Pricing schedules refer to a section of documents typically included in construction contract where costs of the works are found. The contract sum of the construction works is presented with detail breakdown within such schedule. Pricing schedules are described differently depending on the types of procurement pathway as well as the forms of contract used by the parties. By way of examples, under Clause 13(2) of Singapore Institute of Architect (SIA) Building Contract Without Quantities 2016, such pricing schedule is described as ‘Schedule of Works’ whereas the term ‘Contract Sum Analysis’ is used under the REDAS Design And Build Conditions of Contract. Although the pricing schedules are labelled differently, the characteristics of these pricing schedules are largely similar due to the lump sum procurement used by these forms. Under Option Module A of the Public Sector Standard Conditions of Contract (PSSCOC) of Eight Edition dated July 2020, the pricing schedule is called ‘Bills of Quantities’ as the procurement pathway consist of both lump sum and remeasurement contract. 

In general, the characteristics and functions of pricing schedules are predominantly influenced by the procurement pathway adopted by the parties rather than the label used on these schedules. The functions of pricing schedules are fairly wide ranging in that it affects valuation of variations, interim progress payments, settlement of final accounts and how contract terms may be construed. This article examines the different types of pricing schedules commonly used in construction industry and the implications on how contracts may be administered. As a matter of background, there is an earlier article published on this website entitled ‘What Is Tender Document?’ of which Section 5 and 6 therein may provide a general appreciation of this very topic.

Pricing schedules can be a fertile ground for disputes in that parties tend to argue their positions without appreciating that the characteristics of pricing schedule may vary from project to project depending on the relevant contract terms. By way of illustration, suppose a sum of $10,000 is indicated within a pricing schedule for the provision of rectangular concrete planter boxes as part of the landscaping works in the common areas of a condominium development. As part of cost saving measures, the Employer decided to omit these planter boxes through variation order. Upon measuring the quantities of concrete, formwork and reinforcement bars from the contract drawings and applying the prevailing unit rates, the cost for the concerned works is valued at $12,000. Should the amount of $10,000 or $12,000 be omitted from the contract sum? Under this hypothetical scenario, the contractor may be inclined to argue that $10,000 should be the sum omitted since that was the amount that was included in its tender price, having considered the element of competition during tender. The consultant quantity surveyor on the other hand may counter argue that $12,000 should be the sum omitted given that it is premised on actual quantity and prevailing unit rates included in contract document. After all the terms of the contract ought to be binding on the parties. It is interesting to note that the ‘right answer’ may very well depend on the relevant contract terms as well as the procurement pathway chosen by the parties. The underlying principles applicable to this hypothetical scenario will be further elaborated in the next few sections of this article.  

Schedule Of Works/ Contract Sum Analysis – Lump Sum Pricing Schedule

As mentioned earlier, there are a variety of terminologies used for pricing schedules in lump sum contract including Schedule of Works, Contract Sum Analysis, Activity Schedule (or priced schedule of activities), Schedule of Rates And Prices etc. As such terminologies are contractually defined, one should always refer to definitions of such term regardless of the label adopted. The definitions of pricing schedule under lump sum contract typically share certain common characteristics. Firstly, such pricing schedule provides an itemised scope of works for the proposed project where it could be organised either based on geographical parts of the works, sequence of construction activities or based on different construction trades. Secondly, such itemised breakdown of scope of works included in the schedule is used by the contractor as the basis for deriving its tender price, and therefore its eventual contract sum. Thirdly, the lump sum nature of such contract mean that the pricing schedules do not usually contain any quantities of works and unit rates of construction costs. Finally, the descriptions of works included in such schedule are abbreviated and intended to be used for guidance only. In other words, the contractor is expected to satisfy itself on the true nature of the scope of works by examining the drawings and specifications.

Under the above mentioned SIA contract, Clauses 13(2)(a) and 13(2)(b) refer to Schedule of Works and its contractual effect. In general this schedule with breakdown of the construction works shall be used for pricing purposes during tender by the contractor and the descriptions therein may not be accurate. Therefore such document is included for guidance only and shall be of no contractual effect. These clauses also refer to ‘Schedule of Rates And Prices’ pursuant to Article 2(2) of SIA contract that is incorporated in the contract document. Such reference is only relevant in so far as the Schedule of Works include unit rates and prices that are meant for valuation of variations. Notwithstanding that, most Schedule of Works under lump sum contract do not include unit rates. The unit rates that are binding on the parties for purposes of valuation of variation are typically set out separately under a Schedule of Rates, which will be elaborated further in the next section of this article. This is because Schedule of Works do not usually include any quantities and therefore unit rates are not required to derive the contract sum. Therefore, in the remote event where any Schedule of Works include unit rates, only such unit rates shall have contractual effect as these are deemed part of ‘Schedule of Rates And Prices’ for the purposes of SIA contract. It is important to note that under Article 9(1) of SIA contract, only Schedule of Rates And Prices are listed as part of the contract document. Schedule of Works is absent from this list of contract documents. 

The third edition of REDAS contract refers to ‘Contract Sum Analysis’ as its pricing schedule. It should be noted that whilst the latest REDAS form available is the fourth edition, there are no material differences with the third edition as it relates to pricing schedule matters. Due to the design and build procurement used for REDAS, there are two distinct commercial elements under this form. Firstly, the procurement pathway is based on lump sum contract and secondly, the pricing schedules are primarily prepared by the design and build contractor based on its proposed design that is eventually accepted by the Employer. This departs from the usual practice where the pricing schedule is prepared by the consultant quantity surveyor. Appendix 5 of the REDAS form is the placeholder for a list of pricing documents agreed by the parties. As the pricing schedule for lump sum contract do not typically include quantities of works and construction unit rates, it is likely that a separate Schedule of Rates is prepared and agreed by the parties that is included in Appendix 5. This Schedule of Rates exist for the purposes of valuation of variations. Under Clause 1.1.9 of the REDAS form, the Contract Sum Analysis shall mean an analysis or detail breakdown of the Contract Sum set out in the aforementioned Appendix 5, including the Schedule of Rates. 

Reverting to the earlier hypothetical example of variation order involving omission of concrete planter boxes, the valuation of such works shall be based on unit rates agreed by the parties, as opposed to lump sum prices indicated within the pricing schedules. By way of illustration, Clause 26.3 of REDAS form which deals with methods of valuation of variations, expressly stipulates the reliance of prices and unit rates set out in the Schedule of Rates. Likewise, Clause 13(2)(a) of the SIA form states that only the Schedule of Rates And Prices shall be used for valuation of variations. Since valuation of variation involves the use of unit rates, it follows that measurement of quantities will be necessary too for the relevant varied works. In other words, the $12,000 shall be the sum omitted for the purposes of the said hypothetical variation order.

Schedule Of Rates

The principle of relying on measurement and application of prevailing unit rates to value variations rather than to utilise lump prices indicated in the corresponding pricing schedule appears counter intuitive to some. Why not utilise the corresponding lump sum price readily identified in the pricing schedule rather than to derive a separate sum ‘from scratch’? In other words, why should the contractual effect of Schedule of Rates take precedence over Schedule of Works? One of the notable reasons is because prices for construction works are usually expressed in a standardised manner. For most commonwealth countries including Singapore, there is a Standard Method of Measurement or otherwise known as ‘SMM’ that are used to provide a uniform basis of measurement for most construction works, subject to any amendments initiated by the quantity surveyor on a case by case basis. This is to ensure that there is an industry wide agreement on how to express various types of construction works in their respective units of measurement as it relates to pricing purposes. In addition to that, it also provides a uniform industry wide benchmark on what should be the types of cost that are deemed included in any given unit rate. By way of example using SMM, cast in-situ concrete piles in driven casings are measured in meter length where such unit rate shall be inclusive of all cost associated with supplying, transporting, handling, pitching, driving and withdrawing of pile casings. Although certain suppliers of the relevant concreting works may be inclined to express its pricing based on metric ton or kilogram (kg) of concrete used, the SMM provides a standard industry practice. 

By contrast, the Schedule of Works is not usually presented based on the benchmark of SMM but rather based on geographical parts of projects, sequence of construction works etc. By way of illustration, it is not uncommon to find the bin center for a condominium development to be expressed as an ‘item’ in a lump sum pricing schedule although such bin center is likely to consist of a blend of construction trades and materials including brick wall, concrete structural elements, temporary formwork, reinforcement bar, mechanical shutter door systems etc. Such abbreviated approach is perhaps favoured in lump sum pricing for ease of cost comparison and also valuation of interim progress payments. Such abbreviated approach however is not congruent with the SMM, where the relevant units of measurement of say concrete is more suitably standardised since it is relevant and in use in other parts of the project. By contrast, the unit rates included in Schedule of Rates are usually in compliance with the SMM. Any departures from SMM are usually project specific and the extent of such deviations can be found in the preambles of the Schedule of Rates. Therefore the Schedule of Rate’s general adherence with the SMM provides a standard commercial basis not just between the contracting parties but also other relevant third parties e.g. subcontractors, suppliers who may need to provide pricing information or quotation to the contracting parties. 

Bills Of Quantities (Lump Sum With Quantities)

The phrase ‘Bills of Quantities’ is commonly used in the industry albeit in a casual manner, often interchangeably with Schedule of Works. One of the key characteristics of Bills of Quantities as a pricing schedule is that it includes quantities of works as well as unit rates. Such quantities of works are typically expressed in units of measurement that is in compliance with the SMM, apart from other deviations that may be identified in the preambles of the Bills of Quantities. Bills of Quantities can be used in both lump sum contract as well as remeasurement contract. In this section of the article, the lump sum version will be examined first. 

For for avoidance of doubt, works included in Bills of Quantities are mostly measured for quantities. However there are certain types of works within the Bills of Quantities that are not measured, with no quantities and are therefore expressed in a lump sum amount or commonly refer to as ‘Item’. Examples of such ‘Items’ are preliminaries and general typically found in the first section of the Bills of Quantities. 

Unlike Schedule of Works, quantities of construction works are measured by the Employer’s consultant i.e. the quantity surveyor for inclusion in Bills of Quantities. The tenderers then rely on such quantities for their pricing and subsequent basis of tender price. By providing quantities for works in the tender document, the Employer stand to benefit from two perspectives. Firstly, the Employer will be able to have a greater insight on the comparison of tender prices since the cost distinctions are mainly emanating from differences in unit rates. In this regard, it is not uncommon for tenderers to arrive at different quantities when they are expected to measure their respective quantities of works, particularly under compressed tender time frame. Bills of Quantities therefore eliminates this problem. Secondly, when the consultant quantity surveyor measures the quantities from tender drawings issued by architects and engineers, it will be able to make a conscious assessment of whether the drawings are sufficiently developed for the tenderers to price. Whether design is adequately developed and fit for tender are particularly important considerations under a lump sum contract. Tender drawings that are insufficiently developed usually attracts risk pricing, thereby inflating the returning tender prices. 

Under Option Module A of the PSSCOC, the Bills of Quantities can be used for both lump sum and remeasurement. Under lump sum arrangement, the quantities of works are not subject to remeasurement. According to Clause A2.0(1) of Option Module A, if the quantities included in the Bills of Quantities appear to be different than the works actually executed on site in accordance with the contract, such difference shall be treated as a variation. It follows that these variations shall be valued in accordance with the valuation of variation provisions as found in Clauses 20.1(a) or 20.1(b). Under the latter provision, the contract unit rates may be extrapolated where the incremental works are executed not under similar conditions as originally planned. Therefore, the risks of any erroneous quantities included in Bills of Quantities is shouldered by the Employer since it is possible for the Employer to pay the contractor based on a higher unit rate than what was previously agreed. Where Bills of Quantities are adopted, it is not common for parties to agree on a separate Schedule of Rates given that the Bills of Quantities already include unit rates for the construction works. It is also worth noting that unlike Schedule of Works, the Bills of Quantities are expressly included in the Contract Document as provided for under Clause 1.1(d) of the PSSCOC. Therefore, the contractual effect of any descriptions of works included in Bills of Quantities is not subordinate to the contract drawings and specifications. It is incumbent upon the Employer’s consultants to ensure that every part of the tender document are in sync and presented without conflicts or discrepancies. Under Clause 3.1 of the PSSCOC, the drawings, specifications and Bills of Quantities forming part of the contract document are taken as mutually explanatory of one another.

Bills Of Quantities (Provisional Quantities)

Clause A2.0(2) of Option Module A under the PSSCOC provides for Bills of Quantities to be used for remeasurement contract. In this regard, the quantities set out in the Bills of Quantities are indicated as ‘provisional’. Unlike a lump sum Bills of Quantities, those provisional quantities used for remeasurement contract are subject to remeasurement upon completion of works. The Employer adopts a remeasurement commercial arrangement whenever there are uncertainties on the exact scope of works e.g. piling works where the pile lengths are determined based on amongst others the location of load bearing hard stratum underneath the ground. In this regard, the Employer undertakes to pay the contractor based on actual work done in order to avoid excessive risk pricing on the part of the contractor. 

One of the notable distinctions between lump sum and remeasurement Bills of Quantities relates to any difference between quantities of actual work done and quantities indicated in the Bills of Quantities. Under remeasurement arrangement, such difference is not deemed a variation. Therefore, the valuation of variation provisions do not apply. In this regard, the contractor is not likely to be paid beyond the unit rates included in the Bills of Quantities even if difference in quantity is significant or that the incremental quantities are carried out in conditions different from what was originally planned. There is no express provision for any extrapolation of contract unit rates. An astute contractor will therefore need to price any associated risks or contingencies in its unit rates whilst managing the need to remain cost competitive. In an apparent contractual irony, what constitute a remeasurement arrangement is in effect creating a lump sum treatment on the unit rates. This is because the remeasurement element is only applicable to the quantities of work rather than the unit rate. 

It is entirely possible for a single project to consist of both lump sum and remeasurement where Bills of Quantities are adopted. Such hybrid arrangement is commonly used where only part of the works e.g. foundation works exhibit the element of uncertainty in the actual magnitude of works. The other parts of the project namely the superstructure of the building can be fully quantified and determined with a complete set of architectural and structural drawings. 

Another advantage of Bills of Quantities over Schedule of Works is that the distribution of costs within the contract sum is more reflective of the actual works given the presence of quantities. Under Schedule of Works, part of the tender assessment involves ensuring that the cost is distributed equitably and fairly without ‘front loading’. A fair distribution of cost facilitates a proper valuation of interim progress payments.

Conclusion

Pricing schedule is evidently a crucial part of tender document as well as contract document where it is more than a mere placeholder for construction cost. It affects the future valuation of variations and reflects the risk allocation agreed by the parties. Therefore any contracting firm that is organised in a way where the ‘tender team’ is separate and distinct from the ‘post award team’ may experience challenges in fully harnessing the costs distribution knowledge within the pricing schedule.




Koon Tak Hong Consulting Private Limited