A review of Clause 10.6 from a Commercial Management perspective - what obligations does it impose on the parties ?

1. DRAFT DOCUMENT
The Public Works Contract
Practical Application of Clause 10.6 – the
Valuation of Compensation Events
Mark Wearen MSc MSCSI MRICS MCInstCES
February 2020
www.staveleyandpartners.ie

2. DRAFT DOCUMENT
April 2015
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3. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10.6 and the CWMF
CWMF Document Ref GL/1 – Glossary
(Note : GN-3.1-v1.0 28-07-09 – deals with implementation phase)
(see the Form of Tender and Schedule Part 1 Section K…Compensation and Delay Events)

4. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10
PW-CF1-v2.4-05-06-19
Clause 1.2.1

5. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10
10.1.1 (2)
If the Compensation Event leads to an increase under 10.6, the extent of the increase shall only
take effect to the extent that, inter alia, the Contractor having made ‘all reasonable efforts’ to
avoid and minimise the adverse effects of the Compensation Event
10.1.2
The Contractor’s sole remedies for Compensation Events shall be those stated in the Contract –
See Schedule Part 1 Section K for a list of Compensation Events – note Event 16 is a ‘breach’
*
Thus the valuation of Breaches ‘delaying the Works’ is subject to Clause 10.6
*FTS-1-v2.3 06-06-2018

6. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10.6 – Purpose
PW-CF1-v2.4-05-06-19
Definition of a Variation : scope change involving additional, substituted or omitted work
= Compensation Event
Definition of Value : additional payment entitlement assessed in accordance with the
Valuation Rules under the Contract (including Profit)
Definition of Cost : expenses incurred including overheads (but excluding Profit) unless
otherwise defined in the Contract (e.g. FIDIC – ‘expenditure reasonably
incurred’ excluding profit)

7. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10.7 – Cost v Value & Coverage
PW-CF1-v2.4-05-06-17

8. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10.6 : the Valuation Rules
PW CF1 v2.4 05-06-2019
If ‘no’
Conditional
Alternative to
1,2, and 3
If ‘no’

9. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10.6 : the Valuation Rules
Employer Designed Works – Pricing Document is a BoQ : Rates
FTS1-V2.3 06-06-2018
• The Pricing Document should have been prepared in accordance with the prescribed Method of
Measurement
• The provisions included for within the rates inserted in the pricing document should be reflective of the
actual work to be constructed under the Contract and the conditions reasonably contemplated by the
Tenderer taking account of the Works Requirements and any Contractor’s Proposals
• Where the BoQ does not reflect the Works Requirements, a Compensation Event may arise

10. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10.6 : the Valuation Rules
Employer Designed Works – Pricing Document is a BOQ : Rates
General Item Coverage :
ARM 4 2009 Section A Part 6
• This item coverage is typical of Standard Methods of Measurement
• Thus rates included in BoQ’s prepared using ARM4 are deemed to include for the above items
• Provisions reflect Actual Work required and Conditions under which the Works are to be carried out
• Site Overheads (i.e. Preliminaries) are typically included for in their own BoQ items (not in the works rates)

11. DRAFT DOCUMENT
April 2015
The Public Works Contract – Sub-Clause 10.6.1 : Bill Rates Apply
PW CF1 v2.4 05-06-2019
Wates v Bredero (1993)
• ‘similar to work for which there are rates in the Pricing Document’ AND ‘to be executed under
similar conditions’
• Not either / or both
• SCSI Guidance Note on Valuing Change : Section 3.01 deals with ‘Changes in character’ and
Section 3.02 deals with ‘Changes in conditions’
• Character – change of : materials; method of fixing; background of other work
• Conditions – Varied Depths; Seasonal Variation; Completed Areas; Varied Access Constraints
etc
• Irrespective of what they expected, suspected or hoped for, Parties must look to the Contract to
establish what was required under the Contract unless the Contract contains an ‘ambiguity or
peculiarity’ (Wates v Bredero 1993)
• This is the bargain the Parties freely entered into….irrespective of the sufficiency or otherwise of
the rates

12. DRAFT DOCUMENT
April 2015
The Public Works Contract – Sub-Clause 10.6.2 : Bill Rates STILL Apply
PW CF1 v2.4 05-06-2019
Chartbrook v Persimmon (2009)
• ‘not similar to work’ OR ‘is not to be executed under similar conditions’
• Test of ‘reasonableness’ applies if either one of the two conditions applies
• What is ‘reasonable’ ? ‘Just, rational, appropriate, ordinary, or usual in the circumstances’ (Cornell Law School LII Wex
Legal Dictionary)
• Who decides ? The Reasonable Person – a Hypothetical construct meeting the legal standard ’who exercises the degree
of attention, knowledge, intelligence and judgement…acts sensibly, does things without serious delay, and takes proper
but not excessive precautions’ with ‘regard to all the circumstances including the terms of the Contract and having all
the background knowledge which would have been available to the parties’ (Black’s Law Dictionary 4th Pocket Edition
Page 626; Chartbrook v Persimmon (2009); Keating on Contracts 9th Edition, para 20-183)
• Sufficiency or otherwise of the rates is not a test of reasonableness

13. DRAFT DOCUMENT
April 2015
The Public Works Contract – Sub-Clause 10.6.2 : Bill Rates STILL Apply
PW CF1 v2.4 05-06-2019 & RIAI Yellow Form 2012 (with Quants)
Vs

14. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10.6.3 : Fair Valuation
PW CF1 v2.4 05-06-2019
• Bargain between the parties does not extent to work not covered by rules 1 and 2
• Rates under 10.6.1 and 2 include all items typically included in a unit rate including Overheads
and Profit
• Similar work – see comments on what is similar work under 10.6.1 above
• No mention of similar conditions
• However Fair Valuation under 10.6.3 states ‘based’ v ‘use’ under 10.6.1 and 2 – reasonable to
consider conditions as well as character
• No definition of ‘rates’ - can be unit rates with a defined item coverage or resource rates
applied to time/hours and/or quantities
• Rates for similar work ‘in the locality’, if available – reasonableness again !
• What is a ‘Fair Valuation’ ?

15. DRAFT DOCUMENT
April 2015
The Public Works Contract – Sub-Clause 10.6.3 – Fair Valuation
➢ The Contract does not define the term ‘Fair Valuation’
➢ For a valuation to be ‘fair’, it has to contain all the elements ‘ordinarily found in a
contract rate or price’
➢ Unit rates are deemed to include for item resources, overheads and profit (see ARM4
guidance note)
➢ If there are no applicable unit rates, a cost based valuation may be required
➢ Typically a Fair Valuation can be described as a valuation based on reasonable cost
properly incurred plus profit – but not ‘cost plus’
➢ Based on actual cost rates therefore current rates may apply which take account of
price variation
➢ Can also be a fair market rate (as opposed to ‘cost’)
Weldon Plant v Commissioner New Towns (2000) re; Fair Valuation definition ((see also Henry Boot v Alstom (1999) &
Floods of Queensferry v Shand Construction (1999))
Laserbore v Morrison Biggs Wall (1993) re; Fair Market Rate

16. DRAFT DOCUMENT
April 2015
The Public Works Contract – Sub-Clause 10.6.3 – Fair Valuation
Substantiation Typically Required for a Fair Valuation
➢ Contemporaneous Records for labour/ plant/ equipment/ materials/ other resources
➢ Current Market Rates or Actual Costs
➢ Adequate Substantiation of Supplier/Sub-Contractor Costs
➢ Quantity take-offs
➢ Invoices and Delivery Dockets (where/when available)
➢ Parties compiling such valuations must ensure that there is sufficient particularisation
and substantiation to enable the assessing party to understand, and challenge where
appropriate, the basis of the valuation
➢ Parties assessing such valuations must remember that a Fair Valuation does not have to
be so exact as to be ‘Actual Cost’ and that Contactor’s are not required to substantiate
their assessment of a Fair Valuation to such a degree of exactitude which is usually
(practically) unobtainable in a Construction Context (see Clause 10.3.1(2))
Ascon v Alfred McAlpine (1999) re; degree of substantiation
Lilly v Mackay (2012) re; degree of substantiation and role of the Design Team

17. DRAFT DOCUMENT
April 2015
The Public Works Contract – Sub-Clause 10.6.4
PW CF1 v2.4 05-06-2019

18. DRAFT DOCUMENT
April 2015
The Public Works Contract – Sub-Clause 10.6.4
• Basis of rates is entered by the Contractor at Tender Stage in the Form of Tender and Schedule Part 2
• ER ‘may conclusively direct’…how the ER determines….
• Relies on hours – but can be ‘hours worked or to be worked’ – indicates ‘Cost’ can be ‘Prospective’ ?
• Materials recovery is based on the ‘cost of materials’
• Plant recovery is based on ‘the cost of plant reasonably used’
• Typically should be instructed prior to execution to ensure records are maintained
Conclusive :
1. Determinative; beyond dispute or question. That which is conclusive is manifest, clear, or
obvious. It is a legal inference made so peremptorily that it cannot be overthrown or
contradicted
2. Authoritative; decisive; convincing
1. https://legal-dictionary.thefreedictionary.com/conclusive
2. Black’s Law Dictionary - Forth Pocket Edition; West; 2011

19. DRAFT DOCUMENT
April 2015
The Public Works Contract – Sub-Clause 10.6.4
Rates are intended for use only when there is a Conclusive
Direction….
• Contractors often utilise these rates when valuing Compensation Events
without such a Direction
• Employers are not obliged to accept the use of 10.6.4 rates for
Compensation Events which are not the subject of such a Direction
• They can be used by agreement
• They are inclusive of Overheads and Profit
• They are rarely the subject of a Conclusive Direction

20. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10.6 : Notes to Consider
• PWC Suite of Contract Forms PW CF1 to 6 – Clause 10.6 is the same in all versions
with the exception of the Short Form PW-CF6 (Clause 4.6 refers to ‘cost’ rather
than ‘fair valuation’)
• In D&B, the use of milestones or building/works elements means that there may
be no unit rates – in such circumstances, 10.6.3 may be the only solution in the
absence of either agreed amounts (e.g. quotations) or conclusive directions to
use 10.6.4
• Price Variation - the Contract is a Fixed Price Lump Sum however the Valuation
Rules permit a Fair Valuation where 10.6.1 and 2 do not apply – this could include
increased costs

21. DRAFT DOCUMENT
April 2015
The Public Works Contract – Clause 10.6 : Reference Documentation
• SCSI Guide to Valuing Change – 1ST Edition May 2016
• RICS – Ascertaining Loss and Expense; RICS Guidance Note UK; First Edition July 2015
• RIBA – Good Practice Guide: Assessing Loss and Expense; Jeff Whitfield 2013
• CECA Schedule of Dayworks Carried Out Incidental to Contract Work including Rail Items
Volumes 1 and 2 (October 2019) – note the previous version is dated August 2011
https://www.ceca.co.uk/publications/
• Construction Contract Law, 3rd Edition; John Adriaanse; Palgrave McMillan

22. DRAFT DOCUMENT
The Public Works Contract
Practical Application of Clause 10.6 – the Valuation of
Compensation Events
THANK YOU
Mark Wearen MSc MSCSI MRICS MCInstCES
February 2020
www.staveleyandpartners.ie