The Principles of Valuation NZS3910:2013

Updated: Jan 12



Here we explore [1] Valuing Variation, [2] Valuing Other Matters, and [3] the Principles of Valuation, to be applied to everything being valued under a NZS3910:2013 standard form contract.


[1] VALUING VARIATIONS


NZS3910:2013 sets out to value variations before the work commences [9.3.1], with the contractor submitting their valuation and details [9.3.2], or if measured first by the engineer with an exchange of valuations and calcs [9.3.3], endeavouring to seek agreement, or failing which the Engineer shall value according to the following valuation rules.


Determining the Base Value


9.3.5 where the Contract includes a Schedule of Prices which contains prices or rates applicable to the circumstances and nature of the work, or part of the work, the Base Value shall be determined by applying those prices or rates.


9.3.6 where prices and rates are “similar” to be reasonable to use to derive rates, then derive rates to determine the Base Value.


9.3.7 where it is unreasonable to use actual or derived rates, use Net Cost.


Determining On and Off-site overheads and profit


9.3.13 Where the base value is negative, no deduction shall be made for On and Off-site overheads and profit, otherwise;


9.3.8 all deemed included unless stated otherwise.


9.3.9 if On-site overheads are not deemed included, value as a percentage if stated or a reasonable percentage, except where time related costs are to be considered.


9.3.10 if Off-site overheads and Profit are not deemed included, value as a percentage if stated or a reasonable percentage, except where time related costs are to be considered.


Time related costs


9.3.11 time related costs calculated with a working day rate, if equitable [9.3.12], or a reasonable amount and compare this to the amount recoverable with percentages per 9.3.8, 9.3.9, & 9.3.10, and recover the greater of the two calculated amounts.



Any Matter likely to Materially alter the Contract Price or Delay Completion


5.21.3 the valuing any matter that was not "Advanced Noticed" but ought to have been, shall be valued as if the matter had been "Advanced Noticed" and the matter could reasonably have been avoided or reduced.


The cost of processing variations


Valuing the reasonable cost of processing variations 9.3.15.



[2] VALUING OTHER MATTERS


But the contract also requires other matters to be valued. Here you must read NZS3910:2013 as a whole to determine the principals embedded within the standard form contract to value these other matters, like:


The Value of matters to be insured. 8.1.1, 8.3.3, 8.4, 8.8.2


The value of Progress payment claims and schedules (section 12) for;

· Extent of contract works, variations, completed to date.

· Advances for the estimated value of materials on site.

· Advances for temporary works, Plant,

· Advances for, [the reasonable value of (Schedule 14)], materials not yet incorporated the estimated value of materials off site.

· The estimated value of cost fluctuations.

· The estimated amount of any bonus.

· The value of any retentions to be withheld

· The value of any retentions to be released. This includes valuing the contract works to be complete at he cost to be incurred in the Principal is to complete these works directly after the defect notification period expires.


The value of the final payment claim and schedule (section 12) for;

· Valuation of the work carried out


Value provisional sum work, which is to be valued as a variation. It is important to note Provisional sum work is provisional sum work, it is not a variation. Provisional sum work is to be valued as a variation but it is not a variation. Anything that fits within the definition of provisional sum works is and always will be provisional sum work, to be valued separately from variations but valued as a variation would be valued. This is the one case where the principals of valuation are expressly referred to section 9 terms.


Related to this interpretation is the differentiation between matters that ARE variations and matters that are to be TREATED as variations. Matters to be treated as variations are actually not variations by the definition of matters that are defined as variations [9.1]. Matters to be TREATED as variations are to be valued as variations are valued. This is the reason why we have two notification clauses.

· 9.2.2 for notifying directions considered to involve a variation defined by 9.1.1 or 9.1.2. and

· 9.2.3 for notifying any matter not described in 9.1 that should be TREATED as a variation.


Upon termination of contract for frustration (Section 14);

· The value of the work carried out.

· The value of commitments to the cost of materials ordered.

· The value of cost fluctuations.

· Fair compensation for disproportional recovery of cost components of any schedule of rates.

· Any cost reasonably incurred not now recoverable.

· Any cost of removing plant

· Any other costs resulting from termination not otherwise recoverable.



[3] THE PRINCIPLES OF VALUATION


The rules for valuing variations seek to value variations at a rate directly proportional to the original contract works value, with cascading options, intent on the new scope being valued identically to any relatable part of the original scope of works. When difficulty arises, similarities may help, and in the end Net Cost, plus On and Off-site overheads and profit is deemed reasonable, appropriate and fair.


In valuing variations, the contract recognises that the original contract is made up characteristically of;

1. a Base Value,

2. a value for On-site Overheads,

3. a value for Off-site Overheads,

4. a value for Profit,


Any matter to be valued must also give;

5. consideration of the time relationship to the equitable recovery of overheads and profit, and

6. consideration of any lost opportunity to mitigate costs for lack of any reasonable notice requirement.


These six guiding principals of valuation are to be considered when valuing anything under the contract.



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By Matthew Ensoll

FNZIQS. Reg.QS.

Editor New Zealand Building Economist.


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