Geoff Parish as at 6th August 2017

CA CONS 6812 E5 8-8-17 Provisional Sums etc.

Contract Administration CONS 6812 - Class exercise No.5

This Topic is Provisional Sums etc. Thursday 8th August 2017

The following questions assume NZS 3910 Conditions of Contract will apply to the project. Explain
means describe in sufficient detail to demonstrate your complete understanding of any technical
terms that you may use such that someone unfamiliar with construction work would also have
complete understanding of what you write. When at work and you want to persuade someone to
pay you more money than they think you are entitled to, you need to be able to persuade them with
logical argument backed up by contractual rights, for example, using the content of NZS 3910 to
justify your claim. Quoting a clause reference without being able to explain how it supports your
claim will not suffice. It is not always easy to do this but it gets easier with practice. There is no single
answer to any question, and a range of possibilities occur based on the following options:

1.2 Definitions - Schedule of Prices: Any Schedule included in the Contract which shows prices
payable for sections or items of the Contract Works and may also include quantities, rates,
Provisional Sums, Provisional Items, Prime Cost Sums, and contingency sums

4.2 Nominated Subcontractors 4.2.1Principal orEngineer* may nominate a Subcontractor to

carry out workorsupply Materials or services required under the Contract. Except wherework or
supply is covered by a Provisional Sum, a Provisional Item, or a Prime Cost Sumin the Contract
Price, the nomination shall be made in the Tender Documents. The Contractor employ[s] the
Nominated Subcontractor * I am unsure why this point is made, the Engineer is acting as the
Principals agent [see 6.2.1(a)] when doing this, and does what the Principal tells him/her to do.

12.9 Provisional Sums 12.9.1provided for workto be executed by the Contractor or by a

Nominated Subcontractor or for any item the Cost of which is to be borne by the Contractor

12.10 Provisional Items 12.10.1provided for individual elements of work, with rates against
nominal quantities in the Schedule of Prices if A provided tenderers with a Schedule of Prices it
would be useful to value work the Contractor would perform so as to control the cost against
already agreed rates. If the work was unrelated to rates in the Schedule it would not help much.

12.11 Prime Cost Sums 12.11.1provided for Materials to be supplied by the Contractor or by a
Nominated Subcontractor for incorporation into the Contract Works, and for which freedom of
selection by the Engineer is reserved

12.12 Contingency sums 12.12.1provided for any work which may be executed by the Contractor,
but the expenditure on which is unknown at the time of calling tenders.

5.5 Separate Contractors 5.5.1 Where provided in the Special ConditionsPrincipal may arrange for
work on the Site not included in the Contract to be carried out by Persons other than the Contractor
including the Principals employees and concurrently with the carrying out of the Contract Works

Schedule of rates see http://en.allexperts.com/q/Construction-Law-914/2010/11/Schedule-Rates-

Contract.htm

Q1.. A wants a multi storey office building constructed but is unsure of who will occupy it so cannot
be sure of which floors will be occupied by which tenants and floors they occupy may be let between
different tenants. A wants the building contract to be completed by a single contractor including
the fitting out of the building. A also wants to get competitive tenders for the work. Explain how A
can accommodate its requirements without being able to detail the partitioning etc.? A commonly
adopted solution is to include a monetary sum for tenderers to include in their bid using 12.9
Provisional Sums. As and when floor space is let and partitioning and other necessary adaptions are

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Geoff Parish as at 6th August 2017
CA CONS 6812 E5 8-8-17 Provisional Sums etc.

finalised, typically including electricity supply, and possibly involving suspended ceiling installation
and other finishing work. The Provisional Sum is then deducted from the Contract Price and the
Engineer gives the Contractor a 9.2 Variation order to perform the work as tenant requirements are
known. If the Principal wants uniformity in the building, it can nominate a Subcontractor within the
Provisional Sum to install the partitioning etc. after inviting tenders from suitable companies on a
schedule of approximate quantities, which is then converted into a schedule of rates and becomes a
Contract Document.

Q2.. Explain why it is to the Principals advantage to include allowances for work not yet detailed
within the tender documents rather than ask for tenders for work that can be detailed, and later to
issue Variations to cover additional work? Providing allowances in the tender documents for
undetailed work lets contractors bid for the work without the Principal having had to finish the
projects design beyond what is needed to get building consents etc. A Principal typically wants to
see work start on site as quickly as possible. Whether this is a sensible attitude to adopt is an issue
beyond the scope of this Exercise, I believe in most situations it simply encourages insufficient
attention to be paid to the design before work on Site starts. The monetary sums inserted into the
Tender Documents allows design in certain areas to be finalised even whilst work is in progress. The
alternative of later issuing Variation orders would create insurmountable problems for the Principal
because it would have little choice but to employ the Contractor to do the work and the Contractor
would claim the additional work, that would not have been anticipated in the Contract Works, would
severely impact both its Costs and the Due Date for Completion, which it would, because the
Contract would not then be accommodating the extra work.

Q3.. Explain which parts of NZS 3910 you would recommend be used to cover the following
circumstances anticipated in an office building, in the tender process, and why? If there are
alternatives explain them too.[refer NZS 3910 extracts above].

3.1.. Limited ground investigation work has been carried out, it is assumed that piles will not be
necessary, and a building consent has been obtained assuming pad and beam foundations, but the
ground in the area is uncertain and variable and piles may be needed. This is possibly the biggest
cause of disputes over construction work and 9.5 Unforeseen physical conditions 9.5.1 The term
physical conditions shall include artificial obstructions but shall not include weather conditions or
conditions due to weather unless those conditions occur as a result of weather away from the Site
can be difficult to interpret according to the actual circumstances found to exist on Site when
excavation work starts. An added problem is that Subcontractors will usually qualify their price for
doing groundwork to the effect that it is limited to carrying out the work indicated by the Contract
Drawings. This is significant in respect to the Specifications which may impose a responsibility on the
Contractor which exceeds that anticipated by 9.5.1. The Contractor would be unwise to accept
responsibility for foundation work it cannot pass on to a Subcontractor, and even if the subcontract
makes provision for passing on the risk, if the risk proves to be too much for the Subcontractor to
manage, the financial risk remains with the Contractor. Ground problems can be very expensive. The
most likely option for the Principal is to allow a Contingency sum 12.12.1.

3.2.. The mechanical and electrical service design has be held up by the inefficiency of the company
doing the design so details will not be available before tenders are called. Usually a monetary sum is
allowed under 12.9 Provisional Sums and when details are available tenders are called and the
mechanical and electrical contractor chosen by the Principal is nominated under Nominated
Subcontractors 4.2.1

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3.3.. There is uncertainty over the light fittings which will affect the suspended ceilings which may
have to accommodate flush mounted fittings or recessed fittings. These would be dealt with under
Prime Cost Sums 12.11.1 and the monetary sum may be included with 12.9 Provisional Sums in 3.2..
above or listed as a separate item. When there is a Schedule of Prices the monetary sum can be
listed in it but otherwise they can be inserted into the Specification. Care should be taken to
establish a complete list of monetary allowances and to identify those which concern Materials only,
in which case the Contractor will have to allow somewhere in its tender for the labour involved in
installing the Materials, and those monetary sums which include an allowance for both labour and
Materials. Care must be taken to check carefully because it is not unusual to find the same monetary
allowances contained in different Tender Documents. Never assume the people who prepare and
assemble the Tender Documents are themselves careful or competent.

3.4.. The Principal wants the building to accommodate a bronze statue mounted on a large plinth in
the foyer of the building which must be installed before the building is ready for occupation, but is
unsure whether a building contractor can be trusted to have it made and installed properly. The
Principal could engage the artist who prepared the model and whoever created the bronze under
Separate Contractors 5.5.1. The Contractor could presumably be trusted to construct the plinth and
a monetary allowance could be included under Provisional Sums 12.9.1 for work the Contractor
should be capable of carrying out.

3.5.. The Principal cannot decide what type of water closets should be installed, wall mounted or
floor mounted. The Principal should be encouraged to make its mind up PDQ, the choice involves
significant construction detail and drainage layout and may even affect structural members. The
item can be included in a Prime Cost Sum 12.11.1 but unless a decision is made quickly, problems
loom on the horizon.

Q4.. The Principals brother-in-law owns an aluminium joinery manufacturing company and is
considering using it to supply the cladding system the company makes and installs. Advise the
Principal of the advantages and disadvantages of the following and explain the various contractual
terms relevant to each situation:

4.1.. Give tenderers outline specification and drawing detail of the cladding system and make
cladding a design and build component of the main contract. The required standard for a design and
build component is fitness for purpose so any problems become the Contractors responsibility.
This avoids the situation where for example the building leaks, the Principal cannot prove its
designer was negligent and the Contractor says it correctly followed the designers advice so it
becomes the Principals problem. The work does have to be co-ordinated with the structural design
engineers because the cladding has to be attached to the structure. It is also important to allow
fixing of cladding to be carried out from inside the building because otherwise external access
scaffolding will be required at considerable expense to the Contractor.

4.2.. Tell tenderers they must employ the brother in laws company to supply and install the cladding
system. They say never employ friends or family, it only leads to strife but if it is done that way, the
company becomes a Nominated Subcontractor under 4.2.1. Dont do it.

4.3.. Tell tenderers they must use the brother in laws company to supply the cladding and but can
install it using anyone they want to. The company then becomes a Prime Cost Sum 12.11.1 but
because the brother in law knows he has the contract there is no real incentive to agree a
competitive price and the bulk of the Cost in the manufacture of the cladding units rather than the
installation.

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CA CONS 6812 E5 8-8-17 Provisional Sums etc.

4.4.. Ignore the brother in law, have the cladding detailed, and let him tender to main contractors
bidding for the work, like any other joinery company. Yes, and he may never speak to you again
which may be good news or bad news, depending on how likeable he is.