| Date | 17 February 1999 |
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| Judgment | Henry Boot Construction Limited -v- Alstom Combined Cycles Limited, TCC 22 January 1999 |
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| The Issue | Application of under or over priced rates in Bills of Quantities to extended or varied works. |
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| Implication |
In situations where there remains doubt over the precise terms of the contract, or when work commences in the absence of a formalised agreement it will fall to the courts to interpret the intention of the parties when deciding the extent to which any agreement exists between them. |
printThe case of Henry Boot Construction-v-Alstom Combined Cycles decided in the Technology and Construction Court on 22 January 1999 gives an opportunity to clarify a point which has caused considerable difficulty in the construction industry concerning the use of Bills of Quantities. When a contractor uses an unusually high or low rate to price an item in the Bills, and the quantity of that item substantially alters, should the parties be bound by the stated price? It is one of the skills of tendering for substantial building and civil engineering works, for contractors to seek to anticipate where there may be departures from estimated quantities or item descriptions which might prove to be to the contractor's advantage. Even in the absence of such tactical tendering, mistakes can be made. Clearly it is in the employer's interest to carefully scrutinise the contractor's tendered rates and prices to see that no advantage will be gained. In the event that anomalies are found, codes of tendering procedures have been in place for many years which provide mechanisms for adjusting or affirming the rates prior to contract award. Despite this, disputes concerning the reasonableness or otherwise of contract rates are commonplace. Boot were engaged by Alstom under an ICE 6th edition form of contract to undertake main civil works including steelwork and cladding for the Connah's Quay Combined Cycle Power Plant to be located in Clwyd, Wales. As is often the case following the tender and prior to the award of contract, the parties carried out extensive negotiations concerning the contract arrangements. Included within these discussions was a requirement to lower the excavations by a further metre within two areas of the project, around the Turbine Hall and in the location of the heat recovery steam generator. The work involved the addition of sheet piling to the excavations and Boot submitted a price of £250,880 which it erroneously described as relating to the work in the Turbine Hall only, whereas this price had been calculated with reference to the quantities of both areas of the building. Subsequent to contract it was discovered that the sheet piling would be required in a more extensive area around the cooling towers. Whether a rate derived from the lump sum price for the Turbine Hall could be applied to the full extent of the sheet piling work became the subject of a dispute. At this point it is worth recalling the relevant clauses of the ICE 6th edition contract. Clause 52 deals with the valuation of ordered variations and clauses 55 and 56 deal with measurement. The well recognised rules for the valuation of variations are such that where work is of a similar character and executed under similar conditions to work priced in the bills, then bill rates and prices apply. Where the character or conditions of varied work is not similar, then the bill rates and prices are to be used as the basis for valuation "so far as may be reasonable". A fair evaluation is to be made where it is not "reasonable" to use the BQ rates and prices. Accordingly the term 'reasonable' in clause 52(1)(b) required examination. It was argued on behalf of Boot that the reasonableness of applicability of the rate for the purposes of clause 52(1)(b) was to be gauged strictly by reference to the work carried out, and not by reference to extraneous considerations such as how a rate or price was arrived at and whether it was too high or too low. In other words, one was obliged to compare the character and conditions of work described in the Bill with the varied work. Only if the difference was so marked that it was not possible to continue to use the prices in the Bill, could a fair valuation be made. However if the character and conditions of the work itself was not so greatly altered, then a valuation had to be made on the basis of the contract rate or price. Both the contractor and employer were effectively stuck with the price or rate in the Bill, and neither the engineer nor an arbitrator was permitted to look behind the rate or price in order to discover how it was made up. His Honour Judge Humphrey Lloyd QC closely examined the contract provisions and concluded that in this argument the contractor was correct. The fact that the rate or price may appear to be too high or too low was immaterial. The parties had agreed that such a rate or price was to be used to value variations. "The basic consideration is that the contractor has agreed to do all work within the contract, original and varied, on the basis of his bill rates". To allow a variation falling within clause 52(1)(b) to be used as a pretext to unravel and correct mistakes made by a contractor in the pricing of a contract would, in Judge Lloyd's judgment, "be completely inconsistent with the wording of such a contract and the philosophy to be derived from it." This principle was to be applied whether the increase or decrease in quantities resulted from the re-measurement, from ordered variations under clause 52, or from errors or omissions in the Bill corrected by the engineer in accordance with clause 55. Furthermore, Judge Lloyd saw no difficulty in the fact that the rates to be applied to the varied or re-measured work were not individually itemised rates, but were derived from the intermediate step of extraction from within a lump sum price for part of the work.
CJ-9907
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