1) Star Rates are alternative rates used to value variations when the original contract rates do not apply, such as for more complex work. They may be based on similar work rates, market prices, or agreed rates between the engineer and contractor. 2) There is often disagreement on whether Star Rates should include overhead and profit. A UK court case found that fair valuation for variations should cover all reasonable costs including overhead and profit. 3) Hill International is a global construction consulting firm that provides program management, project management, and claims consulting services to help clients manage construction risk.

1. Volume IV Issue No. 2
The Global Leader in Managing Construction Risk
STAR RATES
In recent years modern Contract forms have complicating the MEP design. The actual issued. The Arbitrator considered that the
brought about significant improvements to Works performed are more complex than Contractor was entitled to its costs but not
the construction landscape. However, some envisaged at tender resulting in increased overheads and profit.
traditional industry traits remain as robust costs. In such a case, Contract rates similar However, on appeal the Court held that fair
as ever. Variations remain the lifeblood of a to the work undertaken may be used as the valuation would “ordinarily” be based on
project. Contractors crave them, Employers basis to determine a Star Rate to value such the reasonable cost of carrying out the work
and Consultants loathe them. They cause work. Alternatively, in the absence of similar and that this would include labour, plant,
havoc with the programme, disrupt the rates, suitable rates may be agreed upon by materials, the cost of overheads and profit,
works, and invariably cause disputes as to the Engineer and Contractor. otherwise it would not be a fair valuation
their need and value. under the Contract. Although this case falls
The difficulty to determine what is often under English legal jurisdiction and is not
Most JCT and FIDIC based Contracts set out referenced in the Contract as a ‘fair rate’ legally binding in the Middle East, the
‘rules’ for valuing Variations. FIDIC Fourth often involves analysis of quotations, principles that arise from the case are
Edition (1987) Clause 51.1 provides six market prices and trends. What is meant by persuasive in addressing the evaluation of
scenarios where the Contractor is entitled ‘similar conditions’? How do you calculate Star Rates in this region.
to recover additional cost arising from Star Rates? Should they include overhead
instructed Variations, provided that the and profit? Star Rates can be more
Variation has not resulted from Contractor expensive for the Employer if they are - Edward Ryan
default. FIDIC Clause 52.1 states that the based on cost plus profit rather than Senior Consultant of Hill Claims
Engineer should value Variations in the competitively tendered Contract rates. Not Group
following order of precedence: surprisingly, Engineers tend to be dismissive
of Star Rates as these move away from the
a) at the rates set out in the Contract if, in original rates stated in the Contract. Whilst
the opinion of the Engineer, the same there is no guaranteed way around this, if
shall be applicable; the Engineer can be convinced that Contract
rates are not applicable (in whole or in part)
b) if the Contract does not contain any then Star Rates will be applicable i.e. rates
rates or prices applicable to the varied which are not Contract rates but may be
work, the rates and prices in the derived in part from some element of the
Contract shall be used as the basis for same. In order to successfully negotiate the
valuation so far as may be reasonable; use of Star Rates a party must demonstrate
to the Engineer the inapplicability of
c) Failing which, after due consultation by Contract rates. This might be justified where
the Engineer with the Employer and the the Works are a different size, quantity,
Contractor, suitable rates or prices shall nature and/or scope to that stated in the
be agreed upon between the Engineer Contract.
and the Contractor;
In the case of Weldon Plant v Commission
d) In the event of disagreement the for New Towns [2000] TCC BLR496 the
Engineer shall fix such rates or prices as Courts addressed the above points. The
Hill International, with 3,000
are, in his opinion, appropriate and issue was the meaning of “fair valuation” of employees in 100 offices worldwide,
shall notify the Contractor accordingly, variations under ICE 6th Edition Clause 52(1). provides program management,
with a copy to the Employer. In particular, whether a contractor was project management, construction
required to prove loss of opportunity as a management and construction claims
How do you value Variations? Many people result of the Variation before being entitled and consulting services. Engineering
have conjured up different, and often to be paid overhead and profit. News - Record magazine recently
‘creative’ ways. One approach is the use of ranked Hill as the 11th largest
new rates, or ‘Star Rates’. Star Rates tend to The Arbitrator decided that the instruction construction management firm in the
be used where the rates in the Contract was to be valued on the basis of a ‘fair United States.
cannot be applied. An example is where an valuation’ stating that Weldon was to be
paid an amount which would leave him in For more information on Hill, please
Employer requires a Technical Room. Prior
the same financial situation he would have visit our website at www.hillintl.com.
to the Works the Contractor is instructed to
provide additional electrical outlets thus been in if the instruction had not been
David Merritt David Brodie-Stedman Disclaimer: This article does not constitute advice, legal or
Senior Vice President & MEA Managing Director Senior Vice President & AMEA Managing Director otherwise, and is provided only as general
Dubai Office Abu Dhabi Office commentary. Appropriate professional advice should always
be obtained before taking or refraining from taking any
Sultan Business Centre Butti Al Otaiba Building, Suite 1601 & 1602 action in relation to such information and/or the application
5th Floor, Suite 501 Sheikh Khalifa Street of applicable law. This article and the materials contained in
P.O. Box: 71467, Dubai - U.A.E. P.O. Box: 5201, Abu Dhabi – U.A.E. it are provided on the basis that all liability for any loss or
Tel.: +971 - 4 - 337 2145 Tel.: +971 – 2 – 627 2855 damage, whether direct or indirect, arising out of or in
connection with any use or reliance upon this article is
Fax: +971 - 4 - 335 6077 Fax: +971 – 2 – 627 2042
excluded to the fullest extent permitted by law.
E-mail: dxb@hillintl.com E-mail: auh@hillintl.com