Monday, October 2, 2023

Managing Pricing variations in Construction Industry

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A lot of construction claims professionals and experts have been asked questions regarding variations. A lot of parties involved in construction agreed the tender price when contract prices and overall contracts were being negotiated and agreed upon. How can adjustments be applied to tender prices in case of managing pricing? Let us now find out.

How and why does this happen?

Pricing variations in contract tenders often cause contention. Here is a typical scenario involving pricing variations and tender agreements:

  • The contractor submits a tender along with a bill of quantities with full pricing. This is for the purpose of final tender price.
  • Employer meets the contractor. They negotiate a reduction and agree for a contract sum lesser than the original tender price.
  • Parties often ready the contract documents. They include a bill of quantities with a negotiated price reduction exhibited in the end summary.
  • There is a lack of clear record about the price reduction being negotiated. A common question here is about the target price being agreed being either a lump sum reduction in price or a price reduction by percentage.

Common issues in managing pricing variations

Issues begin when variations happen which are measured and evaluated at contract prices and rates. Contractors are of the view that the rates and pricing should be those which are solely in the bills of quantities. 

Consultants and employers are of the view that both prices and rates need reduction by the same percent, as the price reduction agreed when tenders were negotiated. What to be done in this regard? It is key to look at the intentions of the parties involved during tender price negotiations. Such a situation can take one of the following forms:

  • The parties involved agree to a reduction in the lump sum.
  • Or, they can agree to a reduction by a certain percentage.

Contract Inspection

When there are no records for clearing the situation, it is wise to examine the contract documents which are signed. They can help in determining the original intentions. Attention should be given to the bills of quantities. Here are some likely scenarios and their outcomes:

  • Parties revealed the agreed reduction as a negative lump sum in the the bill of quantities’ final summary. Dispute avoidance experts here consider such price reduction as part of a one-off lump sum basis. In this situation, the rates and prices would remain as present in the bill of quantities.
  • The parties have re-priced the bill of quantities with the rates reduced by an agreed percentage. It is clear here that parties need to use the adjusted prices and rates for evaluating the pricing variations.
  • Parties show the agreed reduction as a certain percentage of the tender price in the bill of quantities’s final summary. However ambiguity is still present. Experts recommend that in case the rates and prices are not amended in the BOQ by the same percentage, then variations shouldn’t be subject to the same percentage reduction.

Can legal principles be of help in this regard?

Contra Preferentem” is a legal principle which can help here. According to Osborn’s Concise Law Dictionary, It is the doctrine which is least favorable to the person going forward with an instrument that should be adopted against them, in construction.

The instrument in this matter is a formal legal document in writing. 

What this indicates is that the document’s drafter had chances to make a document clear and without any ambiguity. If there are any ambiguities, errors, conflicts or mistakes in that document, they need to be interpreted to favor the other party.

Let’s suppose the employer is a responsible party for compiling the contract documents. If they cannot adjust the contract prices and rates in the BOQ (to reflect the pricereduction by percent) then the parties involved must use the unadjusted rates and prices for evaluating variations.

Lessons to be learnt

Those who are responsible for preparing the contract documents should do one thing. They must ensure the form and principle of reductions negotiated is shown quite clearly in the bill of quantities. In short, the parties should also include more details elsewhere in the contract documents.


Managing pricing variations in bill of quantities, in construction, is a tricky job. Those who prepare contract documents are responsible for ensuring there is not one bit of ambiguity and not even a single ounce of trickery. Any and all issues in the documents need proper addressing else the whole matter will fall apart.

Construction claims in these matters are tough. They take a lot of time in resolution, provided that the guilty party does not admit its mistake. This is why all contract documents need to be clear and shouldn’t have any errors or deliberate ambiguities. This can result in lengthy legal litigations and heavy restitutions. 

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