More Than 20% Variation

[Aiekin]

I'm working with the client side. Contractor submited variation amounting to 30M USD the original contract amount is 70M according to Contractor they have now the right to change the rate in the BOQ since the variation exceeds to 20%. I rejected their claim based on my understanding that we should follow the rate on the BOQ since non in the contract mention any provisions that when variation exceeded 20 % they can demand new rates and they can make new BOQ by deleting the original BOQ, e.g. in the original BOQ the is an item they priced as 1 lot(as unit) but when they submitted their new rate thethe unit became square meter . Can you give me some clarification on this matter.(we are using LS contract under Qatar GCOC). Thank you in advance. Regards Reggie

[Minyomei]

Dear Reggie,

Thank you for your question. I know i have sent a reply before. But for emphasis, please find my advise below.

If i am not mistaken, there is a Qatari law that support the described circumstance you are. This is article 16 of the Law No 8. Moreover, i am also aware that, in most of the government bodies' contracts, this provision is always included#

As mentioned in your question, i am aware that there is no such clause that; the Contract is entitled to demand a new rates if the Employer vary the works beyond the limit of 20%# But because of the provision of this law being the law of the land and by its superior status; it then prevails over every other condition of any contract in the land whether it is expressly mentioned or not# I guess this is the reason the Contractor is requesting for this rate revision# But let this be clear that, the law refers to such variation that resulted in varying the contract price beyond plus or minus 20%# It does not necessarily mean, that, it has to always be addition# It is applicable as well, if the Employer varies the work to the tune of the Contract sum becoming reduced more than 20%# This rule only created a constraints and limitation to serve as caution to Employers in Contracts not to overburden the Contractor with enormous variations that could create stress and or negative impact on their overheads and possibly profit margins particularly where, a contractor is kept on same work #because of scope addition#, same rates for more than necessary or where a contractor has is scope reduced substantially without compensation or recovery for any anticipated overheads contributions and also profit targeted#

Now, one thing this law did not tell us #which is the point of contention, to me# is how to handle the resultant action of the recourse#  We know by this law, that, once the limit of 20% is exceeded #plus or minus#, then, something has to be done to effect that the contract value is also adjusted to reflect this circumstance# This does not necessarily therefore means that the rates has to be changed althrough# The Law only says, the condition must change from the original condition once the cap is exceeded# The Condition could either be time and or money# Here, what i suggest is that, the works would be valued at same contract rates with the new quantities as variation of addition or omission #as it may be## Then, in addition, if the 20% excess is omission, you can calculate and pay for the loss of any overhead or and profit #percentage# as could be justified or determined based on the original contract price# The percentage to be applied only on the amount in excess of the 20% reduced price# i#e if the contract sum is QR 1,000,000 and after the variation #valued at contract rates#, the contract sum was reduced to 700,000# It then, means that, the Employer can reduce up to 800,000 #1,000,000 minus 20% of 1,000,000 i#e 1,000,000 minus 200,000 = 800,000# and then, the excess for which the Employer cannot reduce on same contract condition is 800,000 minus 700,000 = 100,000. So you would apply any percentage adjustment based on this clause against only 100,000.  And if the excess of 20% is addition; depending on the items of the works; further additional overhead could be determined using the original contract sum and its overhead content #percentage# and applying it to any exceeded total sum #net additions over the 20% cap only#.

I hope this helps.

Femi