Adjusting rates to suit estimated quantities

Maeda Corporation Joint Venture v Government of Hong Kong. In the Hong Kong Court of Appeal [2014] BLR page 22

An arbitrator ruled on a re-rating dispute between a joint venture contractor and its Government employer.  The contract provided that if the actual quantity of work executed in respect of an item was substantially greater or less than that stated in the Bills of Quantities and the Engineer considered that the increase or decrease rendered the rate for such item unreasonable or inapplicable, the Engineer could decide an appropriate increase or decrease of the rate.  During an arbitration, it came out that when tendering the contractor had moved a sum from one area of the Bills into another area because it perceived that the latter quantity was probably significantly under-estimated by the employer’s QS.  The arbitrator ruled that the increase in work made the rate inapplicable and imposed a new lower rate.

Held

The arbitration award was upheld, because the arbitrator was entitled to make use of the tender build up, even though it influenced him to reduce the amount the contractor got paid.

Comment

The manner in which the final rate was built up is relevant to the process of determining whether the change in the quantity of the work has caused the contract rate to become unreasonable or inapplicable.  The arbitrator was both entitled and obliged to look at the build up of the original rate in order to fix a new rate.  (Note the Court’s Judgment was heavily redacted, so that the amounts involved were not mentioned).

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