Contract Sum Analysis

What exactly is a Contract Sum Analysis?

A Contract Sum Analysis (CSA) is an alternative pricing document to a Schedule of Works (SoW) / Bill of Quantities (BoQ). It’s often prepared in a standard format by the Employers Agent to support the tender returns review. The Employers Agent requests that all tenders are returned on the same CSA format. A CSA can be prepared and issued in a BoQ or SoW format, although given available design information at the point of tender, this is rare.

The Contract Sum Analysis is prepared following a review of the Employers Requirements. Subject to any negotiations, it may or may not be amended prior to execution of the Contract Documents.

The Contract Sum analysis not only provides a standard pricing document for review by the Employers Agent, but also forms the basis for calculating any Interim Payments. The Contract Sum Analysis may be broken down into elemental format only or might be broken down into a more detailed BoQ / SOW format depending on the documents issued.

When should a Contract Sum Analysis be used?

A Contract Sum Analysis is typically used to provide a fixed price for the carrying out of construction works under a Design and Build Contract. A Contract Sum Analysis isn’t required under more standard Building Contracts where a Schedule of works or a Bill of Quantities may be used as the pricing document.

What’s the difference between a Contract Sum Analysis and BoQ – are both items needed?

A Bill of Quantities is a document prepared to allow the quantification and costing of construction works and will typically be prepared over several stages on a project for all the works or a sample of the works. Typically, BoQs are prepared at the outset of a construction project and generally prepared by the Employer’s Quantity Surveyor. BoQs are prepared and issued out as part of the tender documentation. They provide a solid pricing document inclusive of all specification references and supplier contract details, provided by the design team, for which the Contractor can assemble and build up the pricing submission.

Under Design and Build the tendering contractor(s) may appoint a BoQ preparation company and liaise with them to put together a BoQ based on the information provided at tender. This will largely follow NRM2 but where specification or design is missing, the tendering Contractor will need to plug items or make due allowance. Under a Design and Build Contract the BoQ has no bearing within the contract, unless the BoQ is included as the Contract Sum Analysis or appended within the Contract. Any errors contained herein are at the risk of the contractor. Any BoQs provided to the developer during the final negotiations of the Contract Sum are only included within the Contract if they form part of the Contract Sum Analysis or if they are appended. The production of a BoQ is generally carried out by a Tendering Contractor, with the BoQ used as a basis to price works packages for submission under the Contract Sum Analysis.

An example of what a detailed Contract Sum Analysis looks like can be seen below. The Employer’s Agent may provide his detailed Contract Sum Analysis during a tender period. The additional detail provided within the Contract Sum Analysis, when compared to the high-level Contract Sum Analysis, is evident. Requesting Contract Sum Analysis in greater detail will allow the Employers Agent and the QS greater confidence when reviewing the tender returns. It also provides a clearer, fairer basis for the grounds of future valuations of works.

When comparing the high level Contract Sum Analysis to the detailed Contract Sum Analysis and looking at the Substructure, the high level Contract Sum Analysis below simply has a one line “substructure item.” This is vague and subjective. It is the responsibility of the contractor to apply for payment and the Employers Agent to review the application and issue a payment notice. When applying for payment against substructure within month one, the Employers Agent might request additional information to back up that application. The Contractor is under no obligation to provide this. However, as you can see in the detailed Contract Sum Analysis, the substructure is broken down into several items. It is easier for both parties to agree the amount complete against several items rather than disagreeing on the total value of the works within a package with no breakdown.

What are the risks to the main contractor?

What happens when the CSA doesn’t include all or some of the elements you’ve demonstrated in the breakdown?

Where items are missing from the Contract Sum Analysis, but clearly shown within the Employers Requirements, there is no course for reimbursement for these works within the Contract. The Contractor will need to stand to any additional costs.

This is also true whereby items missing from the design at the contract stage evolve and become more complex or costly to construct than Contractor may have allowed for within any risk or contingency. Where design develops in such a way that it would be reasonable to assume this work, or work of a close nature would be required to complete the works, then the Employers Agent / QS would reject any variation requests on the basis of design development and a contract being design and build where the contract is responsible for the Design and Build.

Another risk to the main contractor might be under certification of works. In a situation where the Employers Agent / QS has a particular strong view of how an element of work is broken down, and the Contractor refuses to provided any sort of substantiation within the application process, the Employers Agent / QS will prepare a payment notice based on their review of the works.

This might be less than the Contractor is due to pay out as the Contract Sum Analysis between the Contractor and Employer and the pricing documents between the Contractor and subcontractor won’t be back to back. This is because the External Walls might include, brickwork, blockwork, render and rainscreen cladding, and the Contractor may apply for say twenty percent of the external wall value for the brickwork which is duly complete and covers twenty percent of the external walls. However, the brickwork cost doesn’t account for 20% of the external wall value due to differing rates for different items within the façade.

In this instance the Employer’s Agent might value the brickwork as eight percent of the external walls value but the actual contracted rate to the supplier might equate to twelve percent. This would result in a fair valuation based on the information available but land the contractor in a difficult cashflow position. This can be manipulated to have the opposite effective if the Employers Agent values the brickwork at a higher rate than what the contractor is obliged to pay the supply chain.

What are the risks to the developer?

One of the main risks to the developer when using a Contract Sum Analysis is cashflow. Over payments may occur when a Contract Sum Analysis is detailed or high level as all the overheads and profit uplift for the project may be applied across the substructure and frame. With these two items being the first to be complete, the Contractor would receive all overheads and profit within a relatively short time compared to the duration of the project.

Another risk to the developer is the valuation of changes or design development. The contractor may supply a price based on a compliant return and then months later amend the design to one that simply fits and meets the employers requirements and call this “design development.” That said, design development is a two way street and as noted above can also be a risk to the Contractor.

Without any detailed cost information provided as a back up to the Contract Sum Analysis, costing any variations is difficult. The Contractor will provide a cost for the works with little or no substantiation, in keeping with the lack of detail provided within the Contract Sum Analysis. This puts the onus firmly on the PQS to establish any value for money from the proposed changed. This is equally true to omissions and additions.

Does the Contract Sum Analysis form part of the contract?

In every JCT Design and Build Contract, the Contract Sum Analysis is referred to within Article 4. The Contract Sum Analysis is an integral part of the Design and Build Contract. It is key in fact as the second recital states:

“… in response to the employers requirements the Contractor has supplied to the Employer;

Documents showing and describing the Contractor’s Proposals for the design and construction of the works (the Contractor’s Proposals) and

An analysis of the Contract Sum (the Contract Sum Analysis)”

Based on the above extract, it is not possible to have a valid JCT Design and Build Contract without the incorporation of the Contract Sum Analysis. The Contract Sum Analysis may also form the base document for the valuation of any variations to the Contract. This is where such work is measurable under clause 5.4

If the Developer issues a BoQ but the main contractor issues their price with a Contract Sum Analysis, what impact does this have on both the Developer and the main contractor?

As a developer, it’s frustrating when a pricing document is issued by a member of the Developer’s team and the return is based on something completely different or has several blank items with “included above” stated next to them. When a Developer issues a pricing document in a given format, this is done with the end review in mind. Submitting in a separate form complicates proceedings and may lead to protracted negotiations where may questions arise that may have been avoided subject to a complaint return.

As a BoQ may be prepared by the Contractor during a tender period for a Design and Build project, any BoQ prepared by the developer would serve to reduce the workload from the tendering contractors and ensure they are all pricing on the same basis, as three different contractors may go to three different BoQ suppliers who all have different assumptions on plugged specification items. Any deviation from the pricing document issued at tender might serve as a positive or negative impact on the scheme.

For instance, a return is based on a BoQ provided by a third party and not the Developers issued within the tender documents. The third party makes numerous assumptions within the BoQ and some of these are incorrect. The Contractor then returns a submission based on a priced scheme that doesn’t comply with the Employers Requirements and whilst the bid team may state compliance within the tender return, any changes brought about as noncompliance at a later date would be at the risk of the contractor. That said, the contractors BoQ may result in a higher tender return than competitors and this would likely rule him out from the beginning.

Conclusion and take away thoughts

A Contract Sum Analysis is a pricing document used by a Contractor when submitting a tender, typically under the Design and Build procurement route. The Contract Sum Analysis may be in detail or high-level summary, and the Employers Agent will often prepare a template and issue this as part of the Tender Documents. It is not uncommon for the Contractor to provide a submission based on single line entries and use “include above” for other elements within the section. In doing so, this makes the review period more difficult.

Whilst BoQs may be used to assist in the negotiation of a Contract let via a Contract Sum Analysis, the BoQ will not form part of the Contract documents. Skill and care should be used when reviewing a Contract Sum Analysis to ensure the Contractor has allocated costs within an expected range across the elements of the Contract Sum Analysis. Where elements are significantly higher than expected, the Contract Sum Analysis may be loaded. Where elements are significantly lower than expected, questions should be put forward regarding the buildability of certain elements at such rates.

About Jon Williams