Determining "Cost" on a Dredging Project is not that straightforward
David Kinlan
I help ensure your civil, construction & marine infrastructure project's are delivered on time, within budget & with minimal risk.
In the FIDIC Suite of Contracts, there is a provision which entitles the Contractor to be compensated 'Cost' in respect of certain Defined Risks.
In FIDIC Blue Book Clause 1.1.7 "Cost" means all expenditure properly incurred (or to be incurred) by the Contractor, whether on or off the Site, including overheads and similar charges, but does not include profit.'
In the FIDIC Blue Book 2016, the Defined Risks are listed in Clause 6.1 and there is a link to a right of compensation in Clause 10.4. Determining the costs of vessels is notoriously difficult as it depends on a multitude of factors such as original build value, degree of utilisation, depreciation & interest, maintenance & repairs, etc. all of which are notoriously difficult to document in the form of "Cost". Vessels are often unique and not like land-based equipment which are hired-in the rates of which can be easily established by reference to supplier invoices and the like. So establishing the cost of a vessel is the first hurdle which a contractor may have to face in any claim situation.
The following is an extract from the FIDIC Blue Book Guidance Notes which deals with this matter of Defined Risk, Cost, Working Rates and Standby.
FIDIC Blue Book Guidance Notes Page 13 10.4 Contractor’s Right to Claim.
The Contractor is entitled to claim his Cost in the event of any of the Defined Risks but subject to one qualification. If there is a specific provision in the Contract (for example a priced item in the bill of quantities for time-related overheads, standby and working rates for equipment) this would replace the actual Cost of delay for time-related overheads, in the event of a delay attributed to a Defined Risk. In order to ensure these rates are competitive, they should be priced against a suitable provisional quantity.
So it is far better to determine in the Bill of Quantities priced rates for site-related overheads such as preliminaries as well as rates for vessels when on Standby or Working. This is often forgotten by Clients and Contractors alike when entering into the Contract at tender stage.
Having rates for vessels when either working or on standby avoids the need to determine what their 'cost' might be and the margin allowed for profit thereby avoiding lengthy disputes to establish this. Clients can benchmark each of the tenderers working and standby rates to see how they compare to each other and with the help of dredging consultants can check if these are real market rates or are otherwise inflated by tenderers with the hope that when claiming for variations or disputes. Both working and standby rates can and often are negotiated.
So a useful check is prior to entering into any marine infrastructure contract, make sure that there is provision in the Bills of Quantities or a Schedule of Rates for vessels or key items of equipment like pontoons, barges and the like, either working or on Standby. Also, include a contract provision which details what the Contractor's overhead and profit margin is. This sounds a strange thing to ask anyone at tender stage, but it will save everyone considerable time and effort down the track if and when disputes arise.
Nice to meet you
4 年Thanks a lot for your attention to IDCC nonnuclear density meter
Experienced project formulator and expert analyst
4 年It all starts with a scientific understanding of cost, distinctive in its contractual meaning as opposed to its practical meaning, and how successful cost is then expressed in the contract, whether by lump sum (which is less lump than meets the eye), activity schedule, bill of quantities or other format. The "fourth dimension" of costs for any form of construction is often overlooked: the descriptive element of cost - and poor descriptive definition of a price becomes glaringly evident when contractual costs needs to be adjusted or applied for determination of variation costs. There are methods and ways to deal with this, to be prepared when the contract is signed and everybody is still smiling, to be able to carry the cost agreement through the contract execution with predictability and a feeling of partnership rather than being adversaries. Specialisation in price scheduling is a fascinating world. And very rewarding.
Health, Safety and Environment Adviser at Shell
4 年What an important article David, often times it is overlooked by employers and especially contractors at tender stage but eventually it leads to a major dispute between both parties later on during the course of the project.
Associate, MRICS, Chartered QS, BSc(Hons), PGDip(PM) / Civil | Marine | Mix-Developments | Infrastructure | Cost Management
4 年Well explained ????