There is a case in Option C contract, the Contractor’s costs overall are far less than the Bill of Quantities rate but that the bill rates for the works are actually underpriced. As a Project Manager, how to make an assessment for a compensation event?
Thanks.
First off, under option C you would expect an activity schedule rather than a B of Q. Either way, under option A and C the Contractor takes the risk of errors in activity schedule, where as Employer takes risk in options B and D. This is option C, so any errors in that B of Q will be Contractor risk in terms of building up the original target Price.
As with any CE, it is assessed by building up a quotation in terms of the elements within the schedule of cost components. Only if both Parties agree do you use any rates or lump sums from activity schedule/B of Q and even then on a case by case basis.
So in this case it will simply be working out the cost of what the extra works (or omitted works) will be or would have been using existing known market rates in accordance with the elements of the schedule of cost components. if it is omitted works, the fact they under-priced it in the first place within the target Price is irrelevant. Equally if the Employer wants more and the Contractor under-priced them then the CE will be based on actual forecast cost not the tendered rate. This will then change the target price up or down, and obviously the Contractor is still paid actual cost under option C so any difference between their tendered rate and the value agreed will come out in the pain/gain calculations.