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Pp2 assignment-final
1.
SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
BACHELOR OF QUANTITY SURVEYING (HONS)
PROFESSIONAL PRACTICE II (QSB 3614)
GROUP ASSIGNMENT
COURSEWORK 2 - PREPARATION OF FINAL ACCOUNT
GROUP MEMBERS:
NO. NAME STUDENT ID
1 YEAP PHAY SHIAN 0322243
2 KENNETH TAN SIN KWANG 0322482
3 LIEU XUE QI 0327523
4 ELISSA CHANG YUH TING 0326909
5 CHAN WEI LUN 0326117
6 NICOLE THAIN HUEY WEI 0325697
7 TAN JIT KIM 0323854
SUBMISSION DATE: 29TH OCTOBER 2018
LECTURER: SR LIM SEK CHEON
2. TABLE OF CONTENT
NO. CONTENT PAGE
1.0 Question 1
1.1 Answer for Question 1
2-3
2.0 Question 2
2.1 Answer for Question 2A & 2B
2.2 Answer for Question 2C. i.
2.3 Answer for Question 2C. ii.
2.4 Answer for Question 2C. iii.
2.5 Answer for Question 2C. Iv.
2.6 Attachment for Question 2 Final Account
Answer
4-7
8-9
10-11
11-12
13-14
15
1
3. Coursework No. 2 – Preparation of Final Account
You are appointed as the consulting Quantity Surveyor for a apartment project based on PAM
Form of Contract 2006 (With Quantities). The summary of the Contract Sum is as follows:
Bill No. 1 - Preliminaries RM 4,250,000.00
Bill No. 2 - Building Works RM 62,850,000.00
Bill No. 3 - Local Infrastructure Works RM 4,500,000.00
Bill No. 4 - P.C. and Provisional Sums RM 9,600,000.00
Contract Sums RM 81,200,000.00
1.0 Question 1.
The Letter of Award for the above works was issued for RM 81,200,000.00 based on the
tender sum submitted by the Contractor. As you were preparing the contract documents
for binding and signature, you found some errors in the rates for aluminium windows
works submitted by the Contractor, which were very low. Kindly advise the actions that
you will take.
(10 marks)
Answer for Question 1:
For this situation, the Letter of Award has been issued, therefore there is a contract
formed between the Employer and Contractor. However, the contract document has not been
signed and is still in preparation stage for binding and some errors were found in aluminium
works rates which were very low.
According to PAM Form 2006 (With Quantities) Clause 13.1, before the signing of the
Contract, any arithmetical errors or any errors in the prices and rates shall be corrected and/or
rationalised by the Architect or Consultant without any changes and alteration to the Contract
Sum. As a consulting Quantity Surveyor, the actions to be taken would be to rationalise the Bills
of Quantities (BQ) before binding as well as before the Contract Document is signed.
2
4. During Contract Documentation, the purpose of rate rationalisation is to adjust the rates
and prices of the successful Contractor’s tender sum in order to obtain a fair and reasonable
rates, at the same time remaining the Contract Sum amount. The very low rates for aluminium
window rates can be increased to a decent rate whereas the rates for items on the higher side can
be lowered reasonably.
In addition, the practice of rationalization discourages unfair strategies by the Contractor,
such as eliminating front loading in Contractor’s prices and allows fair pricing for variations.
The rationalised rates of the aluminium window works can then be appropriately applied to
corresponding variation works during the progress of the construction project. It also reduces
inconsistencies, ambiguities and unreasonableness of priced rates before the contract document is
signed, consequently minimizing any arising dispute in connection with pricing during the work
progress.
In some cases, the Contractor might attempt ‘front loading’ when pricing to allow a more
profitable price. Based on the case law, Sist Construction v State Electricity Commision of
Victoria [1982] VR 597 of 606, the Contractor priced lower rate on items which they believe the
actual quantities are likely to be less than the quantity stated in the BQ. This may be the reason
why the rates for aluminium window works were very low. The Court held that the Contractor
has to act reasonably in pricing the BQ and it is necessary for the Consultant to rationalize the
BQ.
Therefore, rationalization of rates without alteration of contract sum under clause 13.1
ensures fair and reasonable pricing throughout the priced BQ.
3
5. 2.0 Question 2.
In accordance with clause 30.10 of the contract, the contractor duly submitted his Final
Accounts within 6 months after the issuance of the Certificate of Practical Completion. You
are then required to assess this application and prepare the Final Account for the
apartment project based of the following valuations and adjustments made to the Contract
Sum:
(30 marks)
Information provided are as follows:
a. The Architect had granted the Contractor’s first application for extension of time and
approved additional insurance premium amounting to RM 30,000.00 in accordance with
clause 24 of the contract due to the delay in the completion of the works caused by the
Employer’s late decision on the toilet design.
In his second application for extension of time, the Contractor submitted an application for
extension of time due to exceptionally inclement weather and a loss and expense claim for
RM120,000.00 in his Final Accounts to you. The Architect approved the extension of time
as per Clause 23.8.
b. The following are the nominated sub-contractor’s accounts:
Original P.C & NSC’s
Provisional Sum Final Account
i. Lift Services: RM 1,300,000.00 RM 1,600,000.00
Profit @ 2% RM 26,000.00
Attendance as item RM 20,000.00
1. Air Conditioning Services: RM 2,300,000.00 RM 2,200,000.00
Profit @ 2% RM 46,000.00
Attendance as item RM 40,000.00
4
6. 1. Electrical Services: RM 2,700,000.00 RM 2,600,000.00
Profit @ 2% RM 54,000.00
Attendance as item RM 50,000.00
1. Provisional Sums: Guard House RM 1,000,000.00 RM 1,250,000.00
1. Contingency Sum RM RM 2,064,000.00
RM 9,600,000.00
Answer for question (a) and (b)
*’Please refer to attachment for question 2 final account answer’
After assessing the Final Account submitted by the contractor, several valuations and
adjustments are made to the Contract Sum while preparing the Final Account as a Quantity
Surveyor.
In the first situation, the Architect had granted extension of time and approved additional
insurance premium amounting to RM30,000.00 which the Contractor had already applied for in
accordance with Clause 24 of the PAM Contract 2006 (With Quantities) due to the employer’s
late decision on the toilet design. In the contract, Clause 24.3(a) stated that whereby the
contractor not having received in due time the necessary Architect’s Instruction (details and
other information) which he has specifically applied before the commencement of the works is a
relevant event for the contractor to claim for his loss and/or expenses incurred. The additional
premium can be claimed under additional expenses and extension of time for this situation will
be granted to the contractor, liquidated damages cannot be charged to the contractor for this
situation as extension of time already approved.
5
7. In the second situation, the Architect has approved the extension of time due to
exceptionally inclement weather, which is the relevant event for the claim of extension of time
stated in Clause 23.8(b) of the contract. Although the claim for extension of time is approved,
however, the loss and expense claim submitted by the contractor in his Final Accounts which is
RM120,000,000.00 cannot be claimed because according to Clause 24.3 there is no provision
that exceptionally inclement weather can be claimed under loss and expense. Contractor does not
need to pay for liquidated damages due to delay for this situation as extension of time has
already granted to him.
In part c (iii), Architect has instructed to change from marble floor tiles which is specified
in the contract and construction drawings to granite floor. Under Clause 23.8(g), it is a relevant
event for the contractor to claim for extension of time compliance with Architect’s Instruction
issued. Contractor does not have to bare the liquidated damages if imposed on him due to this
situation.
Total days approved for extension of time will be added to revise the completion date for
the project. Additional expenses incurred will also be added into the Final Accounts to calculate
the total cost for this project.
For the statement of Final account, items that need to be included are stated in Clause
30.11 in Pam Form Contract 2006. From Clause 30.11 (c), the omission of all P.C Sums and
Provisional Sums with the related profit provided by the Contractor in the Contract Documents
and adding back the amounts that need to be pay by the Employer for the Nominated
Sub-Contractors and Nominated Suppliers with the adjusted profit and attendance shall include
in the Final account. Hence, final account shall also include the adjustments of Provisional Sums
and omission of any Provisional Sums if not expended which is stated from Clause 30.11 (d).
For this question, the original P.C and Provisional Sums with all the related profit and
attendance, RM 7,576,000.00 shall be deducted because the prime cost sums and provisional
6
8. sums are just estimated sum and act as estimated allowance but both prime cost sums and
provisional sums are subjected to changes. Also, the contingency sum, RM 2,064,000.00 will be
omitted as it is allowed for unforeseen circumstances that are likely to be incurred in the project
initially. So, the total amount that omitted is RM 9,600,000.00 in the Final Account, according to
Clause 30.11 (c) and (d).
Since the prime cost sums and provisional sums with related profit are omitted from the
final account, the nominated sub-contractors’ and nominated suppliers’ final account shall be
added back after the adjustment is made when the work is completed and final cost is
ascertained. Therefore, the final sum of Nominated Sub-Contractor, RM 7,650,000.00 and the
profit of 2% of final P.C and Provisional Sums and lump sum of attendance, RM 153,000.00 and
RM 135,000.00 respectively will be added back. Lastly, a total amount of Rm 7,938,000.00 is
added back to the final account according to Clause 30.11 (c) and (d) in PAM Form Contract
2006 ( With Quantities).
*’Please refer to attachment for question 2 final account answer’
7
9. Questions C
C. You have to evaluate the following variations for final account:
i. The Contractor had priced RM 130,000.00 for the Contractor All Risk Insurance policy
in the Preliminaries Bills. The Contractor failed to purchase this insurance when the works
commence. The Employer, then, bought and paid for the said insurance for RM 180,000.00
on behalf of the Contractor, for which the Contractor agreed. The Employer wants to
recover this cost.
(15 marks)
Answer for question C(i).
According to clause 20.A.1 stated in the Pam Contract 2006, it is the contractor’s
responsibility to get a Contractor All Risk Insurance which is also known as C.A.R Insurance
Policy for the parties of the contract. The contractor also required to ensure the insurance is valid
up to the completion date and extended maintenance over until the Defect Liability Period.
Besides that, clause 20.A.3 also stated that the contractor insurance companies must be licensed
and approved by the Employer. If the contractor fail to insure or continuing the insurance work
under Contractor All Risk ( C.A.R), the Employer may insure but not obliged to against the risk
and any cost incurred or paid by the employer shall be set-off against the contractor under clause
30.4.
Based on the scenario given above, the contractor fail to purchase the insurance during
the commencement of work which the amount already been priced in the Preliminary Bill for
RM 130,000.00 by the contractor. This result the Employer purchase the insurance for RM
180,000.00 on behalf of the contractor, for which the contractor agreed. This entitled the
Employer to carry out set off due to the default of the contractor for failing to purchase the
C.A.R during the commencement of works which result the Employer to incurred additional
8
10. costs according to clause 20.A.3 stated in the Pam Contract 2006. The insurance sum stated in
the Contract was originally RM130,000.00 but because of the contractor default, the Employer
will then required to purchase it at a higher price at RM 180,000.00 which is RM 50,000.00 more
than the amount stated in the contract. There will be RM 50,000.00 additional sum paid by the
Employer. Which mean that the total amount that will be set-off by the Employer against the
contractor is RM 180,000.00 and the contractor has agreed with the set-off amount under clause
30.4.
Based on clause 30.4, in order for the Employer to carry out set off, there are few
pre-condition need to be comply. The Architect or Qs shall submit a detailed assessment or
complete details of such set-off to the contractor to prevent open dispute from the contractor
based on clause 30.4(a). For example, provide a copy of the insurance receipt that the Employer
had paid RM 180,000.00 to the contractor. After that, the Architect or Employer shall give a
written notice to the contractor stating the reason and the intent of set-off amount to be carry out.
However, under clause 30.11(f), any set-off by the employer shall not be included in the Final
Account and the matters to be resolved separately between the Employer and the contractor.
There are few ways that the Employer are able to recover the set-off amount from the contractor
such as the contractor can issue a cheque directly to the Employer, deducting money from the
contractor monthly interim certificate or deduct the set-off amount from the performance bond.
In conclusion, the increase in price for the Contractor All Risk shall not counted as a variation,
and would only show as RM130,000.00 in the Final Account. the Employer are entitled to carry
set-off as it is agreed by the contractor which is RM 180,000.00 but this matters shall resolved
separately and shall not included in the final account according clause 30.11(f).
9
11. ii. Under the Preliminaries, the Contractor is required to provide a black and white
photocopier machine on site for the Resident Engineer’s use but this item was left
un-priced, i.e. BQ item was left blank in the rate/amount column in the contract document.
During the progress, the Architect instructed the Contractor to provide a colour
photocopier machine costing RM8,000.00 instead of the black and white one as specified.
Contractor submitted a variation claim for RM8,000.00.
(15 marks)
Answer for question C (ii)
Generally, when item is left unpriced in Preliminaries section in contract document, it
shall be deemed to be included in the tender price as lump sum. In this case, the contractor
provided a black and white photocopier machine which is left unpriced. According to Clause
11.6 (e), the rates and prices in the contact document shall determine the valuation of items
omitted. If omissions substantially vary condition under which any remaining items of work are
carried out, the prices of such remaining items shall be valued under Clause 11.6(a), (b) and (c).
The architect instructed the contractor to provide a colour photocopier machine instead of
the black and white one as specified. In this situation can refer to Clause 11.6 (c) where work is
not of a similar character to work set out in the contract document, the valuation shall be fair
market rates and prices determined by quantity surveyor. Since the architect required a colour
photocopier machine for the resident engineer which is not similar character to work as set out,
quantity surveyor shall determine the price of colour photocopier machine based on fair market
rates and prices.
In conclusion, quantity surveyor shall identify the specification of photocopier machine
needed by the Resident Engineer in order to establish a baseline to be priced for. The quantity
surveyor should determine the colour photocopier machine based on fair market rates and price.
10
12. The final rates and prices will be stated into final account while the black and white photocopier
machine which is left unpriced in Preliminaries section will be omitted.
iii. The Contractor had delivered to site all marble floor tiles needed for the lift lobbies as
specified in the contract and construction drawings. However the Architect decided to use
granite floor instead and instructed the Contractor to remove all the marble tiles from site.
The Contractor paid RM 50,000.00 for the marble tiles. The Contractor returned the
marble tiles to the supplier but only managed a refund of RM 30,000.00. The Contractor
submitted a claim for the loss of RM 20,000.00 that he suffered.
(15 marks)
Answer for question C (iii)
According to clauses 11. 1 (b) stated in PAM contract 2006, the alteration of the kind or
standard of any materials and goods to be used in the works and based on clauses 11.6 ( c) stated
in PAM contract 2006 which is variations, stated that work is not of similar character to work as
set out in the Contract Documents, the valuation shall be at fair market rates and prices
determined by the Architect. Based on the above question,the contractor had delivered to site all
marble floor tiles needed for the lift lobbies as specified in the contract and construction
drawings but the Architect decided to use granite floor instead and instructed the contractor to
remove all the marble tiles from site.So, the contractor is entitled to claim for his loss of
RM20,000 caused by variations which stated under Clauses 11.7 stated in PAM contract 2006.
According to clauses 11.7 stated in PAM contract 2006, where a variation has caused or
is likely to cause the contractor to incur additional expenses for which he would not be paid
under any provisions in clause 11.6 such as the contractor submitted a claim for the loss of
RM20,000 that he suffered .The contractor may make a claim for such additionals expenses
provided always.Next, clauses 11.7 (a) stated that the contractor shall give written notice to the
11
13. Architect of his intention to claim for such additional expenses together with an initial estimate
of his claim duly supported with all necessary calculations. Such notice must be given within
twenty eight (28) Days from the date of the AI or CAI giving rise to his claim. The giving of
such written notice shall be a condition precedent to my entitlement to additional expenses that
the Contractor may have under the Contract; and clauses 11.7 (b) state that within twenty eight
(28) Days of completing such Variation, the Contractor shall send to the Architect and Quantity
Surveyor complete particulars of his claim for additional expenses together with all necessary
calculations to substantiate his claims. If the Contractor fails to submit the required particulars
within the stated time or within such longer period as may be agreed in writing by the Architect),
It shall be deemed that the Contractor has waived his rights to any such additional expenses.
As a conclusion, Contractor can claim for the RM20,000 due to instructed by Architect
due to use granite floor instead then use marble tiles for flooring . In the Final account , under
variation work will be added to the Contract Sum which stated under Clause 11.9 and Clause
30.11 (a) stated at the final account of the works, Omissions RM50,000 and Additional Expenses
RM20,000.
12
14. iv. Mistake was made in the price for excavation through rocks at RM 50 per m3. Item was
not rationalised during contract documentation. However, original quantity in BQ is 10 m3
but re-measured as-built quantity was 100 m3. The Contractor submitted a claim for RM
55,000 based on a revised rates of RM 550 per m3 for the total quantity of 100 m3.
(15 marks)
Answer for question C (iv)
The Contractor’s default for inserting wrong rate for excavation through rocks into the in
Bills of Quantity. The rock excavation rate has been priced wrongly for RM 50 per m3 instead of
the revised rate of RM 550 per m3. According to Clause 11.1 any changes intended to rectify any
negligence, omission, default and/or breach of contract by the Contractor and such changes shall
be executed by the Contractor entirely at his own cost. Therefore, Contractor are not entitled to
claim for the revised rate as requested.
According to clause 13.1, the contract sum should not be adjusted or altered in any way
whatsoever, other than in accordance with the express provisions of the Contract. Any
arithmetical errors or any errors in the prices and rates shall be corrected and/or rationalised by
the Architect or Consultant without any change to the Contract Sum before signing of the
Contract. In this case the rate are not rationalised during contract documentation so the
Contractor are only entitled to paid with the rate/price as stated in Contract which is RM 50/m3.
In addition, according to Clause 11.6(f) state that provisional quantities in the bills shall
be re-measured based on the actual quantities executed and valued based on the contract rates
and prices. Therefore, the Contractor are not entitled to claim 100m3 with the revised rate as
accordance to Clause 11.6(f). The additional quantity of 90m3 for rock excavation shall be a
variation in accordance to Clause 11.6(a) that state use contract rates and price to determine the
valuation where the work is of similar character executed under similar conditions and no
13
15. significant change in quantity of work. As accordance to case law of Henry Boot Construction
Ltd v Alstom Combined Cycles (No. 1) (2000), the English Court of Appeal held that the rates
and prices in the contract should be given full effect notwithstanding that the contractor has
made a mistake in his tender.
Clause 11.6(b) are allows to use the contract rates and price but with fair adjustment to
the rates for the difference. However, it is not applicable to this situation as this clause does not
take account in error of rates not being rationalised. In another way, the contractor can claim for
loss and expenses for the extra work for revised rate under Clause 11.7 that state the Contractor
can make a claim for additional expenses caused or likely caused by variations if he not be paid
under any provision in Clause 11.6, provided that the Contractor fulfils the requirements as
stated in Clause 11.7(a) & (b).
As a result, the Contractor is paid for RM 50 per m3 for the total quantity of 100m3. The
recommended revised amount of the claim for the contractor is RM 5000 based on the
calculation below.
Calculation:
100 m3 X RM 50/m3
=RM 5000
14