Remeasurement pays for what is built, but a rate with fixed costs spread across the bill quantity stops being fair once the quantity moves far enough.
Under sub-clause 12.3 of the FIDIC 1999 Red Book, a remeasured item gets a new rate only if four conditions all hold: the quantity changed by more than 10 per cent, the change times the contract rate exceeds 0.01 per cent of the Accepted Contract Amount, the change directly alters the cost per unit by more than 1 per cent, and the item is not a fixed rate item. On an illustrative excavation item that falls from 20,000 to 12,000 m³, all four hold and the rate moves from 18.40 to 19.93, recovering 18,360 of fixed cost the contractor would otherwise lose.
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On a remeasurement contract the bill quantities are estimates, and the contractor is paid for what is actually measured. That works until a rate contains costs that do not vary with quantity, such as mobilising plant, building a haul road or setting out, spread across the billed quantity. When the quantity falls, those costs are under-recovered; when it rises, they are over-recovered. Sub-clause 12.3 is the mechanism that corrects both, and the three numerical tests decide when it applies.
| Input | Value |
|---|---|
| Accepted Contract Amount | 30,000,000 |
| Bill quantity | 20,000 m³ |
| Quantity-independent cost in the item | 40,000 |
| Variable cost per m³ | 14.00 |
| Overheads and profit on cost | 15% |
| Tendered rate per m³ | 18.40 |
| Measured quantity | 12,000 m³ |
The tendered rate is built up as 40,000 / 20,000 = 2.00 of fixed cost plus 14.00 of variable cost, 16.00 in all, plus 15 per cent: 18.40. The build-up is the contractor's own tender working, which is why it should be requested and agreed early. The general method is in how to build up a unit rate in construction estimating.
(12,000 − 20,000) / 20,000 = −40.0 per cent. Passes.
8,000 × 18.40 = 147,200, against 0.01% × 30,000,000 = 3,000. Passes easily; this test only screens out trivial items.
New cost per m³ = 40,000 / 12,000 + 14.00 = 17.33, against 16.00: up 8.33 per cent. Passes. This is the test that requires a quantity-sensitive element in the rate: a rate that is all variable cost never passes it.
Assumed met. Check the Bill of Quantities and Particular Conditions.
New rate = (fixed cost / measured quantity + variable cost) × (1 + OH&P) = (3.33 + 14.00) × 1.15 = 19.93.
Excel, with fixed cost in B1, variable cost in B2, OH&P in B3 and measured quantity in B4: =ROUND((B1/B4+B2)*(1+B3),2)
At the tendered rate the contractor would be paid 12,000 × 18.40 = 220,800. At the new rate it is paid 239,160, an increase of 18,360. That is the fixed cost it had priced but not recovered: 46,000 of fixed cost with its mark-up, of which only 27,600 comes back through 12,000 m³ at 2.30 each, a shortfall of 18,400. The 40 between the two figures is the rounding of the rate to two decimals.
The new rate does not reward the contractor for the reduction or compensate it for lost profit on the omitted 8,000 m³. It restores the original pricing on the work actually done, which is the point of deriving it from the tender build-up rather than negotiating a fresh one.
The clause cuts both ways. If the measured quantity rises by 30 per cent to 26,000 m³, the fixed cost is spread over more units, cost per m³ falls by 2.9 per cent, and the employer is entitled to a lower rate of 17.87, saving 13,780.
| Measured, m³ | Change | Test (i) | Cost per unit change | Test (iii) | Rate | Adjustment |
|---|---|---|---|---|---|---|
| 8,000 | −60.0% | Pass | 18.75% | Pass | 21.85 | 27,600 |
| 12,000 | −40.0% | Pass | 8.33% | Pass | 19.93 | 18,360 |
| 18,500 | −7.5% | Fail | 1.01% | Pass | 18.40 | 0 |
| 21,500 | 7.5% | Fail | −0.87% | Fail | 18.40 | 0 |
| 26,000 | 30.0% | Pass | −2.88% | Pass | 17.87 | −13,780 |
| 30,000 | 50.0% | Pass | −4.17% | Pass | 17.63 | −23,100 |
Inside the 10 per cent band the contractor carries the effect. At 18,500 m³ it under-recovers 3,450 and gets nothing; at exactly 18,000 m³, a 10.0 per cent fall that is not more than 10 per cent, it under-recovers 4,600. On an item with a large fixed element that band is worth pricing at tender: the contractor bears the downside up to the threshold and the employer takes the upside beyond it.
The 2017 Red Book keeps the same four tests in its own sub-clause 12.3, and Particular Conditions often change the percentages, so check the contract in hand before running the arithmetic.
Run the three numbers in order: quantity change over 10 per cent, value over 0.01 per cent of the contract, unit cost change over 1 per cent. If all pass, rebuild the rate from the tender build-up with the fixed cost over the measured quantity. Here that is 19.93 instead of 18.40 and 18,360 to the contractor; on a 30 per cent overrun the same clause hands the employer 13,780. How remeasurement and rate adjustments flow into the final account is shown in the free workbook for this case.
It can. Sub-clause 12.3 works in both directions. In the illustrative excavation item, a rise from 20,000 to 26,000 m3 spreads 40,000 of fixed cost over more units, the cost per unit falls by 2.9 per cent, and all three tests pass, so the rate falls from 18.40 to 17.87 and the employer saves 13,780.
The contract rate stands and the contractor carries the effect. In the illustrative case, a 7.5 per cent fall to 18,500 m3 leaves 3,450 of fixed cost unrecovered, and a fall of exactly 10.0 per cent leaves 4,600, because the test requires a change of more than 10 per cent. Contractors with large fixed elements in an item sometimes price this risk at tender.
From the relevant rates or prices in the contract with reasonable adjustments, which in practice means the tender build-up. With 40,000 of fixed cost, 14.00 of variable cost per m3 and 15 per cent overheads and profit, a measured 12,000 m3 gives (3.33 + 14.00) x 1.15 = 19.93, not a rate rebuilt at today's market prices.
This article is one calculation from Construction Cost Control. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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