Dispute and Cost Control in the provision for Variations – a Comparative Analysis of NEC3 & PSSCOC A. Variations (cost control) B. Dispute Resolution A. Cost Control in Variations Generally, cost control in the provision of Variations under most of the building contracts are stated in different steps. Hence, the steps can be generally divided into 3 stages which are variation notification, quotation submission and valuation based on rate, quantity or daywork. The comparison on the Variations was done under NEC and PSSCOC.
Clause 60 of NEC, defines the variations in Compensation Events base on the PM instruction on the changing of work information which is unreasonable to him. Clause 19. 1 of PSSCOC, defines the variations as “any change in the original contract intention”. A. 1 Variation Notification In the provision of clause 61. 1 of NEC, PM give instruction and the Contractor has to submit quotation on the changing decision event. Clause 61. 3 states that the Contractor has to notify PM within 8 weeks from the event happened, failing which he is not entitle to claims on the cost and time implication. Under clause 61. , PM has to reply within 2 weeks of the Contractor notification, or else the notification will be treated as acceptance by PM. Under clause 20. 2 (1) of PSSCOC, the Contractor has to carry out and comply with SO instruction even though the instruction may not a variation to the Contractor. However, the Contractor may request for variation from SO under clause 19. 2 in writing within 14 days from the date of SO receipt of the instruction. A. 2 Quotation Submission Under clause 62. 2 of NEC, PM instructs the Contractor to submit his quotation and any delay to the completion date that assessed by the Contractor.
However, by clause 63. 2, if there is any cost saving or omission that reduce the total Defined Cost/ Contract Sum, the price are not reduces unless stated in the Contract. By clause 19. 3 of PSSCOC, SO may request the Contractor to submit quotation for his acceptance and SO is empower to accept the quotation without applying the provision of clause 20 on the valuation of variations and also Loss and Expense entitlement. A special feature in provision of clause 19. 4 on any alternative proposals by the Contractor that enable the Employer to enjoy cost saving that will be shared equally by the Contractor and Employer.
The Contractor may entitle to claim the half amount of saving under clause 32 Progress Payment and Final Account. A. 3 Quotation assessment/ valuation The assessment of compensation event in NEC base on clause 63. 1 showed in the list as below: 1. Actual Defined Cost (work has done) 2. Forecast Defined Cost (work not yet done) 3. Resulting Fee The assessment of compensation event by PM is fixed although the later recorded information to have been wrong under clause 65. 2. Figure 1 shows the process of quotation submission to evaluation in NEC All variations shall be commonly assessed as follows in PSSCOC: 1. Clause 20. (b) states that SO determine the valuation by “the Rates for the Works” as set in the Contract with fair allowance base on the site allowance. 2. Clause 20. 1(c) provides second option that the valuation can be judged by SO base of fair market rate. 3. Clause 20. 1(d) gives another option for SO to assess the quotation of actual cost incurred plus 15% of profit and attendance. 4. For those item without contract rate or difficult to be measured, daywork rates should be access by SO on the labour, material, equipment or machinery recorded in the Daywork Sheet for verification within 3 days after the work has been executed.
Figure 2 shows the process of quotation submission to evaluation in PSSCOC In practical, dispute is commonly happen when an additional request was made orally and not in written or any changes in design especially when in the provision of the contract mention that no variation of work will be granted unless authorized by the Client/ Client’s representative in writing. A similar approach was applied into a sub-contract was discussed in Hong Kong case Sincere Air-Conditioning Co. Lts v A S Watson Group (HK) Ltd 1 B. Dispute Settlement Dispute always happen when several parties are not able to agree on a common ground.
Thus, there are several ways in resolving the dispute such as negotiation, mediation, arbitration or adjudication. The comparison on the procedure of dispute settlement was done under NEC and PSSCOC. By subclause W1 & W2 of NEC, the dispute resolution procedures can be raised under 2 options: W1- less time conscious W2- more time conscious (time counts exclude Christmas, Good Friday and Bank Holidays) Under clause 35. 1 of PSSCOC, dispute between Employer/ SO/ SO representative and Contractor can be happen during work execution, after completion and before or after the termination of contract.
Figure 3a- Dispute Resolution Procedures in NEC- Option W1 Figure 3b- Dispute Resolution Procedures in NEC- Option W2 Figure 4- Dispute Resolution Procedures in PSSCOC Conclusion PSSOC seems to cite the employer as we interpret from the variations clauses compare with NEC which likely to be on the fair side. The methods of valuation in PSSCOC are more comprehensive compare with NEC which is simple and straight forward. The valuation of compensation event by the PM in NEC seems to be fair to all the parties and induces lesser time.
Generally, the procedures in resolving the dispute in NEC are likely to be more efficient and cost saving than PSSCOC. On the other hand, there is a special feature in NEC which likely to cause the complexity of the dispute settlement when involve the subcontractors. Table of cases Sincere Air-Conditioning Co. Lts v A S Watson Group (HK) Ltd 1 Asia Pacific Construction Law Casebook – Hong Kong, Malaysia and Singapore 2008 by Philip CF Chan, Asanga Gunawansa, Lim Chong Fong and Arthur McInnis LexisNexis 2010 Table of Legislation Variation NEC – cll 60, 61, 62, 63. , 63. 2 PSSCOC – cll 19. 1, 19. 2, 19. 3, 19. 4, 20. 1, 20. 2 Dispute resolution NEC – subcll W1 & W2 PSSCOC – cll 35. 1, 35. 2, 35. 3, 35. 5, 35. 6 ———————– If either party still disagrees, then have to settle it under the provision for dispute resolution Clause 35 The Contractor to receive the valuation and if disagree, give notice within 30 days of the receipt date or else deemed to have accepted the valuation Clause 20. 2(e) The Contractor disagree upon receive, SO to amend the valuation and adjust in the next payment certificate Clause 20. 2(f)
Contractor to submit quotation with all relevant details on the Variation within 30 days from SO certificate Clause 20. 2© SO valuate & notify the Contractor in writing the value of Variation and certify in the next payment certificate within 60 days from SO certificate Clause 20. 2(d) PM need to reply by instruction to revise or accept the quotation PM have to notify the proposed instruction will not be given or he will make his assessment within 2 weeks from quotation submission Clause 62. 3 Contractor to submit quotation & delay date on the Compensation Event within 3 weeks from PM instruction
Clause 62. 3 If PM never reply on the quotation within 2 weeks, deemed to be accepted by PM Clause 62. 6 The Contractor to revise his quotation within 3 weeks of the receipt instruction date or extend the date if both agree so Clause 62. 4 If either party still disagrees, then have to settle it under the provision for dispute resolution Subclause W1 or W2 Employer or Contractor can notify another party to refer to an Arbitrator nominated on either party by the Chairman of the Singapore International Arbitration Centre. within subsequent 90 days from the expiry of 30 days if both parties agree) Clause 35. 2 Termination of the Contractor or Abundant project The Contractor to raise the dispute within 60 days of the Notice of Termination or act of repudiation/ abandonment. If not, no entitlement for any arbitration/ court Clause 35. 3 Adjudication If the dispute involves Building & Construction Industry Security of Payment Act (if both parties agree) Clause 35. 5 Formal Mediation at Singapore Mediation Centre in accordance with its prevailing prescribed form, rules and procedures (if both parties agree) Clause 35. 6 SO fails to give notice of decision ithin 30 days Clause 35. 2 Dispute refer to SO Clause 35. 1 Dispute refer to & decided by Adjudicator Subclause W1. 1 Clause 35. 1 Dispute is notified and referred to Adjudicator in Adjudication table shown in Annex C. The Contractor gives notice of dispute between 2 to 4 weeks. Subclause W1. 3 (1) Referral Information to the Adjudicator within 4 weeks and may extend if all parties agree. Subclause W1. 3 (3) Dispute can be raised in connection with a subcontract and interpreted including subcontract. Subclause W1. 3 (4) Dispute refer to & decided by Adjudicator Subclause W2. 1 Clause 35. 1
If unsatisfied by a Party, the party can refer to Tribunal to reconsider Adjudicator’s decision. The party needs to give notice within 4 weeks from the date of notification of Adjudicator’s decision. Subclause W1. 4 (2 & 4) If the tribunal is Arbitration, the procedure, place, choosing of arbitrator follow the Contract Data. Subclause W1. 4 (5) Adjudicator is not the witness in tribunal proceedings. Subclause W1. 4(6) The parties appoint independent adjudicator (not as an arbitrator) at the starting date Subclause W2. 2(1) Adjudicator assess with Compensation Event which incur additional cost and time.
Subclause W1. 3 (7) Adjudicator’s decision is final binding on the Parties as contractual obligation (if no abjection by any parties) Subclause W1. 3 (10) The parties appoint independent adjudicator (not as an arbitrator) at the starting date Subclause W1. 2(1) If unsatisfied by a Party, the party can refer to Tribunal to reconsider Adjudicator’s decision. The party needs to give notice within 4 weeks from the date of notification of Adjudicator’s decision. Subclause 2. 4 (2 & 3) If the tribunal is Arbitration, the procedure, place, choosing of arbitrator follow the Contract Data.
Subclause W2. 4 (4) Adjudicator is not the witness in tribunal proceedings. Subclause W2. 4(5) Adjudicator assess with Compensation Event which incur additional cost and time and notify the Parties and PM Within28 days of the receipt of notice of adjudication & may extended by period agreed by the Parties Subclause W2. 3 (8) If either Party do not agree on the extension, may act as if the Adjudicator has resigned. Subclause W2. 3(10) Adjudicator’s decision is final binding on the Parties as contractual obligation (if no abjection by any parties) Subclause W2. 3 (11)
A party has to refer dispute to Adjudicator, give information to Adjudicator and give the same to another parties Within 7 days of the receipt of notice of adjudication Subclause W2. 3 (2) Adjudicator has to notify the Parties whether he able or unable to decide the dispute within 3 days of the receipt of notice of adjudication Subclause W2. 3 (1) If he failed, he has to resign Referral Information to the Adjudicator within 2 weeks and may extend if all parties agree. Subclause W2. 3 (1) Dispute can be raised in connection with a subcontract and interpreted including subcontract. Subclause W2. 3 (3) ———————– 7