DRAFT DOCUMENT

The Public Works Contract

Practical Application of Clause 10.6 – the Valuation of Compensation Events

Mark Wearen MSc MSCSI MRICS MCInstCES

February 2020

www.staveleyandpartners.ie

DRAFT DOCUMENT

April 2015

• Established 0ver 40 years• Specialist Consultancy

• Claims Identification, Drafting and Rebuttals• Contract Specialists• Project Controls and Post Contract Support (ER Role and Project Board)• Risk Management and Claims Risk Assessment• Expert Witnesses• Dispute Resolution Management – Mediation/Conciliation/Adjudication

• Engineering and Building Projects for Public and Private Sector Clients• Based in Dublin with extensive international experience

www.staveleyandpartners.ie

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April 2015

The Public Works Contract – Clause 10.6 and the CWMF

CWMF Document Ref GL/1 – Glossary (Note : GN-3.1-v1.0 28-07-09 – deals with implementation phase)

(see the Form of Tender and Schedule Part 1 Section K…Compensation and Delay Events)

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April 2015

The Public Works Contract – Clause 10

PW-CF1-v2.4-05-06-19

Clause 1.2.1

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April 2015

The Public Works Contract – Clause 10

10.1.1 (2)

If the Compensation Event leads to an increase under 10.6, the extent of the increase shall onlytake effect to the extent that, inter alia, the Contractor having made ‘all reasonable efforts’ toavoid and minimise the adverse effects of the Compensation Event

10.1.2

The Contractor’s sole remedies for Compensation Events shall be those stated in the Contract –See Schedule Part 1 Section K for a list of Compensation Events – note Event 16 is a ‘breach’

*

Thus the valuation of Breaches ‘delaying the Works’ is subject to Clause 10.6

*FTS-1-v2.3 06-06-2018

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April 2015

The Public Works Contract – Clause 10.6 – Purpose

PW-CF1-v2.4-05-06-19

Definition of a Variation : scope change involving additional, substituted or omitted work = Compensation Event

Definition of Value : additional payment entitlement assessed in accordance with the Valuation Rules under the Contract (including Profit)

Definition of Cost : expenses incurred including overheads (but excluding Profit) unless otherwise defined in the Contract (e.g. FIDIC – ‘expenditure reasonably

incurred’ excluding profit)

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The Public Works Contract – Clause 10.7 – Cost v Value & Coverage

PW-CF1-v2.4-05-06-17

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The Public Works Contract – Clause 10.6 : the Valuation Rules

PW CF1 v2.4 05-06-2019

If ‘no’

Conditional Alternative to 1,2, and 3

If ‘no’

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April 2015

The Public Works Contract – Clause 10.6 : the Valuation Rules

Employer Designed Works – Pricing Document is a BoQ : Rates

FTS1-V2.3 06-06-2018

• The Pricing Document should have been prepared in accordance with the prescribed Method of Measurement

• The provisions included for within the rates inserted in the pricing document should be reflective of the actual work to be constructed under the Contract and the conditions reasonably contemplated by the Tenderer taking account of the Works Requirements and any Contractor’s Proposals

• Where the BoQ does not reflect the Works Requirements, a Compensation Event may arise

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April 2015

The Public Works Contract – Clause 10.6 : the Valuation Rules

Employer Designed Works – Pricing Document is a BOQ : Rates

General Item Coverage :

ARM 4 2009 Section A Part 6

• This item coverage is typical of Standard Methods of Measurement• Thus rates included in BoQ’s prepared using ARM4 are deemed to include for the above items• Provisions reflect Actual Work required and Conditions under which the Works are to be carried out• Site Overheads (i.e. Preliminaries) are typically included for in their own BoQ items (not in the works rates)

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April 2015

The Public Works Contract – Sub-Clause 10.6.1 : Bill Rates Apply

PW CF1 v2.4 05-06-2019Wates v Bredero (1993)

• ‘similar to work for which there are rates in the Pricing Document’ AND ‘to be executed undersimilar conditions’

• Not either / or both

• SCSI Guidance Note on Valuing Change : Section 3.01 deals with ‘Changes in character’ and Section 3.02 deals with ‘Changes in conditions’• Character – change of : materials; method of fixing; background of other work• Conditions – Varied Depths; Seasonal Variation; Completed Areas; Varied Access Constraints

etc• Irrespective of what they expected, suspected or hoped for, Parties must look to the Contract to

establish what was required under the Contract unless the Contract contains an ‘ambiguity or peculiarity’ (Wates v Bredero 1993)

• This is the bargain the Parties freely entered into….irrespective of the sufficiency or otherwise of the rates

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The Public Works Contract – Sub-Clause 10.6.2 : Bill Rates STILL Apply

PW CF1 v2.4 05-06-2019Chartbrook v Persimmon (2009)

• ‘not similar to work’ OR ‘is not to be executed under similar conditions’

• Test of ‘reasonableness’ applies if either one of the two conditions applies

• What is ‘reasonable’ ? ‘Just, rational, appropriate, ordinary, or usual in the circumstances’ (Cornell Law School LII WexLegal Dictionary)

• Who decides ? The Reasonable Person – a Hypothetical construct meeting the legal standard ’who exercises the degree of attention, knowledge, intelligence and judgement…acts sensibly, does things without serious delay, and takes proper but not excessive precautions’ with ‘regard to all the circumstances including the terms of the Contract and having all the background knowledge which would have been available to the parties’ (Black’s Law Dictionary 4th Pocket Edition Page 626; Chartbrook v Persimmon (2009); Keating on Contracts 9th Edition, para 20-183)

• Sufficiency or otherwise of the rates is not a test of reasonableness

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The Public Works Contract – Sub-Clause 10.6.2 : Bill Rates STILL Apply

PW CF1 v2.4 05-06-2019 & RIAI Yellow Form 2012 (with Quants)

Vs

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The Public Works Contract – Clause 10.6.3 : Fair Valuation

PW CF1 v2.4 05-06-2019

• Bargain between the parties does not extent to work not covered by rules 1 and 2• Rates under 10.6.1 and 2 include all items typically included in a unit rate including Overheads

and Profit• Similar work – see comments on what is similar work under 10.6.1 above• No mention of similar conditions• However Fair Valuation under 10.6.3 states ‘based’ v ‘use’ under 10.6.1 and 2 – reasonable to

consider conditions as well as character• No definition of ‘rates’ - can be unit rates with a defined item coverage or resource rates

applied to time/hours and/or quantities• Rates for similar work ‘in the locality’, if available – reasonableness again !• What is a ‘Fair Valuation’ ?

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The Public Works Contract – Sub-Clause 10.6.3 – Fair Valuation

➢ The Contract does not define the term ‘Fair Valuation’➢ For a valuation to be ‘fair’, it has to contain all the elements ‘ordinarily found in a

contract rate or price’➢ Unit rates are deemed to include for item resources, overheads and profit (see ARM4

guidance note)➢ If there are no applicable unit rates, a cost based valuation may be required➢ Typically a Fair Valuation can be described as a valuation based on reasonable cost

properly incurred plus profit – but not ‘cost plus’➢ Based on actual cost rates therefore current rates may apply which take account of

price variation➢ Can also be a fair market rate (as opposed to ‘cost’)

Weldon Plant v Commissioner New Towns (2000) re; Fair Valuation definitionLaserbore v Morrison Biggs Wall (1993) re; Fair Market Rate

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The Public Works Contract – Sub-Clause 10.6.3 – Fair Valuation

Substantiation Typically Required for a Fair Valuation

➢ Contemporaneous Records for labour/ plant/ equipment/ materials/ other resources➢ Current Market Rates or Actual Costs➢ Adequate Substantiation of Supplier/Sub-Contractor Costs➢ Quantity take-offs➢ Invoices and Delivery Dockets (where/when available)

➢ Parties compiling such valuations must ensure that there is sufficient particularisation and substantiation to enable the assessing party to understand, and challenge where appropriate, the basis of the valuation

➢ Parties assessing such valuations must remember that a Fair Valuation does not have to be so exact as to be ‘Actual Cost’ and that Contactor’s are not required to substantiate their assessment of a Fair Valuation to such a degree of exactitude which is usually (practically) unobtainable in a Construction Context (see Clause 10.3.1(2))

Ascon v Alfred McAlpine (1999) re; degree of substantiationLilly v Mackay (2012) re; degree of substantiation and role of the Design Team

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The Public Works Contract – Sub-Clause 10.6.4

PW CF1 v2.4 05-06-2019

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The Public Works Contract – Sub-Clause 10.6.4

• Basis of rates is entered by the Contractor at Tender Stage in the Form of Tender and Schedule Part 2• ER ‘may conclusively direct’• Relies on hours – but can be ‘hours worked or to be worked’ – indicates ‘Cost’ can be ‘Prospective’ ?• Materials recovery is based on the ‘cost of materials’• Plant recovery is based on ‘the cost of plant reasonably used’

Conclusive :

1. Determinative; beyond dispute or question. That which is conclusive is manifest, clear, or obvious. It is a legal inference made so peremptorily that it cannot be overthrown or contradicted

2. Authoritative; decisive; convincing

1. https://legal-dictionary.thefreedictionary.com/conclusive2. Black’s Law Dictionary - Forth Pocket Edition; West; 2011

DRAFT DOCUMENT

April 2015

The Public Works Contract – Sub-Clause 10.6.4

Rates are intended for use only when there is a Conclusive Direction….

• Contractors often utilise these rates when valuing Compensation Events without such a Direction

• Employers are not obliged to accept the use of 10.6.4 rates for Compensation Events which are not the subject of such a Direction

• They can be used by agreement• They are inclusive of Overheads and Profit• They are rarely the subject of a Conclusive Direction

DRAFT DOCUMENT

April 2015

The Public Works Contract – Clause 10.6 : Notes to Consider

• PWC Suite of Contract Forms PW CF1 to 6 – Clause 10.6 is the same in all versions with the exception of the Short Form PW-CF6 (Clause 4.6 refers to ‘cost’ rather than ‘fair valuation’)

• In D&B, the use of milestones or building/works elements means that there may be no unit rates – in such circumstances, 10.6.3 may be the only solution in the absence of either agreed amounts (e.g. quotations) or conclusive directions to use 10.6.4

• Price Variation - the Contract is a Fixed Price Lump Sum however the Valuation Rules permit a Fair Valuation where 10.6.1 and 2 do not apply – this could include increased costs

DRAFT DOCUMENT

April 2015

The Public Works Contract – Clause 10.6 : Reference Documentation

• SCSI Guide to Valuing Change – 1ST Edition May 2016

• RICS – Ascertaining Loss and Expense; RICS Guidance Note UK; First Edition July 2015

• RIBA – Good Practice Guide: Assessing Loss and Expense; Jeff Whitfield 2013

• CECA Schedule of Dayworks Carried Out Incidental to Contract Work including Rail Items Volumes 1 and 2 (October 2019) – note the previous version is dated August 2011 https://www.ceca.co.uk/publications/

• Construction Contract Law, 3rd Edition; John Adriaanse; Palgrave McMillan

DRAFT DOCUMENT

The Public Works Contract

Practical Application of Clause 10.6 – the Valuation of Compensation Events

THANK YOU

Mark Wearen MSc MSCSI MRICS MCInstCES

February 2020

www.staveleyandpartners.ie