| Date | 31 October 1996 |
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| Judgment | St Modwen Developments Limited -v- Bowmer and Kirkland. 20 August 1996 |
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| The Issue | Valuation of profit and attendance items on provisional sums. |
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| Implication |
Normal rules for fair valuation of work instructed in expenditure of provisional sums will apply where additions to the provisional sum are erroneously itemised as if it were a prime cost sum. |
printRecently I was asked to give advice through the RICS to one of its members concerning the payment of profit and attendance on domestic subcontractors engaged in the compliance with an instruction to expend a provisional sum. At that time I was unaware of any case law addressing this issue but this has now been changed with the decision delivered on 20 August 1996 in the case of St Modwen Developments Limited -v- Bowmer and Kirkland Limited which I am pleased to say confirmed my earlier advice as correct. The case concerns the improper but common practice of a client seeking to obtain all the benefits of nominating a subcontractor whilst at the same time trying to avoid the risks. A provisional sum is included in the tender documents for works which are to be undertaken by domestic subcontractors. The tenderer is to price his allowances for cash or trade discounts, profit, and general and special attendances. The effect is therefore to give the provisional sum all the appearance of a prime cost sum. This is a practice which is commonly adopted on specification and drawings based contracts and also on the JCT Intermediate Form of Contract. In the St Modwen case the provision was adopted on a contract based on JCT 80 where bills of quantities were apparently to have been prepared in accordance with SMM 6. Now contractors are usually are quite keen to win the work they tender for and the best means of achieving this is usually to put in the lowest price. Accordingly when asked to price profit and attendance on provisional items they will usually put the words 'inc' or 'included' ensuring that not one penny is added to the tender sum. A dispute at final account stage is quite predictable. The employer will say that the contractor is entitled only to the net cost of engaging the domestic subcontractor as a consequence of the architect's instruction to expend the provisional sum. The use of the word 'included' in the bills means that profit and attendance items are included elsewhere and no further sums are payable. The contractor, on the other hand, will of course say this is nonsense. He will argue that the term 'provisional sum' is properly defined as a sum provided for work or for costs which cannot be entirely foreseen or detailed at the time that the tendering documents are issued. The word 'included' therefore means included in the provisional sum, not included elsewhere in the tender amount. In short, the contractor cannot be expected to use a crystal ball to assess the likely level of profit and attendances on work which, being a provisional sum, is unknown at the date of tender. Returning to Modwen, the parties thought they might save substantial costs by referring all of this to an independent quantity surveyor. If this is a foretaste of what statutory adjudication might bring then we are all in for considerably more, not less, expense. Unfortunately the independent quantity surveyor hopelessly missed the point. He considered the provisional sum should be treated as a prime cost sum and accordingly no further adjustment should be made to the final account beyond the prime cost of the subcontractor concerned. It would seem that this misguided approach has in part fuelled further expensive legal costs rather than avoided them. Unable to accept the findings of the independent quantity surveyor, the matter was soon drawn into arbitration in front of Mr Harold Crowter. Mr Crowter had no doubt about the distinction between a provisional sum and a prime cost sum. He was clear that SMM 6 does not provide for provisional sums to be given for works to be executed by domestic subcontractors, and he considered, on the evidence, that the whole reason for such a departure was the client's wish to have all the benefits of nominated subcontractors without the risks. He held that the contractual effect of any additions to or deductions from provisional sums was merely to amend the magnitude of the provisional sum itself. As far as valuation of the work was concerned, the expenditure of the provisional sum would be subject to an architect's instruction under clause 13 of the Conditions, with the subsequent work falling to be valued in accordance with clause 13.5. Therefore in the same way that a contractor would not be in a position to know and therefore price for preliminary type items in respect of a provisional sum for, say, contingencies, a contractor in these circumstances could not be deemed to have allowed for such preliminary items in their tender. To conclude the story thus far, the Official Referee's court have upheld Mr Crowter's award on appeal. The court's position is unequivocal. If it was not open to the arbitrator to reimburse the contractor its profit and associated attendance costs on the basis of a fair valuation under clause 13, then the arbitrator would be entitled to treat the valuation of the domestic subcontractor as if it were a valuation of a nominated subcontractor. In either event the employer would fail on appeal. This case has also usefully dealt with the recovery of company overheads during prolongation to which I will return in next week's issue of Contract Journal.
CJ-9636
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