Henry Boot v Alsthom C C Limited (1999) TCC   © Daniel Atkinson 1999   © Daniel Atkinson 1999

The ICE 6^th Edition is a re-measure form of contract using the Bill of Quantities. In addition the Bill rates and prices are used in the valuation of variations. They are also used to value the effect of changes in the measure of the Works. The decision in Henry Boot Construction Limited v Alsthom Combined Cycles Limited (1999) TCC establishes the principles for valuation and provides useful guidance on the interaction and operation of Clauses 52(1), 52(2), 51(4), 55(2) and 56(2).

Valuation of Variations

The valuation of variations requires both the value of the varied work and the effect of the variation on other work to be considered, in Clauses 52(1) and 52(2) respectively.

Clause 52(1) applies three Rules to the direct valuation of the varied work. Rule 1 is to be found in Clause 52(1)(a). The principle is that if the varied work is of a similar character and executed under similar conditions to work priced in the Bill of Quantities then such Bill rates and prices shall be used to value the varied work. It was held in Henry Boot that the intrinsic profitability or otherwise of the rate or price is not relevant in applying Rule 1. It was immaterial that the Bill rate or price may appear "too high" or "too low". The work is not executed under dissimilar conditions simply because the applicable rate may result in the contractor being paid more or less than appeared to be "fair".

Rule 2 is at Clause 52(1)(b). The principle in this case is that if the varied work is of a dissimilar character or is executed under dissimilar conditions to work priced in the Bill of Quantities, then the Bill rates and prices shall be used as the basis of valuation so far as may be reasonable. It was held that the word "reasonable" referred only to the extent to which it was feasible to use a Bill rate or price as the basis of valuation, irrespective of the amount. The fact that the rate itself may not be reasonable was irrelevant. If for example the contractor had mistakenly priced the contract under a misapprehension as to the capacity of plant, this mistake could not be rectified through Rule 2, however reasonable it might appear to the contractor to do so. Rule 2 requires the Engineer to break down the quoted rates into the elements of plant, materials, labour and overheads, in order to make the appropriate adjustment. The Engineer is required to do so even if he does not have from the contractor any build up of the rate upon which the new rate is based. In that case he will have to arrive at a notional build up. He may be assisted in doing so by information obtained from the contractor’s contemporary records under Clause 52(4)(c). The elements of the rate are to be adjusted to make appropriate allowances for the effects of the variation, but those elements unaffected by the extra effort are not changed.

Rule 3 is also at Clause 52(1)(b) and applies if the other two rules do not apply. It requires a fair valuation to be made. It was held that a fair valuation under Clause 52(1)(b) generally meant a valuation which does not give a contractor more than his actual costs reasonably and necessarily incurred plus similar allowances for overheads and profit. It was held further that fairness is an objective test which takes into account the position of both parties. It is not clear from the decision how the profit and overheads are to be assessed; whether these are to be based on the contractor’s tender allowances, or whether the contractor has to show some loss of profit or loss of contribution to his overheads.

Work which is not itself varied is subject to Clause 52(2) which supplements the principles set out in Clause 52(1). The valuation of the varied work itself is dealt with in Clause 52(1). If other work is affected by the nature and amount of the varied work, then the relationship with the whole of the contract work must be investigated. The investigation must show that the variation caused "any rate or price contained in the Contract" for any item of work to be rendered unreasonable or inapplicable. Clause 52(2) then requires the Engineer to fix such rate or price as in the circumstances he thinks is reasonable and proper. It was held that this allowed valuation equivalent to a "fair valuation" under Clause 52(1)(b) but for other work. It is suggested that this part of the decision was not intended to preclude valuation based on rate fixing using a breakdown of quoted rates, but simply to emphasise that the Engineer could adopt a fair valuation if he considered this to be reasonable and proper.

The decision in Henry Boot distinguishes the effect of additional varied work on original measured work from the effect on other work. It was held that if the varied work was not eligible to be valued as a fair valuation under Clause 52(1), then it could not be replaced by a fair valuation under Clause 52(2). This was based on the wording of Clause 52(2) which applies only to a "rate or price contained in the Contract". This phrase was held to limit the application of Clause 52(2) only to rates and prices which were established by the contractor completing the Bill of Quantities, and not those established by the Engineer under Clause 52(1) for instance, through Clause 51 or 55(2). This literal interpretation of the phrase leads to the odd situation that varied work or work which was not properly described in the Bill of Quantities which is subsequently affected by further variations cannot be the subject of a Clause 52(2) valuation. It is suggested that this does not reflect the intention of the parties and that Clause 52(2) is not intended to distinguish the source of the rate or price, but applies to all rates so affected whether established under the contract or stated in the Bill of Quantities.

Valuation of Changes in Measurement

The rates and prices in the Bill of Quantities are not only used to value variations but also changes in the measure of the Works. These changes may involve changes in the item descriptions or changes in the quantities of the work described in the Bill of Quantities.

Clause 56(1) requires the Engineer to ascertain and determine by admeasurement the value of the work done. Clause 57 describes the method of measurement as CESMM and is intended to secure that Bills of Quantities are prepared to a standard uniformity. It is recognised, in the important proviso at the beginning of Clause 57, that the Contract may provide otherwise or there may be general or detailed descriptions of the work in the Bill of Quantities or any other statements which clearly show to the contrary. It was held that, generally, the contractor is entitled to assume that the Bill of Quantities has been prepared in accordance with CESMM and that the items and quantities found in the Bill of Quantities are reasonably accurate descriptions and estimates of the work shown on the Drawings and described in the Specification.

If the Bill of Quantities has not been prepared in accordance with CESMM, subject to the proviso in Clause 57, then the error in description or omission from the Bill of Quantities is corrected under Clause 55(2). It was held that Clause 55(2) represents an agreement by the parties that the rates and prices are to be used by the Engineer to value the correction of the error or omission. Although Clause 55(2) adopts the same mechanism for valuation of errors and omissions as is adopted for valuing variations, namely Clause 52, the work itself is not a variation under the contract. All that has happened is that the Works required to be executed in accordance with the other contract documents, primarily the Drawings and Specification, have not been fully or properly set out in the Bill. A careful analysis of the decision in Henry Boot shows that it was held that the Engineer cannot use a fair valuation under Clause 55(2). It is not clear why there should be such a restriction since the Clause itself has no such limitation. Indeed where an item description has been omitted there may be no appropriate rate so that fair valuation is the only mechanism available to the Engineer. The proviso in Clause 55(2) is that there will be no rectification of any errors omissions or wrong estimate in the descriptions rates and prices inserted by the Contractor in the Bill of Quantities. This restates the fundamental proposition that the contract rates and prices are not subject to correction, also found in Clause 11(3)(b).

If the take-off of quantities for an item in the Bill of Quantities was incorrect or the as-built quantities differ, then Clauses 51(4) and 56(2) provide a remedy. No distinction is made between the two possible causes of the change in quantities.

It was held that any increase or decreases in the original billed quantities is a variation through Clause 51(4) since the clause states in effect, through the proviso, that no order in writing is required for them. It follows that changes in quantities are to be valued in accordance with Clause 52.

It was held that Clause 56(2) does not apply to work which falls under Clause 55(2), namely errors or omissions in item descriptions, but to changes in actual quantities compared to those stated in the Bill of Quantities. If the change in the quantities in itself renders unreasonable or inapplicable any rate or price, then an appropriate increase or decrease in that rate or price has then to be made. It was held that a fair valuation cannot be made under this clause, but that valuation under Clause 56(2) operates in the same way as valuation under Clause 52(1)(b) i.e. Rule 2.

Clauses 51(4) and 56(2) appear to overlap since they both operate when there has been a change in quantities. It is suggested that valuation under Clause 56(2) is similar to Clause 52(2) in that it applies to other work. The test is different. The distinction is not clear from the decision, but it is possible that Clause 56(2) applies only to errors in the quantities in the Bill of Quantities and that Clause 51(4) only applies to changes in quantities due to variation of the works through detailed drawings for instance. It is suggested that the better interpretation is that neither Clause 51(4) nor Clause 56(2) are so restricted, but are both triggered by the actual quantities simply being greater than those in the Bill, for whatever reason.