VALUATION OF VARIATIONS

Everybody has been in a position to negotiate with the contractor a new rate or price when an instruction has been issued and you know that if you are an engineer you must have a strong stomach and patience to deal the price. 

One of the reason to raise this question is my opinion that in most forms of standard contracts there are four ways of doing this and this options can raise disputes between the parties.

Variations under the contract can be valued by a number of methods. The price can be agreed by the employer and contractor directly, more usually by means of a quotation mechanism subject to analysis by the engineer. The contract may contain a schedule of rates to be used to value variations or standard published rates may be used as dayworks.
 If the contract contains a bill of quantities then the rates in the bill of quantities may be used as the basis of valuation. Most standard forms of contract (including ICE and JCT Standard Forms in the U.K.) which adopt bills of quantities have a four tiered approach to the valuation of variations. The options are:

1. Valuation using bill of quantity rates or schedule rates
2. Valuation on the basis of rates analogous to 1 above
3. Valuation on the basis of fair valuation or fair rates or reasonable prices
4. Valuation on the basis of dayworks

Which of the above options will apply as the basis of the valuation will depend largely upon the timing of the variation order, the location of the work, the quantity of the work involved and the circumstances in which the work is executed. If it can be established that these factors preclude the valuation on the basis of bill rates then the valuation will usually be based on fair or reasonable prices:


Option 1: The principle is that if the varied work is of a similar character and executed under similar conditions to work priced in the bill of quantities then such bill rates and prices shall be used to value the varied work.

Option 2: It requires the engineer to break down the quoted rates into the elements of plant, materials, labour and overheads, in order to make the appropriate adjustment. The engineer is required to do so even if he does not have from the contractor any build up of the rate upon which the new rate is based. In that case he will have to arrive at a notional build up. He may be assisted in doing so by information obtained from the contractor's contemporary records. The elements of the rate are to be adjusted to make appropriate allowances for the effects of the variation, but those elements unaffected by the extra effort are not changed.

Option 3: It applies if the other two rules do not apply. It requires a fair valuation to be made. A fair valuation generally means a valuation which does not give a contractor more than his actual costs reasonably and necessarily incurred plus similar allowances for overheads and profit.


Option 4: I will not comment it because it is very clear how this option must be applied.

What's difficult when using this four tiered approach? It's clear-a lot of disputes  arise from it.

Last edition of NEC (new engineering contract) is trying to avoid this problem by reimbursing the contractor his actual additional costs. How does NEC do it? If the bill of quantities originally included a piece of work (a) which is now to be replaced by a piece of work (b) the compensation is assessed as the difference between the forecast actual cost of (b) and the forecast actual cost of (a). The fee is then added to this difference and the resulting total amount is issued to change the prices. The original price for (a) does not enter the assessment. 

So NEC doesn't use the first two options anymore which are the sources of disputes and apply only the third option which I think is a modern trend in dealing with the valuation of variations. 

DESIGN QUALITY CONTROL

How does the PM control the quality of the design works? I already mentioned that the quality management plan is a part of the PMP. But what does really quality management plan mean?

The quality management plan should answer the questions of who is responsible and when in time actions should occur. Since the primary product of the design phase is construction contract documents for construction contractors, decisions about quality requirements for construction and manufacturing need to be planned and included in the contract documents. The processes used for controlling quality of design are described hereinafter.

For a design/bid/build project, the project manager coordinates and oversees reviews at the design criteria, conceptual, preliminary engineering, 30 percent, 60 percent, 90 percent, 100 percent, and bid documents stages. The percent refers to the approximate ratio of design budget spent over total budget. Reviews at these points in design are key control points to the design management process.

Another process which the Clients are encouraged to apply is VE (value engineering). The objective of VE is to satisfy the required functions of the project at the lowest initial total cost and cost over the life of the project.

Peer review technique should be an early step in the design process that can add an external perspective to enhance the functionality of design, construction, and operation. Used in addition to a VE study, that is usually later in the design process, peer review is based on the question "can we do this better?" and can be used to provide an independent critique of the design phase.

Later in the design process, the design team will need to perform constructability reviews as part of the design process. Participants for constructability reviews can come from within Client team, the design team, or assistance can be obtained from, code officials, independent consultants, or contractors. The constructability reviews should be prior to completion of 90 percent and preferably shortly after 60 percent of the design.

The design manager is responsible for overseeing the design QA system. The design team can accomplish this by setting up an in-house QA system for the project and having the design manager perform the QA by overseeing the design consultant's QC efforts. As the project manager you will need to maintain an oversight role to acquire confidence that the quality management system for design is achieving the project quality objectives.

And last the method of documentation of comments and coordination responses should be described in the quality management plan. All comments made by phase reviewers shall be recorded either by copy of memos, e-mail, letters and/or marked plans received from the reviewers. In the event that comments are received through meetings with reviewers, there shall be minutes prepared that summarize the comments received. All comments shall be addressed to the designer responsible for the discipline that prepared the document being reviewed. The response shall be in writing and shall be formatted in a manner that identifies the document review date, reviewer’s comments and responses to the comments. The designer will be responsible for submittal of comment responses to the reviewing entity. Where it is necessary and prudent to discuss the comments with the reviewer(s) prior to making a response, the designer shall arrange for the meeting. Copies of all comments and responses shall be kept in the project files.

TIME MANAGEMENT

Do we manage time in construction? How do we cope with delay? How do we use technology?

I strongly recommend viewing following presentation if you want to develop your time management skills:

http://www.youtube.com/watch?v=rsU7EftWVx0&feature=relmfu

HOW TO RUN MEETINGS

The press of business has reduced my recent posting activity. I have been involved in a series of progress meetings and have been surprised by the lack of results due to incompetence of the resident engineers responsible for conducting these meetings. That's why I recommend the following link where you can find a good information on how to run the meetings:

http://www.projectmanager.com/how-to-run-team-meetings.php