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Provisional Items in Lumpsum Contract &its implications

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Dayanidhi Dhandapany
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Dear All,

I need some experts advice on the provisional Items in lumpsum contract, once the provisional item let us say for an example, False ceiling works has been finalized by the client and awarded the works under the NSC (FIDIC 1987)to a subcontractor and of coure the main contractor has quoted let us say only 5% as Overhead and Profit(OHP)for that item in the provisional items at the time of maincontract tendering and during the execution of the false ceiling works by the Nominated subcontractor, let us say there is a situation whereby some more additional quantities of works to be done than the agreed false ceiling areas which is not shown in the tender drawings, in this situation whether the maincontractor is allowed to take 15% as overhead and profit as per FIDIC 1987 under the variations clause or else the consultant has the right to deny the main contractor and force them to take only 5% as OHP as mentioned during the tendering stage under the provisional item.

Thanking in anticipation.

Best Regards

Daya

Replies

Deepak Sharannavar
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Posts: 12
Dear Daya,

I agree with comment by soumendu that you are not entitled for 15% oH & p as it is not variation to your scope of work. Usually what we follow is that any variation to nominated S/c works, the Nominated s/c will get his OH & profit seprately using the % as quoted in appendix to tender for variations to s/c works. Over this we as a main contractor will get OH & P percentage as quoted percentage in BOQ for PS items.

For example: The contract value is 1000. Cost of variation amount is 50. over this S/c OH & p = 15%. So total cost of provisional sum = 1057.5.
The maincontractor will get OH & P of 5 % only on this value (approx 1110)since its variation to him and its only a co-ordination charges oH & p percentage for you This is because you are getting paid for change in value of PS and not for executing the job yourself.

Deepak.
Dear soumendu,

It depends on the Conditions in the Contract. In general, the contract is between two parties. The Engineer is the responsible entity that issues instruction to the Contractor to complete the provisional sum.

Unless you have specific clauses stating that you have extra % for the nominated contractor, the % stated in the appendix would be used.

Best Regards,

Samer
soumendu ghosh
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Groups: Building Works
Hi Daya

In my opinion, as per Cl.59.4(c), the Main Contractor is entitled for a sum being a % rate of actual price of the P.S items in respect of all other charges and profit. In your case I presume that you have signed a Contract wherein the Appendix states that ’% for adjustment for P.Sums’ is 5%.

If you refer to Cl.58.2(Use of Prov.Sums), it clearly states that if the P.Sum is instructed directly to the Main Contractor, then, it will be traeted as a ’variation’ to the Contract and shall be dealt in accordance with Cl.52. However, if the P.Sum is instructed to a Nominated Sub-Contractor, the sum to be paid to the Main Contractor shall be in accordance with Cl.59.4(c)-described above.

I think you are not entitled to any upliftment in the profit % on P.Sum Items on this basis.

I would appreciate comments from other members.

Soumendu
Hi All

The main thing that concerns planners in respect of Provisional Sums is whether they are "defined" or "undefined".

A defined PS is described in sufficient detail to be included int the programme.

An undefined PS has not enough detail to be included in the programme.

see SMM7 10.3.

If an undefined PS is ordered then the work is added to the programme and any extra time results in EOT.

Clients often set down defined PS when they should be undefined.

So check your contract price to see what has been included and what should have been included in your programme.

After all that I gave up bean counting years ago to become a delay analyst - I missed the planning bit altogether.

Best regards

Mike Testro
Deepak Sharannavar
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Posts: 12
Dear Planners,

In view of the discussion i would like to share some of the most important things as a planner should note.

1. Planner has to keep a provision in his master schedule for the execution of the PS items as they also form part of the contract. This will be based on his assumption / previous exp. After the nomination of ps the s/c has to agree to the duration of wrk execution. Else you can raise your concerns of schedule befre entering into a s/c aggrement with him. If not then as per FIDIC he will be deemed to be a s/c to main contractor and all risk of timely completn of project will be transfered to main contractor. Hence s/c should agree to the programme & this is very imp to cover yourself frm claims.
2. Provisional sum items can be of two types. a. client provided ps and contractor provided ps. As a main contractor i may be specialist in civil wrks only & may not be doing a specialised MEP, aluminium works, so to arrive at a contract value i can keep some amt as prov sum for which client will nominate a s/c. So basically the drawings etc being not ready during tender stage & hence prov sum is kept is not true in all cases.

guys keep writing and continue some good discussions.

Deepak.
Dear Dayanidhi,

I have reviewed FIDIC 1999 clause 13.5 Provisional sums and have found a "and/or" as follows:

The ENGINEER may instruct the Contractor

(a) Work may be valued under clause 13.2 "Variation Orders"

and/ or

(b) Work may be valued as the actual amount paid with the percentage stated in the appendix for provisional sums.

I have always applied the percentage for the provisional sum specified in the appendix. And when the value of work exceeded the budgeted amount in the project BOQ, I have treated the remaining works as a variation order. I did not encounter cases where we had significant differences between the budgeted amount and the value of the actual work completed. But the FIDIC states that it is up to the Engineer to select the method of compensation.

Best Regards,

Samer
Deepak Sharannavar
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Dear Daya,

As far as my view goes on the subject, Check the tender drawings issued to nominated s/c wheather these changed items were included in their tender drawings / quotations/ boq even though not present in your drawings. If they are then it means he has agreed to work for that same amount for that scope and you are eligible for only 5 % oh&p. If not then the client nomination letter for certain cost of work of nominated s/c is according to your tender drawings & scope mentioned in your drawings and boq. then you can claim it as a variation to the contract and you are eligible for 15% oh & p as varation of work cl 52.1. Usually since your invovlment is only extra co-ordination work for this variation it does not considerably increase your oh the client would initially deny it but since it is your right you can agree some lumpsum amt.

Deepak.
Project Control Engg.
Dubai,
UAE
Dayanidhi Dhandapany
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Dear Catalan,

Thanks for your comments and confirming that i am eligible for 15% OH&P as per FIDIC in this case. Do you have any concrete evidence to show it as a proof? please send me any details to my email ID: plannerdaya@yahoo.com

Thanking in anticipation.

Cheers!!!

Daya
R. Catalan
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Hi Daya,

I guess, the 5% is not the same OH&P as uplift distributed to your direct costs. Normally in building services the OH&P ranges from 8-15% (average, incldg MEP)

Maybe the 5% is your administration cost on the Subcontractor as assigned by the Client. If you have additional quantities and those were not shown in the BOQ, you deserve to get your % uplift OH&P.

Cheers,
R. Catalan

Gareth Evans
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Hi Daya

When looking at a Provisional Sum (PS) by definition it is an allowance made in a tender or contract for particular work for which the scope could not be finalised before the tendering or signing of a contract. This allowance includes the total cost of the supply and installation, which will have to be demonstrated ie invoices for materials, purchases etc before the final cost of the PS is asertained which maybe the same as, less than or greater than the cost stated in the contract. To this final sum is applied the OH&P% which is normally listed in the Annexure. I would think it would be highly unlikely that you would be able to get the 15% normally applicable to a variation to the contract and that the client would be in their rights to deny the claim simply on the basis that it is a PS not a variation.

hope that helps

cheers

Gareth
Skan Bu
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Hi planners,

Do planners take into account in the programme for provisional sum in tender stage?

What happened if the provisional sum is spent when into contract, how do the planner/progress monitor knows whether the actual time taken to do the "provisional sum" work meet the planned duration(if planned in the 1st place)?

Do provisional sum affect planning? how do planner explain the effect of the work to the programme in the case of expeding proviional sum? say 50%, 150% or even 300%
Do planners involve in claim & assessment or is it a bean counters duties?
Shahzad Munawar
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Brad

Nice to read your comments seems factual to some extent
J Venkatesh PMP P...
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In my opinion the name "Provisional" itself states that the client doesnt sure about the quantum/cost of works and that s da the reason t was kept as provsional (ie Approximate sum)....moreover no drawings would have been finalised during that time..if t was finalised why t was not included in the contract..so client has the right to change/finalise the drawings for those provisional items..

Ok...now, the question will goes to acccepting/sticking the %age quoted by contractor for those provision sum itmes,upto wat extent (???) is a valid point from you...it shud not be like a change in the proviusional sum from 100$ to straightaway 1000$....if the change is huge, then the contractor may play with client for a %age hike in the co-ordination charges (prov sum) towards the diff in prov sum from the tender provisional sum to the revised amount..

I think u may use the points mentioned in FIDIC under the clause 12.3 to support your claim...

let us welcome experts comments...

Venkat
Brad Lord
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im quite happy being a money grabing contractor, careers dont work for me happy taking the money and running away
Dayanidhi Dhandapany
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Brad,

Thanks for your opinion but one can’t stick with planning always, should be thinking of moving upwards. Anyway if you know something to prove my claim (regarding the 15%) is worth for it send me some supporting stuff to plannerdaya@yahoo.com

Cheers!!!

Daya
Brad Lord
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Daya

why dont you leave that sort of problem to the QS, that is after all their job as bean counters, dont understand why some planners worry about these things, just my opinion, unless you want to become a PCM or PM