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Cost Claim on Fixed Price Contract

9 replies [Last post]
Wed, 2004-11-24 15:42
Naveed Tariq, PE,...
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Dear All,

What can be the basis of cost claim for considerable time compression/crunching on a fixed price contract.

Regards
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Replies

Mon, 2005-01-10 23:43
#1
Dinesh Kumar Dama...
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Hi Naveed,

Please take note that in Guaranteed maximum price contract do not allow claims beyond the pre-determined maximum price.

Regards

Dinesh
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Sat, 2004-11-27 10:00
#2
Stuart Ness
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Thanx, Naveed.

Good luck!

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Sat, 2004-11-27 06:26
#3
Naveed Tariq, PE,...
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Thank you Stuart, now i will try to win a claim on this basis. Will let you know if I succedded :-)

Regards,
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Sat, 2004-11-27 03:57
#4
Stuart Ness
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Hi Naveed,

The basis of the claim is just the same as before in my first post. The fixed Contract Price reflects the work and obligations that the Contractor has to carry out to execute and complete the Works in accordance with the original Contract Schedule.

The original Contract Schedule will include defined periods for procurement and manufacture/fabrication activities (or be deemed to have them!). With the instruction given to the Contractor to compress the original Contract Schedule by accelerating it, it follows that the durations for the procurement and manufacture/fabrication activities will also have to be shortened.
The basis of the claim, therefore, is the need to shorten the procurement period in order to allow the overall acceleration to take place.

Procurement is a commercial activity, and therefore any change to it can only be of a commercial basis. Consequently, if the Contractor needs to pay bonuses or similar emoluments to his suppliers (who themselves will have to increase/accelerate their labour resources) then these additional costs to the supplier are part of he Contractor’s legitimate claim costs.

Put simply, if the supplier doesn’t accelerate, then the overall acceleration of the original Time Schedule cannot take place!

It isn’t just theoretical; I have had this situation a few times, including projects in Brazil and the Middle East.

Hope this helps,

Cheers,

Stuart

www.rosmartin.com
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Sat, 2004-11-27 03:05
#5
Naveed Tariq, PE,...
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Dear Stuart!

I know its a claim theoratically. You also confirmed its a claim. But in given circumstances what can be the basis for the claim, how those incentives can be justified according to contract as it is a fixed proce contract.

Can you please quote some of the project in which such claim was won.

Regards
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Fri, 2004-11-26 17:19
#6
Stuart Ness
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Naveed,
The reduced time for procurement activities is achieved by paying "incentives" to the supplier/subcontractor so that he can accelerate his fabrication/supply of the equipment/materials/goods.

Any additional sums that you pay to a supplier/subcontractor to accelerate the supply of goods or equipment to meet or comply with a reduced lead time, is a claimable amount in such circumstances.

In cases where a payment is made to a Contractor in advance of any acceleration measures taken (so that he can pay for "queue-jumping" or other ways to speed up the supply of the goods) many Contractors make the basic mistake of failing to pass any of the up-front acceleration money on to the Subcontractor, the Subcontractor performs badly, the accelerated milestones are not reached, and the Owner demands the return of any monies already paid!!

Cheers,

Stuart

www.rosmartin.com
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Fri, 2004-11-26 13:01
#7
Naveed Tariq, PE,...
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Dear Geoff & Stuart!

Thanks to both of you for your kind replies. You both rightly said contract is in the freezed form, any "enforced" change entitles contractor of claim.

The let me make the situation more complex :)

While we are doing time crashing/crunching it affects Cost in 2 ways.

1. Due to increased resource requirement (HR, Machinery or Material)

2. Lesser time for procurements (Leads to higher cost in case of high tech equipment)

In our case cost for HR is to be paid by client, so we charged for more HR in those particular months.

Now I am unsure how can i file a claim on the basis of reduced times for procurement.

Lets see how PPer helps me in this scenario.

Best Regards.
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Fri, 2004-11-26 11:36
#8
Geoffrey Boulton
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Hi Naveed;

Stuart is right on the money.
The simplistic way of looking at it is that when a Lump Sum Contract is entered into, you "freeze frame" everything.
If anything is then chnaged by the owner/client you have an entitlement to more money / time or both.
In the event of being instructed to accelerate you can claim for all additional resources that will be required.
Just make sure you get authorisation first in writing and then keep you records up to date.

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Fri, 2004-11-26 07:35
#9
Stuart Ness
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Hi Naveed,

I presume you mean enforced or instructed acceleration on a project with a lump sum fixed price.

If so, the General Conditions of Contract should say that the lump sum fixed Contract Price is in respect of the Contractor carrying out his duties in accordance with the Contract. Somewhere in the Contract, there will be a Time Schedule and/or a set of Milestones.

If the Contractor is given an instruction to accelerate the Works so that the Time Schedule or the Milestones are altered, then he is entitled to an adjustment to the lump sum Contract Price, because there has been a change to the way in which the Contractor is required to carry out his duties in accordance with the Contract.

The original lump sum Contract Price is to be paid for EXACTLY carrying out the original Contract, which will include executing the Works in accordance with the Time Schedule/Milestones. If the time of the original Contract is changed by the Owner/Employer such that the Time Schedule/Milestones are altered, then the Contract is no longer as it EXACTLY was.

Therefore, the Contractor becomes entitled to additional costs to compensate him for carrying out the Works in a different timescale.

Cheers,

Stuart

www.rosmartin.com
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