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Opinion - Puzzles for
Arbitrators
Here is Puzzle 13 in a series of puzzles for arbitrators and aspiring arbitrators developed by Peter Horne. It deals with the Contract Administrator's (or Architect's or Engineer's) ability to be able to instruct deletions from the works in a construction contract, and what happens if those items are subsequently re-instructed.
Answers or comments would be most welcome from everybody, but especially those more senior members who have had experience of dealing with such difficult contractual matters.
Magic Builders Ltd have a contract based on bills of quantities with Dodgey Investments Ltd. There is a section in the contract for 'soft landscaping' in which each individual item is quantified and priced. The contract provides for the Architect to issue instructions to add, omit or vary any work. The rules for pricing 'variations' include the following type of provision:
"Variations will be valued using the rates in the Bills of Quantities, except where the work is not of a similar character, or not carried out under similar conditions, to the work in the Bills of Quantities."
Dodgey Investments decide to reduce their initial expenditure by omitting the soft landscaping from the contract, and arranging for it to be carried out at a later date under a separate contract with a specialist landscape contractor. The architect issues instructions accordingly. At that time work has only just started on site and the soft landscaping was not programmed to be carried out until the end of the contract period, in 12 months time.
Some six months later, Dodgey Investments discover that the local authority will not permit the soft landscaping (which was an essential element in the planning permission) to be deferred and requires it to be carried out before the development is occupied. The architect then issues an instruction to re-introduce this work exactly as shown in the original contract documents.
Magic Builders submit a quotation for the work, based entirely on subcontractor quotations, which had been obtained competitively. This quotation is some 50% higher than the pricing in the original contract.
The Employer's position is that precisely the same items are being added back, to be carried out under precisely the same conditions, without causing any delay, and that the original rates should apply.
The Contractor's contention is that tendering conditions have altered in the meantime because he was unable to get his original subcontractors to base their new quotes on their original tenders. If the work had not been omitted then he would have placed orders on the original subcontract tenders, he has been denied this opportunity.
The parties are unable to resolve their differences and the Contractor refers the matter to arbitration. You are appointed Arbitrator. Was the Architect empowered to issue the Variations he did? In any event how would you value those Variations?
Peter Horne