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Lump Sum Contract Reductions

7 replies [Last post]
solomon teklewold
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Dear Planning Planet Participants,

I have one question in relation to Lump Sum Contracts. The Contract was a Lump Sum type Contract for Design and Construction of a road project. Pursuant to the Contract, three control points were specified in which the envisaged road shall pass through.  During the Contractor was carrying out the design of the road, The Employer has changed the intermediate control point which then had resulted in a significant reduction of the total length of the project. Accordingly, the Proect Administrator (the Engineer) determined that the Lump Sum Contract amount to be decreased pro rata with the reduced length of the road in consideration of the fact that the reduction in length has been brough by the Employer and the Contractor has nothing to do with same. Consequent to that, the Design-Builder has disputed the Engineer's determination and requested for the payment of the total Lump Sum Contract amount regradless of the length reduction. Please comment on the Engineer's deternination and Contractor's objection thereof.    

Regards,

Solomon 

Replies

Mike Testro
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Then the previous answers from Tom and Zoltan are correct.

Don't forget to add for the extra design costs and setting out.

solomon teklewold
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Dear Mike,

The Conditions of Contract is the FIDIC CONDITIONS OF CONTRACT FOR DESIGN-BUILD AND TURNKEY, FIRST EDITION 1995 Version. 

Regards,

Solomon 

Mike Testro
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What contract are you working under

Tom Boyle
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Solomon,

You are describing a contract dispute without even describing the contract form, particular conditions, or governing law.  On the face of it, I'm surprised the Engineer was able to unilaterally impose a deductive variation of this magnitude. 

Under FIDIC contracts, the Contractor does have some specific rights, but he is not guarantied that the price will never be reduced by variation.  So demanding 100% payment for ~75% of the originally-contracted work doesn't seem exactly "fair."  I suspect that the general conditions under FIDIC don't address such a drastic reduction since the balance of variations on 99++% of projects are additive.  On large international projects where I've worked, we made sure our (non-FIDIC) EPC terms included caps on scope variation (generally 10% either way by cost).  Going above that would require opening up the contract for (renegotiation and) Amendment - which served the needs of both parties.  If a detailed review of the contract conditions doesn't reveal a solution in your case, then it sounds like an early case for the Dispute Board.

good luck, tom

Zoltan Palffy
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same answer the contractor did not bid it by linerar foot. 

solomon teklewold
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Dear Zoltan Palffy,

Thank you for your comment.

The situation was like as follows. The road as per the original contract was planned to connect point A to point C through an intermediate control point B (i.e., A-B-C). However, immediatly after the Contract was signed, the Client changed his mind due to resettlement plans and ommitted the intermediiate control point B and changed it to another point, say point D but still the road will remain the same and connects point A to point C. But, such change has reduced the originally envisaged length by about one-fourth of the total length. 

In view of the above the Contract Administrator then considered it as Variation of the contract and accordingly revised the lump sum amount pro rata with the length reduction which the Contractor has disagreed to accept. 

The aforesaid was what exctly happened. 

Regards,

Solomon 

Zoltan Palffy
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you cant do that you did not bid on the road by linear footage.

for example you have a to build a bridge and the road goes over the bridge. So you deduct the road using the linear foot method what about the price of the bridge ?

You still need to be reasonable and come up with a fair way to give back a credit for the road work. Look on this site for standard pricing for road work by the foot or mile and use that.

Or if you were bidding a road job that was by linear foot what would the price be per liner foot instead of lump sum ?