PQSL Event - Variations, Provisional and Prime Cost Sums

10-Mar-2005
Reported by K.K. Yung, JO Co-opted Member

Variation work is an inevitable part of a construction project. Valuation of variations is

then one of main duties for a quantity surveyor. Both Prime Cost and Provisional Sums
are the amounts included in the Bills of Quantities (BQ) for Nominated Subcontractors'
and Suppliers' work, and items which could not be measured respectively. Both above-
mentioned sums are to be adjusted by a quantity surveyor.

On 10-March-05, JO organized a PQSL event titled "Variation, PC Sums and Provisional

Sums" at the Surveyors Learning Centre. The honourable guest speaker for this seminar
was Mr. K.C. Tang, the Director of K.C. Tang Consultants Limited. Mr. Tang is a very
experienced Q.S. For years, he has been participating in educating our young surveyors.
He has been responsible of the APC forum on HKIS website for answering the questions
about APC exams and our QS practice. Also, he has been an assessor for APC exam for
many years.

Mr. Tang started the seminar with the concept of Variation Order. What constitutes a
Variation Order? According to clause 11(2), the term "variation" means the alteration or
modification of the design, quality or quantity of the Works as shown upon the Contract
Drawings and described by or referred to in the Contract Bills (with quantity form) /
Specification (without quantity form), and includes 1) the addition, omission or
substitution of any work, 2) the alteration of the kind or standard of any of the material of
goods to be used in the Works, and 3) the removal from the site of any work, materials or
goods executed or brought thereon by the Main Contractor for the purpose of the Works
other than work, materials or goods which are not in accordance with this Contract.

Although clause 11(2) gives the definition of a Variation Order, its wording does not
cover some circumstances which will be argued by the Main Contractor as a V.O. to the
contract. He cited that change of access or change of working hour during the course of
the contract would increase the difficult of operation, and thus would reduce its
efficiency. A main Contractor will raised these changes as V.O. but the circumstances
stated under clauses 11(2) do not allow for these change. Mr. Tang considers that as a
Quantity Surveyor, we should remains impartial and advise the client that this should be
regarded as a V.O.

Mr. Tang then moved to the definition of Prime Cost and Provisional sums. Prime Cost
Sums are the amounts included in BQ to be paid by the Main Contractor to the
Nominated Suppliers or the Nominated Sub-Contractors, statutory undertakers, or utility
companies on the Architect's written instructions. Main Contractor is allowed to price for
an attendance which is a lump-sum amount for work carried out by Main Contractor to
the Nominated Supplier or Nominated Subcontractor. Profit can also be allowed, which is
inserted as a percentage, on the workdone of Nominated Supplier or Nominated
Subcontractor.
Provisional sums are the amounts included in the BQ for works to be carried out by the
Main Contractor which have not been specified in details at the time of tendering.
For some circumstances, work under provisional sums which has been intended to be
carried out by Main Contractor, would be later considered by the client to be awarded to
another nominated subcontractor. The architect shall issue an instruction for this
conversion of this provisional sum to a P.C. sum, and the attendance and profit to the
Main Contractor will then agreed between both parties.

Valuation of variations is one of the main duties of a Quantity Surveyor, regardless of

those working in consultant firms or contractors. Clause 11(4) lays down the rule for
valuation of variations as follows:

1) Work of similar character in similar conditions, use BQ rate to determine

proportionally valued rates (pro-rata rates),

2) Work of dissimilar character or executed under dissimilar conditions, use BQ rate as

far as reasonable (pro-rata rates) or make a fair valuation.

3) Work that cannot be properly measured or valued, use dayworks, which is written
evidence of time spent and materials used to carry out variation work. The information is
recorded on standard dayworks sheets, which are signed by the clerk of works.

Then what does a fair valuation under clause 11(4)(b) mean? Mr. Tang pointed out that
this should be a market rate, e.g. BQ rates for work of similar nature in the current job or
other jobs. When using the BQ rates in other jobs for valuation of a variation, Mr. Tang
reminded that a quantity surveyor shall take account of the particular features of the job
in question, e.g. site conditions, access to site, otherwise a fair valuation cannot be made.

Clause 11(4)(d) deals with the rule of assessing omitted work. The BQ rates for omitted
work should be used as a basis for valuation of omitted work. In case of that the omission
leading to substantially varying the conditions for the execution of remaining work, e.g.
the omission resulting in the fixed cost for remaining work being enhanced or loss of
efficiency being caused, the main contractor is entitled to seek for a fair valuation of the
remaining work.

As variations will cause extra cost to the main contractor and lead to a heavier financial
burden in the course of the contract, clause 11(5) entitles the Main Contractor to be paid
for the workdone of variation work in interim certificates.

If the Main Contractor is involved in direct loss and/or expense due to variations, it can
be reimbursed under the rule of valuation under clause 11(4), the Main Contractor can
make application to the architect under clause 11(6) to seek for reimbursement. One of
the examples for direct loss and/or expense caused by variation is disruption to the
Works. Mr. Tang pointed out that this clause allows the additional cost incurred with
claim nature to be separately valued from valuation of variations under clause 11(4).

Discrepancy in or divergence between the different parts of a Contract document may

happen, e.g. discrepancy between contract bills and drawings, between drawings and
specifications. Method to deal with these circumstances is set out in clause 12(1). In
"with quantity" form of contract, contract bills takes precedence over drawings and
specification, while in "without quantity" form, specifications prevail over other parts of
documents. Due to the prevailing status of contract bills in "with quantity" form, the
Architect shall instruct instructions to cover any errors in description or in quantity in or
omission found in contract bills, drawings and/or specifications, then the Main Contractor
can be reimbursed with the incurred extra cost under clause 11(4).

The talk was concluded by Mr. Tang's explanation of adjustment of Prime Cost and
Provisional Sums in settlement of Final Account. Both Prime Cost Sums and Provisional
sums shall be deducted from the Contract and the works carried out shall be measured
and valued in accordance with the Conditions of Contract, and then the value added back
to the Contract Sum for final account settlement. For P.C. Sums, no adjustment will be
made to any sum allowed by the Main Contractor for attendance but the amounts allowed
for profit will be adjusted based on the percentage inserted according to the actual
amounts paid by the Main Contractor to the Nominated Sub-Contractor or Nominated
Supplier.

During this seminar, Mr. Tang led us to read every wording in clause 11. This approach
gave us a better understanding towards the mechanism behind this clause. To show our
appreciation towards Mr. Tang, our JO committee member, Joseph Chong, presented a
souvenir to Mr. Tang on behalf of JO. All attendees gave a big applause to Mr. Tang for
his educational seminar.

BOOK
The Contractor's Basis of Valuation for Rating Purposes