| Date | 22 October 1997 |
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| Judgment | Dudley Corporation -v- Parsons & Morrin Limited (1959) Building Contract Casebook 41 (1984), Building Industry News (17 Feb. 1967) |
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| The Issue | Under pricing of unit rates in bills of quantities. |
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| Implication |
A contractor may be bound to low rates in bills of quantities even where the final account quantities substantially increase. |
printAssume for the moment that you are a PQS faced with the following problem. The project is the refurbishment of a listed building to provide an extremely high quality home for a wealthy industrialist. The bill of quantities contains an item for the supply and installation of an intricate moulded hardwood skirting, and the rate in the bill of quantities is £6 per linear metre. Although this was not spotted during the tender appraisal, it is obvious to you that this rate is far too low and indeed a reasonable price for the work might be closer to £60 a linear metre. To compound matters further the quantity stated in the bill is 20 linear metres whereas the final measured quantity will in fact be closer to 400 linear metres. What rate do you apply? Certain tough minded quantity surveyors might consider that there are obvious economies of scale now to be applied as a consequence of the massive increase in quantities. It will be more cost efficient to run substantial lengths of this moulded timber and therefore in arriving at a new rate some saving on £6 per metre will be expected. He will start his bargaining at £4.50 per metre. He will argue vehemently that he is not interested in the true cost to the contractor of undertaking the work. He believes he has a contract for the provision of these skirtings at £6 per metre and need only take into account the effect that any change of circumstances in the carrying out of this work may have upon that price. Our second quantity surveyor considers himself a fairer man. He believes that he should hold the contractor to the original rate for the original quantity shown in the bills. However, for all the work in excess of the original quantity, he will attempt to arrive at a fair market rate for the work. This he will achieve by building up a new rate based upon, as far as he can, the actual costs that the contractor has incurred. He is initially quite unsure how to deal with overheads and profit in relation to the carrying out of this work but finally concedes that to be consistent with his argument the contractor must be allowed a mark-up upon the cost of the work generally in line with the pricing elsewhere contained within the tender. Our third quantity surveyor is a thoroughly modern and reformed character. He has read Sir Michael Latham's report and the reports of all the working parties which followed. He is a great believer in non adversarial construction. He believes his client is best served in a partnering type of culture. He is striving to obtain a win, win solution at all times. His view is simply that the rate of £6 per metre was an error. Accordingly, he agrees a fair market rate for the work which he believes to be £60 per metre and applies this to the entire finished quantities of the work. Now the interesting question is, which of our three quantity surveyors is right, or indeed should some alternative approach have been taken? Reference to the leading construction text books is disappointing. Keating's sixth edition properly draws attention to the NJCC's code of Procedure for Single Stage Selective Tendering, but all this does is draw attention to what should have been done prior to the award of contract and it is now too late for such guidance. It is at this point that I should throw in reference to a case which is unfortunately very old and long forgotten, and which has not been widely reported. In Dudley Corporation -v- Parsons and Morrin Limited, the parties had entered into contract for the construction of a school using the RIBA 1939 form with quantities. The scheme for dealing with such matters in this contract was essentially the same as those of JCT 1980. Parsons had priced an item for excavating 750 cubic yards of rock at £75. In other words their price was 10p per cubic yard, or as it was known in those days, 2 shillings per cubic yard. Self evidently this was a gross under estimate, however it was not known whether rock would be encountered. However in carrying out the excavations described in the drawings and bills the contractor excavated a total of 2,230 cubic yards of rock. The architect valued the work at 2 shillings a cube for 750 cubic yards and, consistent with our second fair minded quantity surveyor, gave the contractor £2 per cube for the balance. He considered that £2 per cubic yard was a reasonable price if no other price applied. The employer was extremely unhappy with this which he saw as a windfall payment to the contractor. He disputed the amount and in front of an arbitrator was successful. The arbitrator found that there was insufficient evidence to conclude that the price of 2 shillings per cubic yard was a mistake. Accordingly, there was no grounds upon which the bill of quantity rate should be so substantially increased. On appeal to the court this decision was upheld, the judge stating "in my view the actual financial result should not affect one's view of the construction of the words. Naturally one sympathises with the contractor in the circumstances, but one must assume that he chose to take the risk of greatly under pricing an item which might not arise, whereby he lowered the tender by £1,425. He may well have thought it worthwhile to take that risk in order to increase his chances of securing the contract". In consequence the contractor was not entitled to an enhanced rate where the quantity became the subject of a substantial increase.
CJ-9739
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