Variations are an inevitable feature of construction projects. Almost every project of any scale will involve changes to the original scope of works, whether to accommodate evolving employer requirements, to address unforeseen site conditions, to incorporate value engineering proposals or to respond to design development. The proper valuation of those variations is one of the most important tasks of the quantity surveyor, and one of the most frequent sources of dispute on Middle Eastern projects.
FIDIC contracts contain detailed provisions on the valuation of variations. Under the 1999 and 2017 editions of the Red Book, variations are to be valued in accordance with Sub-Clause 12.3, applying contract rates where the work is of similar character and executed under similar conditions to work priced in the Bill of Quantities, applying contract rates as a basis for new rates where the character or conditions are not similar, and applying fair valuation where neither basis is appropriate.
The application of contract rates is in principle the simplest case but in practice gives rise to disputes. Whether the varied work is of 'similar character' to a billed item, and whether it is executed under 'similar conditions', are matters of judgement on which the parties' surveyors frequently disagree. The character of the work is generally a question of physical similarity; the conditions of execution include the location, the time of year, the access arrangements, the surrounding works and the resources required.
Where contract rates are used as a basis for new rates, the valuation requires the identification of the elements of the contract rate that remain applicable and the elements that need to be adjusted to reflect the changed character or conditions. This is a more complex exercise and requires the surveyor to understand the build-up of the contract rate. A blanket uplift or discount applied to the contract rate, without analysis of the underlying components, is unlikely to produce a defensible valuation.
Fair valuation, the third basis under FIDIC, is the residual mechanism that applies where neither contract rates nor a derivation of contract rates is appropriate. Fair valuation typically involves the application of market rates, often supported by analysis of the cost of labour, plant, material and subcontract, with appropriate allowances for overhead and profit. The exercise can be substantial and is frequently the focus of dispute.
Dayworks are a separate basis of valuation that applies in defined circumstances, typically where the work cannot reasonably be valued by measurement. Dayworks records must be properly maintained, signed by the engineer's representative on a contemporaneous basis, and supported by the rates set out in the contract. A dayworks claim that lacks proper records is unlikely to succeed regardless of the merits of the underlying entitlement.
The proper valuation of variations is a discipline that combines technical knowledge of measurement and pricing with careful interpretation of the contract. Our quantum experts at Construction Expert Witness have valued variations on projects ranging from luxury residential towers in Dubai Marina to oil and gas facilities in the Eastern Province of Saudi Arabia, and have presented expert evidence on variation valuation in arbitration proceedings across the GCC.