By the middle of 2021 the materials squeeze had not eased, and contractors were increasingly reluctant to tender a fixed price for work starting months later. Employers faced a choice: accept a higher fixed price that included the contractor’s view of the risk, or share the risk and accept that the final cost might move.
How the contract deals with it
The JCT contracts give the parties options. On the smaller forms, the contract sum is generally fixed, apart from changes the employer instructs. On the larger forms, the parties can choose a fluctuations option that lets some or all price movement be passed through, measured against stated rates or an index. The choice has to be made, and recorded, before the contract is signed.
Questions to ask before you sign
- How long is the programme, and how exposed is it to the materials that are moving most?
- Can key materials be ordered early, or bought by the employer, to fix their price?
- If price movement is shared, how will it be measured, and who checks it?
- Is the saving from sharing the risk worth the uncertainty in the final account?
Keeping control of the final account
Whatever is chosen, the contract administrator’s job is to value change fairly and keep the final account in view throughout. On the external repairs to a 1930s mansion block in Westminster, a firm grip on variations meant the final account closed about six per cent under the contract sum. The RICS Black Book guidance on valuing change and final account procedures sets out the approach.
See our Contract Administration service.