IADC: Valuing Variations in Dredging Contracts
- Business & Finance
The International Association of Dredging Companies (IADC) has released in its latest Terra et Aqua an article named “Valuing variations in dredging contracts”.
The article, written by David Kinlan, explains how variations are essential in dredging contracts and that they have the potential to generate extra costs and pose significant delay to projects.
The author discusses the best ways for an engineer to go about reaching a fair valuation in variations in dredging contracts.
Variations have the potential to generate substantial extra costs and pose significant delay and disruption to a dredging project. Moreover, the valuation of a variation can be a contentious issue between contracting parties, the article said.
Often the engineer has an obligation under the terms of the contract to value any varied work.
Where appropriate the engineer should apply the contract rates, such as where the work executed under the variation is of a similar nature and carried out under similar conditions to work set out in the contract.
The issue for the engineer in valuing a variation is usually the extent to which the varied work matches the character of that in the original contract rates and prices.
With respect to the costs of dredging, as these are capital intensive, the discussion on how to value varied works almost always turns to the valuation of the cost of the vessel itself.
Variations in dredging contracts are almost inevitable, even with the best prepared contract. This need may arise during the performance of the works for the engineer or employer to direct the contractor to modify the scope or nature of the work.
The variation usually results in extra or different or less work.
As an understood norm, when there is extra work, the contractor will fairly consider itself entitled to a commercial rate including profit and additional overheads for that extra work. It is not reasonable to ask a contractor to carry out work for costs alone.
To avoid disputes, many contracts set out guidelines as to how to value variations.
Ultimately, the contract should provide for an independent valuation if the contractor and employer are not able to reach an agreement.