Dilemma 2:  Submitting a contract claim for a variation - Dilemma

As per Dilemma 1, you are Commercial Manager of Buildwell, which is carrying out works under a road construction contract with the NRA.  

After the contract commenced, the NRA varied the contract specification to widen the road by 0.5m.  You are therefore now submitting a detailed claim to the NRA for the additional cost incurred by Buildwell in relation to this variation.

The relevant contract provision is as follows:

“In the event of a variation to the specification issued by the NRA, the contractor is entitled to claim its actual additional costs which directly result from the variation, together with an additional sum of 30% of the additional costs to take account of  the contractor’s head office overhead, site overhead, and profit.”

You calculate the additional costs.  You submit the clam to Buildwell’s Commercial Director for approval prior to submitting to the NRA.  The Commercial Director states:  

“The NRA will reduce our claim.  We need some negotiating margin.  Increase the equipment and labour element of the claim.  We can’t increase the materials, as they can calculate those from the quantities.  But, they will not be aware of our actual equipment and labour usage.  Put in a total figure of $200,000.  Then we can afford to give away a bit in negotiation.”

Consider what you should do, and then go to the analysis on the next page.