NZS 3910, the Limits of Equity: Respecting the Linear Bargain
Updated: 5 days ago
A recurring theme in NZS 3910 administration is the search for fairness. Yet fairness is often confused with proportionality. The two are not necessarily the same thing.
The variation valuation framework in NZS3910 is heavily influenced by proportional thinking. The Contract first looks to Schedule rates, then derived rates, and only resorts to Net Cost where those tender relationships cannot reasonably be used. The guideline confirms that the objective is to arrive at a value that fairly compensates the Contractor "in a manner consistent with the Contract Price".
Over time, this conditions Engineers/CA’s/IC’s, Contractors and Quantity Surveyors to regard proportionality as the hallmark of fairness. If a variation increases scope by 10%, it feels natural that compensation should bear some relationship to the original tender allowance. The entire structure of Clauses 9.3.5 and 9.3.6 encourages this mindset.
However, Working Day Rates (WDRs) and Liquidated Damages (LDs) operate differently.
Both mechanisms are deliberately linear.
A WDR is applied as:
Compensation = Working Days × WDR
A Liquidated Damages provision is applied as:
LDs = Working Days Late × LD Rate
Neither formula responds to actual turnover, actual resource loading, or actual overhead expenditure. Both apply a fixed daily amount. NZS 3910 expressly permits this structure and even anticipates nominated WDRs at tender stage.
This is important because project economics are inherently non-linear. A contractor may experience a low-turnover design phase, a high-turnover structural phase, a period of intensive crane utilisation, and a long tail of lower-value fitout and commissioning activity. Everyone involved understands this before the tender is submitted. Yet a single WDR is still nominated.
Consequently, the mere existence of a non-proportional outcome cannot be evidence of inequity.
Take a tower crane. Its cost may be recovered over the whole project duration, despite being present for only part of the works. Years later, an Engineer/IC/CA may observe that the crane has long been removed and conclude that the nominated WDR now appears excessive. But that reasoning overlooks a fundamental point: the crane's removal was entirely foreseeable when the WDR was nominated. The linear averaging process deliberately incorporated such fluctuations. They were not unforeseen circumstances. They were part of the bargain.
This has important implications for Clause 9.3.13 (2023) and its "clearly inequitable" test. If equity is invoked whenever a linear mechanism produces a result that differs from actual cost behaviour, then the WDR mechanism ceases to have any meaningful function. Every WDR will diverge from reality because reality is never linear.
The better view is that Clause 9.3.13 (2023) is not a licence to pursue an alternative theory of fairness. It is a safeguard against exceptional distortion. Equity should not be engaged merely because a result is not proportional, because turnover has fluctuated, or because actual costs differ from an averaged daily recovery. Those are precisely the conditions that a linear pricing mechanism was designed to accommodate.
The real boundary is narrower:
The inequitable test only applies “where the nature or circumstances of the Variation are such that it would be clearly inequitable….”
The existence of Clause 9.3.13 (2023) should not obscure the fact that nominated percentages and Working Day Rates are themselves contractual bargains. They are deliberately averaged mechanisms adopted in full knowledge that project economics, turnover, resource loading and overhead expenditure are inherently uneven.
“Ordinary fluctuations in turnover, productivity or cost exposure are therefore not evidence of inequity; they are evidence of the bargain operating exactly as intended.”
The role of Clause 9.3.13 is not to rescue parties from the foreseeable consequences of a linear mechanism, nor to pursue an alternative theory of proportional fairness. Its purpose is much narrower: to address variation circumstances genuinely outside those reasonably contemplated when the percentage or WDR was nominated. To use equity more liberally risks undermining the very certainty and commercial compromise that the nominated percentage and Working Day Rate were designed to provide.
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By Matthew Ensoll
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