A look at some of the common issues encountered when using SOQs.
What is a SOQ?
A schedule of quantities is a document which shows a list of works alongside a list of rates to perform those works. The idea is that this performs at least two functions:
- it shows a detailed breakdown of how the contract sum is comprised, and
- it provides a list of rates which can be used to calculate and/or change the contract price at a later date
SOQs remove the need to discuss and negotiate rates at a later date.
This helps to deal with inherent issues relating to bargaining power which is the result of Party A not having the option to engage a different party to complete variation works if it is unhappy with Party B’s price.
Another benefit to SOQs is that the payer may understand the cost implications of any changes which are being considered but perhaps not finalized yet. The payer may scrutinize the rates for that type of work and calculate the benefits of selecting that particular contractor before entering into contract.
The different ways SOQs can be administered
Parties are free to agree how the SOQ should be treated.
Some contracts hardly acknowledge the SOQ at all, opting to ignore everything about it other than the total price.
Other contracts acknowledge the rates provided for the various tasks only, requiring that the parties use only rates provided where variations require.
Contracts may go as far as to also acknowledge the quantity of the SOQ items and require a re-measure of the actual works performed to establish the final contract sum. These contracts are referred to as re-measurable.
There are quite a few pitfalls to be aware of when using SOQs.
A scope gap describes a SOQ which has not captured the entirety of the work adequately. The results can be significant, including inter alia:
- Under-financed construction projects
- Parties under-pricing contracts
- Disputes (see capture all terms)
The issue of ‘missed scope in a SOQ’ can arise due to several reasons.
Ambiguity in the work description, missed scope during the take off (the identification and measurement of the works off the plans) and interface gaps, may all contribute towards scope gaps.
A way to mitigate some scope gap risk is to measure and confirm the quantities independently from the SOQ and, as a contractor ensure it provides an adequate & accurate reflection of the project works.
One issue contractors may have when ‘self measuring’ is how to reflect this newly acquired knowledge when bidding in a competitive tender.
If Party A knows Party B’s measure / SOQ is incorrect, it likely has a duty to disclose this pursuant to the conditions of tender.
Whether scope gaps result in higher liability for the payer or the payee depends on the terms of contract which are discussed above. That being said, there are other particularly relevant terms to be aware of.
‘Capture all’ terms
To avoid the risk of under measurement and/or scope gaps, the payer will often include terms of contract which redirects the risk to the performing contractor.
This is achieved by including express agreement by the parties to the following effect:
“Party A does not warrant the accuracy of the SOQ in anyway. Party B agrees it has satisfied itself as to the quantities and description of the work and agrees that it must provide the entire works as set out within the contract documents for the contract sum.
Notwithstanding the above, Party B agrees that if any SOQ works description is found to be unidentified or incorrect, Party B has agreed to perform such works for the prices already provided in the SOQ document”
Unfortunately, an increase in time pressure and sensitivity to cost often results in lesser quality design documents and more difficulty when creating a SOQ.
The initiators of construction projects often seek to mitigate this risk by frivolous use of catch all terms. This results in inequitable risk throughout the construction industry.
Parties must consider carefully where the risk of ‘bad SOQ data’ should lie when drafting construction contracts.
Description and interpretation issues
The reader may have wondered by now, what happens when people measure differently ? Parties may believe they are entering into entirely different contracts.
For example, imagine a scenario where laminate timber flooring is being priced. Party A may measure its works by boards and therefore by linear metre (lm), whereas Party B may measure the works in metres squared (m2).
This seems like a simple issue because the unit designation would identify the position aptly.
However, considerations must be made for:
- Extra over rates for non efficient works (think thin slices of flooring where it would not be possible to efficiently use a m2 rate),
- Deductions for voids,
- Extras for rake cutting where applicable,
- How to deal with waste (i.e. can the contractor charge for use of materials which aren’t measured net).
Without standardization of expectations the chances of a dispute quickly become a minefield.
Regulation of SOQ interpretation is provided by the ‘standard method of measurement’ (SMM).
There are 2 frequently used SMM’s:
- New Zealand standard 4202:1995
- Australian & New Zealand standard method of measurement 2018
The standards set out general applicable rules for several trades & scopes of work.
When adopting these standards within the contract the parties are also agreeing rules on how to treat measurement of the works.
A common issue relates to how time must be treated generally when using SOQs.
The extension of the rates may provide easy understanding of the contract sum, but what about the impact of ‘quantity change’ on time.
Large quantity changes by variation may be obvious and the time impacts can be treated the same as any other extension of time event.
However, smaller more subtle changes can often and frequently, with the impacts of the changes globally not being understood for some time. This type of scenario is often refereed to as ‘death by a thousand cuts’.
Parties should be aware of the time impact of quantity changes as they occur. It is entirely possible for changes to result in no change to the contract sum value, but for the contract time period to be significantly impacted.
Works which consist of ‘high labour requirements alongside lesser material costs’, vs equivalent changes with ‘higher material costs and lesser labour requirements’ may result in disparity between cost and time.
Time bar integration
Another potential issue when dealing with SOQ variations and extensions of time on re-measurable projects is that the final SOQ quantities are not apparent until the works are complete and measured.
It is possible to direct a variation pursuant to contract for which the quantum of the direction will not be understood for some time.
For example, if Party A directs Party B to perform de-watering or geological stability services, the parties may not know how much work is actually required.
Other examples include provisional sums for builders works where services are not quantified yet (think timber blocking for support of services & penetrations etc).
This type of work is often directed as a variation but parties may not know the final quantity of the various works.
If a SOQ is being used to administer the works then consideration should be paid to how time-bar requirements may be managed whilst being unaware of the final impact of such directions until later in the piece.
Parties should ensure:
- SOQ’s are contract documents ,
- SOQ’s should be expressly identified in type i.e. not a contract document, a schedule of rates, or a re-measurable contract,
- SOQ’s are prepared and refer to objective SMM standards