Stuart Wilks

Omissions Webinar - June 2022

Omissions remain one of the most popular and challenging subjects on the Hewitt Decipher website. The question of whether money can be withheld for items in the BoQ but not required for the project is one which comes up time and again. What are your rights when things are omitted from contracts or projects? What do you need to know and how can you tackle the many legal complexities that arise?

Find out all you need to know about claiming, or defending claims relating to omitted items in FIDIC contracts.

In this webinar MD, Paul Gibbons, Andy Hewitt and top construction Solicitors, Glenn Bull and Paula Boast of law firm Charles Russell Speechlys, look at omissions in FIDIC Contracts. The team examine a range of subjects relating to disputes and omissions in construction projects.

And if you haven't already done so, do take a look at the article on the subject. You'll find more on this difficult subject here.

Frequently Asked Questions

Following the webinar, we took some of the most popular questions and put them to our speakers. They've provided their answers below:

If the volume of omission is high (more than 5% or between 10-15%) how we can administrate time related cost saving entitlement for employer and how can we calculate the entitlement of profit and loss for the contractor? How does the base line programme become a major role in this subject?

• Unless the contract period has been reduced as a result of the omissions, there will be no time-related time savings due to the Employer. If the contract period has been reduced, an analysis of the prelims will provide a means of evaluation.
• Loss of head office overheads and profit may be calculated based on reasonableness, maybe by calculating a percentage based on the previous years’ audited accounts of the Contractor.
• The baseline programme may be used to calculate any resulting reduction in the contract period, by adjusting it for the omissions.
• Please note that this answers the questions raised and does not comment on the contractual entitlement to any of the actions described.

In a (FIDIC) Lump Sum Contract are the BOQ Rates fixed?

Yes unless there is a reason to change the rates as described in Sub-Clause 12.3 (Evaluation)

Under a FIDIC lump sum contract, the BOQ contains items which do not exist in the contract drawings or the specifications; hence, the contractor will NOT execute these items. For this, the Employer or the Engineer decides to issue a VO to omit those BOQ items to reduce the amount of the contract price. This is a repeated case in a large number of project despite the scope NOT changing and the lump sum nature of the contract. If this matter is taken to arbitration, will the contractor win and be paid the amount of the omitted items?

•  This answer assumes that the question refers to a Red-Book which has been converted to a lump sum.
• Sub-Clause 14.1 (The Contract Price) states that the quantities are estimates and are not to be taken as actual or correct quantities.
• Sub-Clause 1.5 (Priority of Documents) places the bill of quantities below the specification and drawings.
• Consequently, the work included in the lump-sum is defined by the works detailed on the contract drawings and contract specification.
• Anything included in the bill of quantities that is not included on the drawings and in the specification is not included in the lump sum price, so may not be omitted.
• If the Employer or Engineer is seeking an omission for such items, would they also consider paying extra for items not included or under-measured in the bill of quantities?

Do you think FIDIC Red book (1999) sub-clause 13.1 (d) "omission of any work unless it is to carried out by the others" needs more elaboration/explanation? Still in RD (Red Book 2017 it (13.1 (iv)states, "the omission of any work, unless it is to be carried out by others without the agreement of the Parties" ?

I think this is quite clear - It is a direct obligation of the Employer. The 2017 contract modifies the clause to allow the Contractor to agree to an omission (this could previous have been done by negotiation anyway). No doubt, in order to agree such an action, the Contractor would seek to recover any loss of profit and under-recovery of overheads and to be absolved of any liability for the work to be carried out by others.

Can omissions lead to an extension of time (EOT)?

I cannot think of any circumstances where this would be the case.

In lumpsum contracts, what is the best way to deal with variations either on the lumpsum basis or remeasure basis?

• My Middle East experience tells me that the to answer this by saying by employing properly qualified quantity surveyors for whom such things are a matter of routine.
• The question is somewhat confusing. A contract will be on either a lump-sum or remeasurement basis – it cannot be both.
• On a remeasureable contract the works will be remeasured and evaluated based on the as-built condition. Therefore, any variations to the original scope will be included in the remeasurement and evaluation.
• On a lump-sum contract, variations must be measured and evaluated individually in order that an adjustment may be made to the contract price. This should done by measuring and evaluating the work omitted by the variation, measuring and evaluating the work added by the variation and the difference between the two will be the adjustment to the contract price. As I said earlier, a straightforward quantity surveying exercise.

If for example, the paint colour was different than what was approved during the execution, can there be a claim for such change?

• If the administration of the change or the availability of the paint specified in the contract caused delay to the time for completion, the variation would entitle the Contractor to an extension of time.
• If the varied paint colour was more expensive, the Contractor would be entitled to additional payment for the variation.
• Both conditions are unlikely.

Is Fidic 12.4 does omission entitled the contractor to claim for the overhead?

Sub-Clause 12.4 (Omissions) makes no mention of recovery of anything except for Cost incurred or to be incurred as a result of omitted work and FIDIC defines “Cost” as actual cost. Whether under-recovery of site and/or head office overheads can be regarded as ‘Cost’ is debatable.

Can the reduction in quantities at the final measurements, be considered as "omissions" under Sub-Clause 12.4 FIDIC 1999 to recover, unrecovered overhead which is included in the rates. If not how does the Contractor recover his unrecovered overhead due to reduction in quantities when the Final Contract Price is not reached to the Accepted Contract Price?

• The response to the question above is very helpful on this point. It is noted that pursuant to the Article 389 of the Civil Code, where it can be proven, a party is entitled to loss of profits.
• Furthermore, if actual costs have been incurred, the contractor can make a claim for such costs. It is important however that you have full documentation to substantiate that claim.

Can the Engineer make recovery of Over Recovered Overheads by the Contractor through increasing quantities, variations, Eot etc for the same duration. If yes how? Under which clause?

If the parties cannot come to agreement on the increased price resulting from a variation, then the Engineer has the ability to determine the impact that such variation shall have on the contract price. As such, he can take such matters into account when making his determination pursuant to clause 3.5.

In a good number of times, Omission is a tool for Employers who happen to notice (later, after the contract is signed) that some items are priced on the high side and decides conveniently to delete it from the Contractor's scope. In some cases yet, it happens to be a type of work that is simpler and would bring more profitability to the contractor. In any case, it severely hurts the Contractor's bottom line by making contracts commercially unviable. The wordings of FIDIC Sub-clause 12.4 is subject to varying interpretations, and even passes the burden of proof on the aggrieved party. Could we simply state expressly that lost opportunities need to be paid to avoid any doubts as to what they really mean?

• It is unfortunate that a Contractor should find itself in such a position as you have described above.
• Of course, it is for the parties to agree to the exact terms to which they wish to engage in contract with and if this is to include “lost opportunities” this would have to be incorporated into the contract you wish to sign. It is however likely that employers will push back on this, as “lost opportunities” is very subjective, and in reality, it would be very difficult for a contractor to introduce such provision in this market.
• FIDIC Sub-Clause 12.3 does however obligate the Engineer to set an appropriate rate where the quantity changes by 10%. As such, if simpler works are de-scoped by more than 10%, then the rate should be adjusted to take into account the profits and overheads that were included in the original rate.
• Notations to particular entries as to how particular works can be re-priced in the case of omissions, in order to take into account the efficiency tied to such quantities can also be recorded in these BoQ items, although again, the Employer may push back on such notations.

In a Lump Sum Contract BOQ: Structural Steel 100Ton x 15,000AED/Ton = 1500000 An Instruction/change caused the quantity to be lesser say 90tons. The BOQ quantity is 100. But when change is measured it appeared that measurement from Contract drawing is actually 120Tons. Which quantities shall be used? What rate is applicable?

• A variation to reduce the quantity in the BoQ, but doesn’t vary the drawings or specs is really of no effect. This is because the works to be carried out are as set out in the drawings and specifications.
• If the quantity of steel required to effect the drawings and specs was not reduced by the variation, the price would not vary. If a variation was made to the drawings and specs that caused the quantity of steel to increase to 120 tonne, then the contractor should be entitled to the increased price for the additional steel required as a consequence of the variation to the works.

Suppose, there is an omission of the Work, which was on the critical path. Will the time for completion will reduce? If the answer is NO, will the delay analysis consider adjusting the time period for the omitted work?

• An interesting point of FIDIC 1999 is that it only refers to ‘extensions of time’.
• It is however often the case that particular conditions will enable the Engineer to take into account omissions when considering the impact such variation has on time and cost.
• As such, the answer to this question really is dependent on the terms of the particular contract. However, when the Engineer has this right (which is not uncommon) the Engineer will most likely be able to be able to bring forward the time for completion if a critical path item is removed. Such determination however is very technically difficult, and needs to take into account all relevant planning works, sequencing, mobilisation, etc, and therefore is unlikely to be as simple as just deleting that item from the project plan.

With regard to Cl 12,4/ Omissions, how important is the significance of timely notice. Is it a condition precedent?

• The reference to ‘notice’ in Sub-Clause 12.4 provides that the “Contractor shall give notice to the employer” which means it is a condition precedent/mandatory obligation upon the Contractor to give such notice.
• Sub-clause 12.4 does not prescribe a minimum/maximum time limit for such notice to be given, however for good contract management, timely notice is paramount, and increases your chances of the claim being argued successfully.

If there are several omissions and additions in a remeasure contract, do we need to calculate the time impact every time for omission and additions?

• If such omissions/ revisions fall within the critical path, then yes.
• As part of good contract management, it would always be recommended to keep a record of this as should it be established that an omission/addition does affect the critical path and for timely claims for an EOT should be made in accordance with the contract.

Does "substituted work" in SC12.4 (d) mean related to the omitted works? Or can any other "varied works/variations" can qualify as "substituted work" where the Contractor has potential gain of more works (in addition to his original contract price). Hence, he may make a loss from the omitted work but compensated in other positive/additional variations. Is this contractually, correct?

• This relates to the FIDIC 2017 terms
• The reading of 12.4 (d) is that whenever the omission of any work forms part of a Variation, the cost (of the omitted work) is not deemed to be included in the valuation of any substituted work.
• Sub-Clause 12.4 should be read in conjunction with Sub-Clause 13.1 (right to vary) and Sub-Clause 13.3 (variation procedure)

What happens if in a lumpsum contract, the bill of quantities captures entirely different works than what is done on site and client uses it to omit the same in their valuations?

• This is not a great situation and indicates really risky contract management.
• Of course, in a lump sum contract, what matters is the scope and specifications. As such, the Contractor should effect the works as set out in those documents. It may then be the case that a BoQ of this nature is unsuitable for the Engineer to what is payable for each IPA, which could put the Contractor in a very difficult position with regards to cash flow.
• The situation described should be avoided, and if it is the case, perhaps the parties could look to regularise the BoQ for both parties benefit.

Does the "and" at the end of SC 12.4 (c) mean that to qualify for claiming loss of profit and other losses all the items (a, b, c & d) must be met first? If any item is not met, then no claim for losses from any omissions made?

• I believe you referring to the “and” at the end of Sub-Clause 12.4 (c) of the 2017 FIDIC? - if so, then yes the conditions in a, b, c and d must be met.
• This slightly differs to the 1999 version. If your contract is based on the 2017 version, then in the contractor must fulfil the conditions and give details to the engineer of its proposal together with supporting evidence (as opposed to the 1999 edition which required the contractor to give notice for the engineer to make a determination in accordance with Sub-Clause 3.5 (Determinations)).

Can a Contractor apply for a 'Descoping Claim' for instance under Cl. 12.4 at the belated stage when he is working at the Defects Notification Period, and he did not give any 'notice' of claim earlier. If the Engineer refutes his entitlement of claim on account of lack of notice, contractor goes to DB. How would the DB treat this claim? Can DB overturn or ignore Notice requirement?

• I believe you are asking two questions here; firstly, whether a contractor can apply for ‘descoping’ under Sub-Clause 12.4 and secondly, in the instance the matter goes to dispute due to the contractors lack of notice, whether the DAB have the authority/power to overturn/ignore a notice requirement under the contract on the basis that the contractor failed to provide adequate notice of its claim earlier?
• In response to your first question, you should not mix up between a claim and an omission. Claims need to be made in accordance with the provisions of your contract and the method prescribed needs to be followed such as notice requirements etc. In terms of an omission under Sub-Clause 12.4, the contractor can only claim recovery of actual costs incurred or to be incurred as a result of omitted work. This is therefore not a claims process.
• In response to the second limb of your question, the DAB will firstly look at the contract terms. If the contract places a mandatory obligation on the contractor to provide notice of their claims , the DAB will see whether such notice is mandatory or not.
• If it is mandatory and the contractor failed to provide the requisite notice, then the DAB cannot amend the provisions or ignore the terms of the contract.
• If either party is dissatisfied with the DAB’s decision then the parties may proceed to resolve the matter in accordance with the terms of the contract i.e. mediation, arbitration or court.

When the omissions (say the entire Equipment requirements) will be dealt by the Employer themselves directly with suppliers; Does it falls as “to be carried out by others”?

Potentially. However, written clarification should be obtained from the employer to mitigate any misinterpretation which may later cause issues

How does the contractor deal with the time lost in the process of Value Engineering (omission & Addition) during the project duration which delays the project?

• The Value Engineering exercise, if required should be carried out in parallel with the contractor’s contractual obligation. I.e. the Contractor’s contractual obligations should not stop pending the VE exercise.
• Claiming EOT for time spent on a VE is unlikely to be successful unless expressly instructed by the Engineer/Employment to cease/suspend the Works pending such exercise. In the absence of any express written instructions, the contractor must continue with its obligations under the contract. Therefore, if you are put in such situation, you need to clarify what the Engineer wants you to do. Stop and carry out the value engineering, or continue with the works.

When evaluating over recovery of OH&P in rates, would the entire BOQ need to be reviewed or can it be limited to individual rates?

You would look to clause 12.3 of the FIDIC contract, which only applies in the event that more than 10% of a rate is changed. It wouldn’t vary other rates of other items that are unchanged.

About the Guest Speakers:

Glenn Bull

Glenn is an Australian lawyer and has been with the firm in the Gulf region since 2014. His broad experience includes acting for clients in both contentious and non-contentious construction matters.

Over his career, Glenn has advised employers, developers, contractors, subcontractors and consultants on projects throughout the GCC, northern Africa, London, Malta and Australia. Glenn has a strong practical knowledge of real estate and construction. This combines with regional experience and expertise in the law. Together this gives him a unique ability to focus on finding practical outcomes and commercial solutions for his clients.

Paula Boast

Paula is Head of Construction Engineering & Projects for the Middle East Region. Based in Bahrain since 2006, she specialises in construction projects throughout the region. Paula's extensive experience includes real estate and development, regeneration, across many sector, both in the private and public sectors. Paula acts on behalf of government and regulatory clients. These include Ministry of Works, project employers and developers, lenders and investors, contractors, subcontractors and consultants.

 

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by Stuart Wilks