correction to the certificate
by the engineer then the remedy is dispute resolution which may be DAB and then arbitration.. Even
if the engineer has certified an incorrect mount this could rectified in the next bill if the payments
are made on a cumulative nature.
It is the employers obligation to pay the net sum stated as due in the interim certificate deductions
from an interim certificate generally are retention, any advance, and any previous payments.
What is retention?
It is amount retained by the employer for any defective that may occur during the construction
period and the defects liability period. I t is kept by the employer on behalf of the contractor and it
his responsibility to release it as stated in the contract once the defects are rectified to the
satisfaction of the engineer.
Normally fluctuations (variations to the price) are paid net and subject to retention similarly any
formulae fluctuation provisions are also subject to retention. The following table generally gives
frequency of the issue of interim certificates under various forms of contract.
Contractors application
To issue of certificate
JCT 80
ICE 6
Frequency
monthly
monthly
14 days
from date of
Certificate
28 days from date of

certificate
7 days before
Date of certificate
none noted
.
Period of honouring
Valuation date
FIDIC
within 28 days from

date of application by
Engineer
with in 28 days from
delivery to the
employer
none noted
Variations, Day-work, Rise and Fall Formulae, indices and calculations
A variation is defined in the Macquarie Encyclopaedic dictionary as - to change or alter as

in form or appearance, to cause to be different.
Variations in terms of a building project can be extras, additions, omissions, alterations,

deviations, deductions to the building works. Due to the inevitability of a contract being varied most
contract documents include provisions under which variations could be issued.
The variation clauses are written into the contract under general conditions. This Variation
clause stipulate who has the power to order variations and give instructions and how variations
could be valued under the terms of the contract. However the variations cannot vitiate or nullify the
contract. However the issue of variations could vary the contract.
Page 19

It must be understood that the instructions for change should be with in the general scope of
the contract. Most contract conditions require the variations to work to be priced and approved
before the work is carried out. Generally a time limit of 14 days is stipulated in most contracts for a
written quotation from builder on written advice being received of acceptance
Contractors generally plan the construction work as per the stipulated contract period and the
work is completed in a sequential manner. Issue of variations during this process delays this
progress of work and hampers this work plan resulting in the delay of the timely completion agreed
with the Employer. Most often the issue of variations are considered as the greatest cause of dispute
between the Employer and the contractor. Variations not only cause delay in the program, it leads to
cost implications to the contract by way of savings or extra to the contract. Rarely is a variation that
has neither cost nor time implications. The building contractor does not usually accept savings
happily due to the builders scope of work being reduced.
The contractors' administration office should have systems of operation for

processing of variations with in the stipulated time in the contract.
valuing and
Verify whether the person with whom the contractor has signed the contract or his or her
authorised agent issued the variation.
Record the proposed variation and note the effect it will have on the original program by
referring the contract documents.
Establish the manner in which the variation is to be determined, valued and prepare the
estimated cost.
Submit the proposal for the variation with in the stipulated time to the Employer or the
authorised agent.
Accept only if written approval is obtained either by the Employer or the authorised agent to
proceed.
Proceed with the work and notify the Employer the contract sum adjustments including the
variations to the contract.
The Employer or his or her agent could reduce incidence of variations

Preparing a carefully considered, objective, performance orientated Employers brief
Careful preparation and co-ordination of detail design and documentation
One point control of variations
Elimination or minimum use of provisional sum items.
The Employer awareness of all planning issues and is in agreement with same,
Awareness of adverse cost and time implications of variations during the construction stage.
The variations to the contract can be any of the following:
Time related changes
Quantity related changes

Page 20
Specification changes
Scope changes
Any other changes
Delays and extensions of time
Workmanship and materials
Latent conditions
Defective work
Delay costs with damages
Ambiguities in the contract document
The research into the building industry has found that variations are caused by:
1. Inadequate, incomplete or ambiguous documentation
2. Changes or additions to project requirements.
Contract Variations
Variations to the contract are changes effected to the works that can result in a reduction or addition
of work or a substitution of work or materials. These are normally requested by the proprietor via
the Architect. However it is advisable to have the client approve the value of the variation before the
work commences.
Sequence of a Variation
The cost of a variation is the cost involved in executing the variation from the time the instruction is
received to the time the work is completed.
The sequences of events considered and costed for valuing a variation are:
Receive the variation instruction.
Assess and order the necessary materials.
Instruct and co-ordinate the necessary workers.
The Worker tidies up from the job engaged at the time. (disestablishment)
The worker's) assess and acquire equipment and material required for new work.
The worker carries out the variation work.
The worker tidies up and returns waste to disposal.
The worker returns equipment and surplus back to stores.
The worker returns to original job (re-establishment)
The administration adds the cost of materials, supervision, cost of site overheads for the
period and the cost of actually costing the variation to this to determine the value of the
variation.
All of the above activities incur a cost related to the variation and must be considered in its
valuation and these will not be unfairly assessed by the Architect.
You may or may not be entitled to add overheads and profits to the cost of costing a
variation while some contracts allow a set percentage for it.
Rise and Fall/Fluctuations
Often building projects, particularly, large building projects are undertaken over a long
Page 21
period of time. It is more than likely that the price of material used in a job and the rates of pay of
the workmen will increase and even in some instances fall during the life of the contract.
Rise and Fall is the adjustment made to the contract price to offset or compensate for any
rises and falls that occur during the period of contract.
This is beneficial to both the proprietor and the builder. In the case of the builder he is able to
withstand any price rises which would have reduced his profitability and even caused him to make a
loss and become insolvent. In the case of the proprietor he was able to avoid the possibility of being
stuck with an incomplete project which would have been the result if the builder had become
insolvent.
Sample of a Rise & Fall Formula
You may be offered a Rise and Fall formula in a contract if the project is likely to run for
more than a reasonable period, say, nine months. In the absence of one you may ask for one to be
included in your contract. The following is two fluctuation formulas in the Australian building
contract. The FIDIC also have its own fluctuation formulae that can be used
The following is an example of a fluctuation formula:
There are two rise and formulae used NCAP 1 (National Cost Adjustment Provision) and
NCAP 2.
The most commonly used formula is NCAP2 which is:

Increase (or Decrease) = Effective Value x Proportionate Value x
Current Index No.-Base Index No.
Base Index No.
Base Index Number : Is the index number applicable for both labour and materials to the date 14
days prior to the date of closing of tenders or the date of builders offer in the absence of a
tender. This remains constant through the contract period.
Current Index Number : The current index number is the index number for both labour and
materials at the time of the progress claim. If no date is given for a current index no. it shall be :
Materials index : 42 days prior to the last day of the period of the relevant progress claim
Labour Index: 15 days prior to the last day of the period of the relevant progress claim.
Proportionate Value: In NCAP formulae a proportional value is used for the calculation of
material and labour.
It is apportioned as follows: Labour
= 0.45 or 45%
Materials = 0.55 or 55%
Progress Claims:
The value of claims is determined on:
The actual value of work done
This method is based on actual measurement of work done.
Value of percentages of work done
Page 22

Contractual Implications
The conditions of contract, normally stipulates:
When progress payments are to be made.
The method of presentation by the builder of his claim for progress payments. (the
information to be provided)
Method for fixing the estimate of the contract value of work executed including variations,
and unfixed materials on site.

Page 23

1.0
Describe the situation when it will be considered variations to a building contract?
2.0
Give three situations in which the quantity surveyor exercises the cost control during the
execution of the project?
3.0 Briefly describe what a variation is in relation to a building contract?
4.0
What are the most significant causes of variations to the contract?
5.0
Describe the procedure for management of variations by the contractor.

Page 24
Assignment 2
Task:
Compare the fluctuation formula given in this document, the FIDIC 1999 and ICTAD 1986
Discuss the pros and cons of the formulae and in your opinion which is most suitable. Workings
should be given using numerically on a project that is being carried out by you
NB: The penalty for late submission will be 5% of the awarded mark for each day or part day
late excluding weekends cheating and collusion will be dealt very strongly according to
international standards.

Page 25
5. Day-works Prime cost sums and Provisional sums

Day works
Day-work means payment for actual hours spent carrying out an operation as against
payments made based on prices given in the tender. For this reason a record of such work
must be kept and signed by the party carrying out the work and paying for it.
Day-work records
The minimum information recorded should include:
Hours worked by those engaged in day-work
Hours machines were hired from subcontractors on the site
Material used by the builder for day-work purposes
Day-work
Day-work means payment for actual hours spent carrying out an operation as against
payments made based on prices given in the tender. For this reason a record of such work
must be kept and signed by the party carrying out the work and paying for it.
Day-work records
The minimum information recorded should include:
Hours worked by those engaged in day-work
Hours machines were hired from subcontractors on the site
Material used by the builder for day-work purposes
Who orders day-work?
Day-work is primarily between a builder and subcontractors.
Day-work is only carried out for the proprietor in special situations.
An Architect will usually only request day-work in an emergency when there is insufficient
time to raise a variation quotation request. The same emergency may give the builder
insufficient time to assess and cost a variation quotation.
Another instance would be where tradesmen for a particular trade have to be brought back to
do work in that trade when the work in that trade is completed.
Provisional sums
The provisional sum means a sum included in the contract and so designate in the bill of quantities
for those works that has not been properly detailed at the time of the tender. Provisional sum can be
for the execution of the part of the work, for the supply of good, materials plant for services or for
contingencies. This is used under the direction of the engineer in whole or part in respect of the
above work
Prime cost
This means any fixed cost for supply only item which may be defined in the Bill of quantity for a
particular item such as specifies cost of a tile or light fitting where the contactor can expend only up
to that amount for a item

Page 26

1.0
Write the definition of day works found in three contract documents with whom you are
familiar with?
2.0
Identify the clauses in the FIDIC that explain the use of provisional sums

Page 27
6. Construction claims
The meaning of a claim
A claim signifies a demand for something that is due. A construction claim is defined as a demand
or a request or an application for something to which a contractor considers or believes or contends
rightly or wrongly that he is entitled to but in respect of which agreement has yet not been reached
Sources of disputes
When breaches and variations occur in the performance of the strategies outlined in the contract,
disputes are likely to occur. A dispute is essentially a difference of opinion. A dispute is the result of
an unsettled conflict where the arguing parties are unable to settle their differences or reach a
compromise. A dispute can arise at any stage of the project.
Causes of disputes/claimable situations
The traditional and common disputes that occur in the construction industry have often arisen due to
the lack of clarity in the documents, poor communications and a lack of co-operation between the
parties. Disputes are extremely costly and time consuming.
Common causes of disputes are:
Variations and value of variations
Delays and extensions of time
Workmanship and materials
Latent conditions
Defective work
Delay costs with damages
Ambiguities in the contract document
Types of claims
Claims based on contract documents
Extra contractual claims which arise out of hardships and which do not wholly rely on the
terms of contract
Claims based on breach of of a common law duty of care
Quantum meruit (as much as is deserved) claims which seel payment for work done where
the contract does not have a fixed price
Claims for delayed payments
Claims for time over runs
Claims for price fluctuations
Claims occurring when encountering unanticipated conditions
Claims in dealing with Nominated sub contractors
Claims for acceleration of works

Page 28
Dispute resolution methods

The dispute resolution methods commonly adopted by parties to the construction contracts are as
follows:
Negotiation
Conciliation
Mediation
Adjudication
Arbitration
Litigation
Negotiation
Negotiation is where two or more parties attempt together to reach an agreement on a disputed
matter. It involves unaided discussions between the disputing parties without legal representation.
Negotiation as a dispute resolution process commences after the dispute has arisen and the parties
necessitating a need to negotiate. Negotiation in dispute resolution takes many forms. It ranges from
an informal chat or telephone conversation to highly structured process taking place over long
period of time.
Conciliation
It is defined as a process where a neutral third party endeavors to help the disputing parties reach
their own agreement. It is the role of the third party that distinguishes mediation from conciliation.
Contrary to the mediators' role, the conciliator is expected to contribute personnel views and
opinions during the process.
Mediation
Mediation is a flexible process designed to assist the parties resolve a dispute by agreement. The
essential feature of mediation is achieving an agreement between the parties. The mediator acts as a
facilitator who assists the two parties to negotiate and acts as a catalyst. The mediator must convince
the parties that it is in their interest to work together to settle disputes. The mediator must be
impartial, sympathetic and must establish credibility and trust with the parties.
Arbitration
Arbitration is an alternate to litigation. It originated as a method of resolving disputes, quickly and
without legal formality. This is the most commonly found dispute resolution method stipulated in
building contracts. No party is compelled to submit a dispute to arbitration unless both parties agree
to do so within the terms of the contract. Once agreed to the method of arbitration the dispute cannot
be litigated. Arbitration is the process by which a dispute between two or more parties is referred for
determination by another person or persons other than the court after hearing both sides in a
judicial/legal manner. The proceedings enable a determination by a knowledgeable person usually
from the discipline appropriate to the matter in dispute and received in a manner which reflects the
contractual and commercial aspects of the project. Arbitration is a private process and facilitates the
parties to keep the details of their dispute private.
Adjudication
This is a process of making an award by a procedure similar to arbitration. The parties are not bound
Page 29
at the time of making the appointment to accept the adjudicators award as final and binding and are
given time after its publication to do so The main difference between adjudication and mediation is
that the adjudicator does not look for a consensual compromise but judges the issues between the
parties and are bound to give a decision, whether it is acceptable or not by the parties concerned.
Litigation
The process of resolving a dispute by judicial settlement is known as litigation. However
reservations exist in the construction industries world over concerning litigious disputes. Particularly
in relation to time and cost and the slow pace of justice. Litigation nevertheless has a place in the
construction as much as any other methods of resolving disputes and parties must be able tot have
recourse to it
Alternate dispute resolution (ADR)
The dissatisfaction of the court base resolution and due to the nature of the construction industry has
given rise to a number of alternate methods of dispute resolution. The philosophy of ADR is that
people who appreciate the strength and weaknesses of their positions and the risk of legally binding
processes' and can amicability resolve their disputes outside a formal structured independent third
party. The reasons for emergence of ADR are due to accelerating pace of business necessitating the
disputes to be resolved without any delay. Further social, environmental and technological changes
have created disputes that the court is ill equipped to handle.
The term ADR includes all non-litigious forms of third party interventions such as negotiation,
mediation, mini trials, expert determination, and conciliation. The word alternate' is used in the
context of alternate to litigation.

Page 30
Chapter 6 Self assessment questions

1.0
List the most significant causes of disputes in a contract?
2.0
List and describe the dispute resolution methods used in the construction industry?
3.0
What is meant by arbitration? list the arbitration clause found in a two building contracts of
your choice and compare them?
4.0
What is meant by Alternate dispute resolution?
5.0
What are the various methods of ADR available and what is the reason for its' emergence in
the construction industry?

Page 31
7. Final Accounts
Final Payments
When the project has been completed according to the contract agreement the contractor submits his
final valuation indicating all his dues. This will include the final value of work completed any
variations extra work etc, which he is entitled to at the time of final completion after the certificate
of completion has been issued by the engineer
Under FIDIC conditions (1999) the procedure is as follows:
Within 56 days after receiving the performance certificate the contractor submits in 6 sets the
draft final account with all supporting documents in detail the following
The value of work done in accordance with the contract
Any future sums the contractor considers to be due to him under the contract
If the engineer and the contractor agrees on draft final statement then the engineer shall
deliver to the employer with a copy to the contractor an interim payment certificate for the
agreed parts of the draft final account
Discharge
If the final statement is agreed the contractor shall submit a written discharge which confirms
that the total of the final statement represent full and final settlement of moneys due to the
contractor.
Preparation of final bill
Issue of final payment certificate
With in 28 days after receiving the final statement and a written discharge the engineer
issues to employer the final payment certificate which states the following
The amount finally due
After giving credit to amount paid by the employer previously and there is no permanent
defects the final moiety of retention will be released with the final payment certificate
Discharge
Once the submission of the final statement the contractor give to the engineer a written discharge
confirming that total of the final statement represents full and final settlement of all monies due to
the contractor arising out of the contract. Provided that such discharge is given it is effective only
once all monies have been paid by the employer
Cessation of employers Liability
Once the final statement is issued and all monies paid the statement of completion is given at such
time the employers liability ceases to exist.

Page 32
Lecture 7 Self assessment questions

1.0
Identify the steps undertaken by the quantity surveyor in preparing the final statement
according to FIDIC 1999?
2.0
What do you mean by Discharge and statement of completion and cessation of employers
responsibilities in term of FIDIC 1999

Page 33

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Contractual Procedures

BTEC HND in Quantity Surveying & Building Economics

Cost control by Quantity surveyor

Interim valuations variations and fluctuations

Prime cost sums Provisional sums and Day works

International College of Business and Technology

International College of Business and Technology

International College of Business and Technology

Description of the unit

Summary of Learning Outcomes

International College of Business and Technology

Outcomes and assessment criteria

Preparation and evaluation of variations and

International College of Business and Technology

Contract Administration for the Building Team, Oxford: Blackwell Publishing.

International College of Business and Technology

Post contract duties of a Quantity surveyor

1.1 The roles of parties:

Collateral warranty/Nominated sub contract

International College of Business and Technology

The conversion of the estimate into tender is undertaken by the management at an

The code is based on ten ethical principles

Tendering at all levels conducted honestly

There should not be conflict of interest among parties

The confidentiality of all the information provided must be preserved

Must clearly define the contractual obligations of parties

Provide details of all work covered under the tender

Draw attention to any special conditions or obligations from normal practice

Must provide any supporting information required

Nominate person to provide necessary information

Should provide positive encouragement to tenderers allowing the option while

Invited-or pre-qualified tenders

Decision to tender by the contractor

The contractors estimating capabilities are scarce resource

Producing of tenders cost money

Genuineness of the invitation

The nature, the size and complexity of work

The regular clients may forget him/her

The type of work may not be suitable

Who the client is?

Who the architect and quantity surveyor is?

Attitudes of the parties?

The consultants track record in terms of dispute generation and resolution

To keep good relations resulting in the possibility of further work

The quantum of work to be carried out by his/her own work force

Number of nominated sub contractors (Administrative problems and target dates)

Only interested in a fluctuating price basis

Large degree of risk in attempting to predict what inflation is likely to be in an unstable

Important factors such as the contract period, starting date

whether any phased work exists

access to site, site conditions

working conditions all having a bearing on the suitability of the project

Number of contracts he/she engaged in

Economic, Industrial and political climate

Industrial relations (Labour productivity, industrial disputes and stoppages)

International College of Business and Technology

Chapter 1 - Self assessment questions

International College of Business and Technology

That you are a medium size construction company

At present you find yourself stretched to 75% of your capacity.

International College of Business and Technology

Post contract responsibilities of the parties

2.1 Employer/Engineers responsibilities

Selection of the contractor