We have a subcontractor who has been instructed to carry out some re-labelling works and another instruction for some unforeseen snags.
I’ve asked them to submit a final forecasted value so I can monitor and manage the costs however the subcontractor has replied stating they cannot provide this as they don’t know the extent of the works?
How do we deal with forecasting works that are not known?
Use “Project Managers Assumptions” (61.6). In the PMI, the PM sets a set of assumptions, this might include an amount of “re-labelling” the PM has estimate are required. The Contractor prices the PMI as a CE (60.1.(1). Upon completion of the works, the PM can correct the final amount and this is a CE (60.1.(17) - “correction of a previous assumption”
Worked example: A construction site requires the Contractor to remove a zone of contaminated soil, where diesel oil has spilt. The exact zone of contamination is not clearly known on site by the Contractor or PM.
- The PM instructs the Contractor to bring an excavator to site and excavate a zone of contaminated soil that has a set of “Project Managers Assumptions” attached to the Project Managers Instruction (Cl.60.1.(1).
PM Assumptions: “The Contractor is instructed to excavate and remove contaminated soil, from a zone that is assumed to be: 20m long, 10m wide and 3m deep. The Project Manager assumes this equates to 600m3”
Contractor submits a CE quotation based on these assumed dimensions and volume, say £12,000 to excavate 600m3 of contaminated ground. They build risk and profit into the submission, the CE quote is built up using the Short Schedule of Cost Components. The Activity Schedule & Programme are revised and submitted with the CE quote.
CE is reviewed and implemented by the PM, works progress on site. Implementation moves the Key Dates, Planned Completion & Completion Date.
Contractor completes the works but only dug out 400m3, instead of the original implemented quote for 600m3. The Contractor gets paid the full £12,000 as they completed the activity at the quoted price (Option A). If on a target contract the target need to rise/fall.
PM discusses with Contractor the correct volume excavated, PM issues a instruction to correct a previous assumption made in CE1 (Cl.60.1.(17).
“Contractor is instructed to submit a quotation for the change in quantity/price of material excavated (200m3), this is a correction to the Project Managers Assumptions given in CE1.” (Cl.60.1.(17).
Contractor provides a CE quotation which is for the saving (200m3), PM accepts and implements the quote and changes the Total of the Prices (reduces).
In an ideal world the quote would be £4,000 saving. This in effect means the Contractor & PM paid for the correct amount excavated. However, it’s not as simple as taking the £4,000, the Contractor should price on a forecast of Defined Cost for the price reduction. Prices may have changed since the first CE quote and the Contractor is entitled to account for this in CE2 quote.
NOTE: The correction is commercial, the PM/Employer cannot get time back for the Contractor finishing ahead of programme, this becomes additional Terminal Float and belongs to the Contractor.