| Date | 18 June 1997 |
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| Judgment | Mitsui Construction Co Ltd -v- The Attorney General of Hong Kong, 10 Feb 1986, 33BLR7 |
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| The Issue | Pricing of works where quantities alter from billed quantities. |
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| Implication |
Even in the absence of variation instructions, a contractor is entitled to revised rates to reflect the conditions encountered where measured quantities differ from billed quantities. |
printThe use of bills of quantities differs substantially between building and civil engineering projects. On building projects, whilst it is common to measure sections of the bill on a provisional basis, the general intent of the standard forms is that quantities should be accurately and finally measured in the bill issued for tender, and assuming a perfect world, these will only change if the architect issues an instruction to vary the works. In civil engineering the approach is quite different, the assumption being that the tendered bills of quantities are no more than estimates, and the actual works carried out in their entirety will be remeasured. Opinions will vary as to which is the preferred approach, but it is clear that both industries are plagued with disputes concerning changes in quantities and the proper way to measure and value these. Perhaps the most significant case to reach the courts dealing with this subject was in 1986, when the Privy Council gave their decision in the case between Mitsui Construction Co v The Attorney General of Hong Kong. Mitsui had entered into a contract with the Hong Kong government to undertake major civil engineering works required to improve Hong Kong's water supply. The project included the excavation and construction of a tunnel over 3km in length and 3.6m in diameter. The government had obtained certain geological information which had been described in the contract documents, but it was common ground between the parties that the nature of the ground through which the tunnel was to pass could not be predicted accurately in advance, but would only be discovered as excavation proceeded. Accordingly the contract specified five different types of lining suitable for different ground conditions, and it would be the engineer's responsibility to decide which lining to use as work proceeded. As might be expected the contract included bills of quantities priced by the contractor with reference to estimated lengths of tunnel unlined and lined with each of the different types of lining. Unfortunately these estimates tuned out to be wildly wrong. The billed length of tunnel to be left unlined was 1885 metres, but in the event this was only 547m. The billed length of tunnel to be lined with the heaviest and most expensive type of lining was 275 metres, but the length so lined turned out to be 2448 metres. These changes in quantities were not the result of any variation order given by the engineer, but simply the conditions encountered on site. As a result of these differences work on the tunnel took very much longer than had been allowed in the contract. The initial two year contract was eventually extended by 784 days. Mitsui had been paid for the works as executed at the rates in the bills of quantities, but they claimed that they were entitled to an adjustment of rates to account for the time and disruption involved. The contract was a Hong Kong government form, but in all material respects it followed the ICE or FIDIC format in clauses dealing with these matters. In front of an arbitrator, the contractor was successful in its argument that it should be paid for the extra time to cope with the ground conditions, and that the changes in quantities should be construed as if they were the result of variation orders. On appeal to the court this was overturned. Undaunted the parties went off to the court of appeal, where the matter was fudged with a decision which satisfied neither party. Finally the matter fell to be decided by the Privy Council, the final court of appeal for Commonwealth jurisdictions, as Hong Kong then was. The Privy Council considered the way the contract worked meant that tenderers had two options. They could either gamble on favourable ground conditions and risk a large loss, or conversely they could anticipate the worst case, where in the event that reasonable conditions were encountered, the government would be the losers. It seemed to the court somewhat improbable that a responsible public authority and engineering contractor tendering for the execution of public works worth many millions of dollars should deliberately embark on a substantial gamble. This thinking coloured their judgment in interpreting the contract. Famously, they said that the interpretation to be sought was one which would attribute to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis. If only this were a rule of law that could be relied upon more generally, there might be much less construction litigation. The final decision was that the differences between the measured quantities and the billed quantities were such as to give jurisdiction to the engineer to agree a suitable rate with the contractor, if he was of the opinion that the nature and amount of these differences were such as to render the bill rate for any item unreasonable or inapplicable.
CJ-9722
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