Quantity of works shall be valued based on actual site quantities or actual quantities of work?

Issue: Quantity of works shall be valued based on actual site quantities / actual quantities of work done on site.

1. The settlement between the parties, any changes as to the terms and conditions of course would require mutual agreement of the contracting parties.

2. Here, parties would need to renegotiate the valuation of quantity of works.

3. Based upon PAM Contract 2006 (with quantities), ‘lump sum’ is fixed price and is not subject to remeasurement or recalculation except for provisional quantities and variations.’

“A construction contract where the price or contract sum to which the contractor is entitled for undertaking the works is fixed unless extra works or other variation is ordered.”

“ ‘lump sum contract’ the manner of processing progressive (interim) claims submitted would be made based on a ‘formula’ ”

4. Court is likely to hold that a contract is not a lump sum contract if the contract incorporates bills of quantities or the parties had by their conduct agreed that works is to be valued and paid by the application of the contractor’s rates to the quantity of work done. Whether a contract is a measurement contract or otherwise is a question of fact: the mere description of the contract as lump sum contract does not necessarily prevent the Court from considering the conduct of the parties and inferring that the intended arrangement is one which is founded on the basis of a measurement contract.

5. In the premises, it is clear that even if it is a lump sum contract, it does not prevent the court to infer the intention of the parties is one that actually constitutes a measurement contract

Analysis

6. If the previous progressive claims and the manner the progressive payments were made by or between the Parties are consistently based on–

Ø ‘actual quantities of work completed’;

Ø on a measure and value basis;

Ø if the contractor is unable to describe or explain clearly the “formula” used in clear term as to what formula should be used to calculate the progressive claims;

Ø the quantity and value of the subcontract works are only provisional and subject to joint measurement on site upon submission of progress claims for work done;

7. In Tan Hock Chan v. Kho Teck Seng [1979] 1 LNS 110; [1980] 1 MLJ 308 the respondent (the contractor) was at all relevant times the building contractor employed by the appellant (the developer) to build six units of three-storeyed shophouses at an agreed cost of $223,000. The agreement between the parties was in writing. It was clear from the terms that the intention of the parties to the agreement was the construction of the project as a whole. The shop houses were not meant to be built one by one. The site was to be prepared in one operation and after its preparation, the piling work was to be commenced for all six houses. The construction was then to proceed by continuous work and the houses were expected to be constructed and ready for occupation at the same time. The payment for the construction by the usual process of progress payments was made dependent upon the completion of the several stages of the entire construction as set out in the particular clause relating to the progress payments.

Chang Min Tat FJ delivering the judgment of the Federal Court said:

This contract is clearly not a lump sum contract, in view of the provision for progress payments: Ming & Co v. Leong Ping Ching [1964] MLJ 312. The contractor had however claimed under a lump sum or entire contract. This on a proper construction of the contract must be regretted. However, the defence had not relied on any contention that a claim under a lump sum contract was not maintainable. The case was fought out on the basis of a claim for quantum meruit on a contract which was not for a lump sum. The claim therefore for work done and for the cost of extras must succeed. But on a quantum meruit, the claim which was allowed for loss of profits cannot succeed and to this extent the appeal is allowed.

8. In the case of Ming & Co. v. Leong Ping Ching [1964] 1 LNS 111; [1964] 1 MLJ 312 the claim was on the basis of quantum meruit for the value of work done by the plaintiffs for the defendant in relation to a contract for the erection of certain additional floors to the back portion of premises. There was no formal written contract between the parties, apart from letters which the parties wrote to each other in connection with the construction work. The issue of whether the contract was a lump sum contract or otherwise was argued. Gill J scrutinised the contemporaneous evidence and concluded:

The main defence to the claim is that this was a lump sum contract which was abandoned after a part of the work had been done and that consequently on the authority of Sumpter v. Hedges [1898] 1 QB 673 the plaintiffs have no right to sue on quantum meruit. The answer to that is that in the first place the plaintiffs did not abandon the work, and, in the second place, this was not a lump sum contract. A lump sum contract is one in which the entire completion of the work by the contractor is a condition precedent to payment. To my mind, a contract in respect of which progress payments are made from time to time is not an entire or lump sum contract. The payments which were made in this case have been referred to as advance payments, but there is evidence that they bore relation to the work done. The doctrine of Sumpter v. Hedges therefore, in my opinion, has no application to this case.

9. Therefore, if the quotation is just an estimate whereby it identifies the items, quantities, rates and estimated value of works, it states the words ‘will be re-measured again” and there are progress payments made between the parties, the subcontract cannot be a lump sum contract.

10. In such circumstances, it appears likely that the court would rule in favour valuation of actual quantities of work done on site.

11. In other words, the amount payable shall be based on the actual quantities satisfactorily completed at the site and the quantities are subject to final measurement.

12. It follows that, upon completion of the subcontract work as per the settlement terms between the parties, the main contractor has to carry out a re-measurement exercise on the site and from the as-built drawings to measure the actual quantity of the work completed.

13. In this respect, it is not all worse either for the main contractor or the subcontractor. This is because the original sum will be subsequently revised to a lower sum or higher sum, it all still depends on the actual valuation on the site.

Determination

14. Determination of construction contract typically happen if one of the parties has ceased to perform their obligations under the contract, for example, if the contractor is no longer proceeding regularly and diligently with the works. However, the contract itself remains in place, and so do the rights of both parties.

15. In the event that the surrendering of Tower A by the subcontract is a form of ‘determination’ in relation to the subcontract which relates to the ending the subcontractor’s employment for Tower A and etc., the court would usually be inclined to rules that the main contractor shall allow or pay to the subcontractor the total actual value of work properly executed and the value of material and goods for work done on site including loss and/or expense suffered caused by such determination.

Burden of Proof

16. Case laws to this effect held that the burden of proving the actual quantity and value of the completed subcontract works is on the subcontractor.

What constitute fair valuation (if applicable)

17. In Weldon v The Commission for New Towns (English Technology & Construction Court, Judge Humprey Lloyd QC – July 2000), upheld the contractor’s appeal on an Arbitrator’s Award which excluded overheads and profit on costs of a variation order by deciding that a fair valuation has to include each elements usually found in contract rates or prices: costs of labour, plant, material, overheads and profit in the variation rate or price. He also said that it would not be a fair valuation if it did not include something on account for each of these items. The contract was under ICE Form.

18. In Henry Boot Construction v Alstom Combined Cycles Ltd (Court of Appeal – 2000), by majority, found that the relevant variations had to be priced using contract bill rate, notwithstanding the apparent mistake which meant the contractor was likely to receive a windfall profit. “The sole function of the words “so far as may be reasonable” in Clause 52(1) (b) was to call for comparison between the work covered by variation order and the work priced in the Bills of Quantities. If the difference was very great, the Engineer might take the view that it was not reasonable to apply the bill rates. Otherwise, the Engineer should start his calculations from the bill rates…. (The clause does) not enable the Engineer to open up or disregard the rates on the ground that they were inserted by mistake…it is the use of the rates in the change to circumstances brought about the variation order that must be reasonable not the rates themselves”.

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