Bad rates in tenders

Well, it depends. For one thing, there is a major difference between a lump-sum contract and a measure and value contract. My point is best illustrated by comparing a without-quantities contract with a contract let using approximate quantities. In the former, the contractor is bound by the lump sum, which is based on its own assessment of quantity. The only adjustment on account of quantity is to allow for variations required by the contract administrator. With a contract for approximate quantities, the contractor is only bound by its rates, which are applied where relevant to the quantity measured as executed, so long as the “nature” of the works is not changed.

In most forms of contract, the reason for pricing the bills, specification and schedule of rates is, if not to establish the tender figure, then to show how it has been arrived at. Its second and equally dominant purpose is for valuing variations.

The contractor must be aware that variations are anticipated under the terms of the contract. It must also be aware that its quoted rates will be used to value them because the sole purpose of quoting those rates is to establish a base for pricing variations. This becomes even more apparent where a measure and value contract has been used, for the rates quoted are to be used for the total re-measurement of the works.

Often, a contractor will say that the rate it has quoted is wrong and should not be used to value the variation. Conversely, employers will argue that a rate quoted is too high and wish to escape its consequences.

Some commentators have argued that in a quantities contract where there are additional quantities of work ordered, there is no good reason to apply to the extra work a mistake made by the contractor in calculating its price for the original contract. This is misleading. The position with bad rates under the standard form of building contract is that they will apply to the varied item so far as it is “relevant”.

•  A schedule of rates is used for valuing variations
•  An erroneous rate applies to variations unless there is consent to change it
•  If extended work is similar, the rate in the bill applies

For a long time, there was very little authority on this point save for a rather obscure decision that said contractors were only entitled to the quoted rate, even when it was clearly erroneous and was being applied to a significantly greater quantity.¹

The argument that an erroneous rate should only be applied to the quantity priced in the contract documents falls flat on its face where a bill of approximate quantities has been used. Here, the very purpose of the rates is to price the quantity of work. It is not difficult to extend this view to other contracts where the rates are specifically included for valuing variations.

Thus, although in many circumstances a bad rate might be ignored or overlooked and a reasonable rate substituted, this is something that should not be done without the knowledge and consent of the parties to the contract.

This point is illustrated in a recent case where it was held that in assessing the “reasonableness” of a rate or price in contract bills for extended or varied work, regard may be had to whether the work is similar in character or condition, but not to the intrinsic profitability or otherwise of the rate or price.² If it is similar work the rate or price in the bill must apply.

This makes sense because there is no right in a lump-sum contract to re-measure the whole of the works as carried out and simply apply the bill rates to the quantities. Of course, I accept that under the JCT PWQ 1998 and IFC 1998, the contract is assumed to be a correct evaluation of the quantities, and, if not, its correction will be a deemed variation on account of an error or change.