The danger of under-pricing quantities

Sometimes, in an attempt to procure a contract, contractors under-price certain items in the Tender BQ. This could have been done perhaps because the contractor estimated that the said items would be of minimal cost or the cost for the same could be easily absorbed.

A problem arises when there is a variation involving the same items in the BQ which had been under-priced. In the case of Dudley Corporation v Parsons & Morris Ltd, a contractor under-priced the task of excavating rock, whereby he priced the task at £75 per 750 cubic yards. He did so because at the stage of tender, it was not certain that there would be any rock encountered.

A problem arose during the execution of the contract whereby a total of 2,230 cubic yards of rock were encountered and had to be excavated. It was accepted by the contractor that for the first 750 cubic yards, the cost would be £75. However, what about the excess? The quotation by the contractor was a gross under-estimate.

The architect took the view that for the excess rock encountered, the contractor ought to be allowed a reasonable rate of £2 a cube. The employer was not pleased with the architect’s decision and challenged the same.

The Court of Appeal held that the issue was a matter of contractual interpretation, and that “the actual financial result should not affect one’s view of the construction of the words”. In other words, the contractor was bound to honour the quote of £75 per 750 cubic yards even for the excess quantities.

This should serve as a caution to contractors, against the practice of under-quoting for certain items in the BQ in order to lower the overall pricing for purposes of securing the contract. Such under-quoting of certain items may well be a major disadvantage in the event there is any variation which substantially increases the said items.

Kheng Hoe Advocates advices clients on CIPAA, arbitration and litigation of construction disputes. We can be reached at khenghoe@khenghoe.com. 

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