Civil Engineering Reference
In-Depth Information
of the impact of the variation on the work that is still to be done. Crucially, clause 63.4
providesthattheonlyrightstheEmployerandContractorhaveinrespectofcom-
pensation events are changes to the Prices, the Completion Date and the Key Dates.
It is beyond the scope of this chapter to discuss all of the various provisions based on
the different Options; however, the aim of the procedure is to ensure that compensa-
tion events are assessed and agreed as early as possible, to avoid the traditional final
accountdisputewhichcommonlyincludesalargenumberofdisputedvariations.It
should be noted that certain amendments were made to clause 63 (both in the core
clauses and in the Main Options) in the 2013 edition of the NEC3.
See also Sections 4.5.2 and 5.2.4 in relation to the valuation of changes as compen-
sation events under the NEC3.
As can be seen, the provisions for valuing variations in the SBC, the SBC/DB and
theNEC3areextremelydetailed.heyhavedevelopedoveranumberofyears.Similar
provisions are to be found in a number of the other standard forms of building and
engineering contracts, though it is open to the parties at the time of contracting to
agree any method they choose for valuing variations. Where the contract does not
provideamechanism,thenvariationswillrequiretobevaluedonthebasisof
quantum
meruit
, see Section 8.4.
8.2.6 Fluctuation in cost
In concluding a price for any building contract, there is a risk to both the contractor
and the employer that the costs involved in constructing the building can fluctuate
dramatically due to changes in economic factors entirely outwith the control of either
of them. Such economic factors can include inflation, which can affect the price of
both labour and materials, and also changes in tax legislation.
The risk to the employer is that costs decrease and as a consequence they end up
paying the contractor far more than the building actually cost to construct. On the
other hand, the employer will have budgeted for the contract price prior to concluding
the contract, so this is probably more a case of a disappointment than a risk.
The risk to the contractor is that the costs increase, resulting in a diminution in
profit or, more seriously, the constructions costs exceeding the contracted price. Such
an eventuality is not in the interest of either the contractor or the employer as it can
result in the contractor having difficulties completing the building and, in extreme
cases, may give rise to the contractor trying to cut corners to minimize costs.
Fluctuations in cost are a particularly serious risk where the contract price is sub-
stantial or the contract period particularly lengthy. Without any provision in the con-
tract to deal with such fluctuations in cost, both parties would be bound by the price
agreed. Assessing the potential effect of fluctuations can be extremely speculative and
factoringtheriskintothepricemaynotprovidevalueformoneytotheemployer.
In an effort to minimize the risk of fluctuation in cost, many of the standard forms
of building contract provide a mechanism for adjusting the contract price to take
account of increases or decreases in cost during the contract period. Such provisions
can be found in clauses 4.21, 4.22 and Schedule Part 7 of the SBC, and clauses 4.19 and
