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Claim Based on Daily Rate Contract

9 replies [Last post]
Sun, 2005-01-09 12:47
Don MacDonald
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I recently bid and won a contract which required a daily-rate for my staff to be on site. The Request For Quotation (RFQ) initially indicated that a total of 386 Contract Administration Days would be required to complete the work in the contract. Now, the client indicates that only 216 Contract Administration Days may be required. The client also states that since this is a daily-rate contract there is no recourse. Needless to say I have fixed costs that I spread out over the 386 days which now (with only 216 days) I will not be able to fully recover. As well, there is the loss of profit to consider. Anyone out there have any guidance on how to build a claim such as this or is there any recourse whatsoever?

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Mon, 2005-01-17 08:36
#1
Don MacDonald
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Hi Jaco,

Most probably not Jaco.

Regards,
Don
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Sat, 2005-01-15 09:24
#2
Jaco Stadler
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Hi Don

I was just wondering if the contract ended up being 450 days would the "owner" have recieved (Expected) a credit for the fixed fees.

Cheers
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Tue, 2005-01-11 16:16
#3
Stuart Ness
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Don,

In Scotland we say "tight" not just in regard to production rates! Maybe your Owner has deep pockets and short arms!
Anyway, I hope it all works out for you.
I would be tempted to chat to your Client in a very informal way, and revisit the issue from time to time throughout the contract period. Don’t let the matter drop. Hopefully he will appreciate your efforts and as his trust in you increases I am sure that he will soften his hardline approach! ;-)

Good luck

Stuart
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Tue, 2005-01-11 15:41
#4
Don MacDonald
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Thanks for your thoughts.

I believe that the owners estimate of the required number of days was incorrect. After reviewing the Contractor CPS it appears that while "tight" the expected production rates, and sequence of events is reasonable. Therefore I think the owner must ultimately take responsibility for providing improper documentation to me at the time of tender. Much like a contractor has the right to claim on a major underrun of an item I think I have the right to claim on a major underrun since it is the hours and days that are my only item.

We shall see how it all turns out. Thanks again!

This owner is well known for being ......shall be say...."frugal"?

Regards
Don
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Tue, 2005-01-11 14:39
#5
Stuart Ness
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Don,

I can sympathise with you; what surprises me is the extent of the reduction in the anticipated contract period by 44%. Was the Owner’s original estimate of the contract period so incompetent?
He must have saved something out of his overall budget for the construction works if the Contractor can knock so much off the RFQ time frame (or, in the alternative, the Contractor’s planning is itself so incompetent that he has underestimated the work involved and you will be required to stay on longer to sort out the inevitable claims at the end of the project!!)

I would have thought that you could negotiate some form of uplift to your rates to take account of your fixed overheads in particular that now require to be met out of substantially reduced income.
If your daily rate is stated as being tied to or based specifically on a period of 386 days, then I think that you have a reasonable case for seeking an uplift in your rates.

Certainly – and as I said earlier – if you need to accelerate your work particularly in having to turn deliverables around in a shorter period, then some form of additional acceleration costs may well be applicable. I don’t quite understand the Owner’s position that you would get paid if the contract went over 386 days; would he expect you to otherwise work for free if the contract overran?

You are right; a Contract is a Contract, but the world is full of aggrieved consultants and engineers who have been screwed by their Clients – it isn’t just Contractors that get the rough end of the stick!!

Cheers,

Stuart

www.rosmartin.com
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Tue, 2005-01-11 14:16
#6
Don MacDonald
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Thanks Stuart,

At the time of bidding my part of this project, the Owner advertised 386 days. I am responsible for project management on the part of the owner.

The contractor carrying out the work submitted a schedule showing that their intention was to only use 216 day.

Since I bid my part of the project long before the contractor did, I had no way of knowing what timeframe they would actually want to complete the work in and as such had to go with the 386 days listed in my contract and as estimated by the owner. Now, since the contractor is basing his schedule on 216 days the owners position is that I will only be paid for the actual time the contractor takes to do the work.

All of the same deliverables will be required in this same (now shortened) time period so there is little doubt that there will be acceleration on my part. Loss of profit etc..

The owner’s position is that a daily-rate contract means that I am guarateed to be paid if the contract goes over the original 386 days so I have no entitlement if it goes under. I don’t think this is correct. A contract is a contract....isn’t it?

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Tue, 2005-01-11 13:20
#7
Stuart Ness
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Don,

While it ultimately depends on the jurisdiction of your Contract (and more able minds than mine can comment on Canadian law, if that is the appropriate one), is this not in some way related to an increase to accelerate, or in the alternative, a Change/Variation Order.

You do not explain WHY the Contract period was reduced by 44 % from 386 to 216 days. Was it because of a reduction in workscope? – If so, then you may be able to claim for loss of anticipated profit and recovery of overheads, based on a “negative” Change Order
If the reduction was not due to a reduction in workscope, which means that the same nature and extent of work has to be carried out in a lesser period, this could be a claim for acceleration. Do you need to engage more staff to ensure that the work is completed within the reduced period?

Or is it a political move (the Client has a mate who can do it cheaper than you!?!)

Notwithstanding the Client’s view that you have no recourse on the basis of a daily rate Contract, if you can demonstrate that you have been prevented from gaining other worthwhile work elsewhere as a result of this substantial change, then you may have some entitlement. In addition, seriously consider the chances of ever working for this same Client in the future; if there is any chance, you may just have to bite the bullet and move on!!

Stuart

www.rosmartin.com
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Tue, 2005-01-11 11:37
#8
Don MacDonald
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Thanks for the reply Dinesh, Since this is a daily-rate contract is it implied by law that the owner is responsible for any overrun of days but reaps the entire benefit of any underrun (ie under budget)? Does the estimated duration by the owner for a certain number of days entitle the bidder to a guarantee (reasonably) that those number of days offered in the tender can be expected or is it simply a bidder beware situation?
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Tue, 2005-01-11 00:28
#9
Dinesh Kumar Dama...
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Hi Don,

In my opinion if your contract calls for 386 days then it is a breach of contract by your client as considerable scope of work has been ommitted from the original contract and you can claim for your damages.

Regards

Dinesh
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