Valuing variations and a contested interim certificate
Under a JBC building contract, the contract sum is KES 486,000,000 excluding VAT. The architect has instructed two variations: omit 450 m2 of granite paving priced at KES 6,500/m2 in the bills, and add 320 m2 of curtain wall for which no contract rate exists. The contractor submits a rate of KES 28,000/m2. The gross value of work executed, including the net variation and materials on site of KES 12,000,000, is KES 246,000,000. The contractor's work includes KES 3,200,000 of defective tiling that has not been remedied. Retention is 10% of each valuation until 5% of the contract sum is reached. Previous net payments total KES 189,000,000 and retention already held is KES 21,000,000. The contractor argues that the omission should be valued at a lower 'market rate' because the granite quantity has reduced, and that defective work should be paid and rectified later.
1. Value the two instructed variations and state the adjusted contract sum. Show your reasoning.
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The omission should be valued using the contract rate unless that rate has been rendered unreasonable by the change in quantity. The bills rate is KES 6,500/m2, so the omission is 450 x 6,500 = KES 2,925,000. The contractor's argument for a lower 'market rate' is not a valuation rule; it is a negotiating position. A reduction from the billed quantity may justify a re-rate only if the remaining quantity is so small that the rate no longer recovers fixed costs. On these figures there is no evidence of that, so the contract rate stands.
The addition has no contract rate. The contractor's KES 28,000/m2 must be checked against a build-up of labour, material, plant, wastage, overheads and profit, and compared with market quotations for the specified system. Until that check is done, the QS should not simply accept the rate. For the purpose of this certificate, I would use KES 28,000/m2 provisionally, subject to substantiation: 320 x 28,000 = KES 8,960,000.
The net variation is 8,960,000 - 2,925,000 = KES 6,035,000. The adjusted contract sum is 486,000,000 + 6,035,000 = KES 492,035,000, before any other variations, claims or fluctuations.
2. Compute the net amount due on Interim Certificate No. 9. State any assumptions.
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Start with the gross value of work executed: KES 246,000,000. This already includes the net variation and the KES 12,000,000 of materials on site. Materials on site should be included only if they are properly stored, insured and not prematurely delivered; I would assume that condition is met.
Deduct the defective tiling of KES 3,200,000. Defective work is not 'work executed' for valuation purposes until it is remedied, so it should be excluded rather than paid and recovered later. That gives 246,000,000 - 3,200,000 = KES 242,800,000 of acceptable work.
Retention is 10% until 5% of the contract sum is reached. Five per cent of 486,000,000 is KES 24,300,000. Retention already held is KES 21,000,000, so the additional retention on this certificate is KES 3,300,000, bringing the total held to the cap. I have used the original contract sum for the cap; if the contract expressly applies the cap to the adjusted contract sum, the figure would be slightly higher, but the principle is the same.
The net amount due is therefore 246,000,000 - 3,200,000 - 24,300,000 - 189,000,000 = KES 29,500,000. I would issue the certificate for that amount with a schedule identifying the disallowed defective work and the provisional curtain-wall rate.
3. Advise on the contractor's two arguments: the omission at 'market rate' and payment for defective work before rectification.
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On the omission, the starting point is the contract, not the market. A variation omission is valued at the contract rate where that rate is applicable. The contractor bears the burden of showing that the rate has become unreasonable because the quantity change alters the cost recovery. A 450 m2 reduction in granite paving is unlikely, by itself, to demonstrate that. If the contractor wants a re-rate, it should provide a build-up showing the fixed and variable components and the effect of the reduced quantity. The QS should then determine the valuation impartially, not adopt the lower of two rates to suit the employer or the higher to suit the contractor.
On defective work, the contractor is not entitled to payment for work that does not comply with the specification merely because it promises to return. Certification is evidence that the work has been executed in accordance with the contract. If the tiling is defective, it should be excluded from the valuation, and the contractor should be given a dated notice to remedy. If the employer chooses to accept the defective work, that is a separate agreement, preferably recorded as a variation with an appropriate deduction or a collateral warranty. The QS should not certify first and negotiate later.
I would also check whether the curtain-wall rate includes the necessary scaffolding, access, sealants and builder's work, because an incomplete rate is a common source of later claims.