Price-based, bills of quantities (BofQ)

The traditional procurement system in the UK requires the production of a BofQ, which is normally executed by the client’s quantity surveyor (QS). These detailed BofQs are prepared in accordance with the rules as stated in the appropriate Method of Measurement and reflect the quantities of designed permanent work left by the contractor on completion. ‘The bills of quantities is designed primarily as a tendering document, but it also provides a valuable aid to the pricing of variations and computation of valuations for interim certificates’ (Seeley, 1997).

When a BofQ is used it usually forms one of the contract documents and the client carries the risk of errors. In contrast, where the contractor computes the quantities, the contractor takes the risk of errors in the quantities.

Within the building sector the BofQ was prepared in accordance with the highly detailed rules contained within the Standard Method of Measurement of Building Works, 7th edition (SMM7). This system is classified as a lump-sum contract and is not subject to re-measurement, it is only subject to adjustment in the case of variations, claims, fluctuations, prime cost and provisional sums etc. In 2004, it was estimated that approximately 24% by value of all building work is executed using BofQ prepared based on the rules contained in the SMM7.

In contrast, in the civil engineering work sector the BofQ is prepared (see Table 12.2) based on one of two methods of measurement – the Method of Measurement for Highway Works (MMHW) for highway works and CESMM3 for other civil engineering works. Due to the unforeseen nature of the ground conditions, the BofQs were based on estimated quantities with the whole work subject to re-measurement based on the finalized drawings or in the case of excavation of rock-agreed site levels. The administration of major projects based on the admeasurement process is extremely staff intensive with teams of QS/measurement engineers (representing both parties) typically, more than three weeks in each month involved in the re-measurement required for the interim valuations. Indeed, the effort in site measurement and valuation diverts the commercial team from what should be considered the most important tasks – those of valuation of variations, early resolution of claims, final measurement and ascertainment or accurate prediction of the total cost of the contract (Gryner, 1995).

The Scottish Office’s Roads Directorate were one of the first major clients in the civil engineering sector to react to the growing adversarial and commercial reality of the re-measurement approach when using the ICE 5th edition of Conditions of Contract. In the early 1990s the Scottish Directorate introduced an alternative tendering initiative for their roads and bridges projects based on a design/refine and build partnering approach.

Table 12.1 Trends in main methods of procurement in the building sector – by number of contracts.

1995 1998 2001 2004

By number of Lump sum – firm BofQ 39.2 30.8 19.6 31.1

contracts Lump sum – spec and drawings 43.7 43.9 62.9 42.7

Lump sum – design and build 11.8 20.7 13.9 13.3

Target contracts 6.0

Re-measurement – approx BofQ 2.1 1.9 1.7 2.9

Source: RICS (2006).

Comments on the perceived merits of the BofQ system

1. Prompts the client and design team to finalize the design before the bill can be prepared:

One of the main advantages of the BofQ system is that in theory it should force the design team to identify ambiguities in the contract documentation prior to tender. However, in practice, the BofQ may be prepared from partially completed design information. In effect, the BofQ may conceal an absence of preplanning and investigation. Indeed, the quantities may be overestimated if the design is incomplete.

The employer could be exposed to additional risk if there are errors or omissions in the BofQ (e.g. see ICE 7th clause 56(2)). Essentially, the employer guarantees accuracy of quantities in the BofQ. If the drawings are not fully defined then the contract should not be based on a BofQ.

2. Avoids the need for all contractors to measure the works themselves before bidding and avoids duplication of effort with resultant increase in contractors’ overheads which are eventually passed onto clients:

BofQs are extremely detailed particularly under SMM7. However, 80% of the cost is usually contained in 20% of the items (Pareto Rule). Despite being detailed few BofQs deal satisfactorily with mechanical and electrical work, which can equate to between 30–50%

of the total value of the building. Preparing BofQs also increases the time to prepare the tender documentation.

3. Provides a commonality in tenders thus providing the opportunity for realistic tender evaluation:

The BofQ system allows contractors the opportunity to identify those items, which are under- or over-measured and then load or lighten the appropriate rates. Additionally, contractors may front-end load the rates in the early work sections (in order to improve cash flow).

Indeed, the learned QC Ian Duncan Wallace considered that ‘the premium for survival as an engineering contractor today must rest as much upon skill in exploiting the profit opportu-nities afforded by the contract documents (generally known as “loop-hole engineering”) as in the efficiency of the control and management of the project itself’ (Wallace, 1986). The employer may attempt to reduce high rates in the lowest tenderer’s bid prior to finalizing the contract, thus breaching the parity of tender guidelines. In practice the lowest bid may in fact be too high a risk for the employer.

Table 12.2 Example of bill of quantities (BofQ) prepared using CESMM3.

Number Item description Unit Quantity Rate Amount

In-situ concrete Provision of concrete

F143 Standard mix ST4 cement to BS 12,

20 mm aggregate to BS 882 m³ 840

Placing of concrete Reinforced

F634 Suspended slab thickness:

exceeding 500 mm; voided bridge

deck mm 462

F654 Columns and piers cross-sectional

area: 0.25–1 m² m² 96

F664 Beams cross-sectional area:

exceeding 1 m² m² 38

4. The unique coding system identified in the method of measurement against each item enables contractors to utilize computers efficiently for estimating BofQs:

Again true in theory, but one contractor may be bidding for work with BofQs based on many different methods of measurement, for example, SMM7, CESMM3, MMHW and International etc. Furthermore, the same BofQ description may be required to be priced differently due to different cost considerations, for example, due to different temporary works.

5. Can be used as a basis for monthly interim valuations:

Agreed, but in practice interim valuations may become too detailed and thus require a vast number of man-hours to produce (particularly on re-measurement contracts) Interim valuations can be based on a typical ‘S’ curve prescribed by the client in the contract documentation – as GC/Works/1 which was based on the analysis of over 500 projects by the Property Services Agency (PSA). However, Klein (1995) noted that the GC/Works/1 system tends to get into difficulties when applied to subcontracts, where the throughput of work and materials can vary from trade to trade.

6. Rates contained in the bills can be used as a basis for the valuation of variations:

True they can, indeed both standard forms JCT05 and ICE7th positively require this as a starting point. However, before even the simplest pro-rata rate is calculated the employer’s QS needs to have a detailed breakdown of the contractor’s unit rates which is not normally available in the UK. It is understood that contractors are required to submit a complete analysis of their tender rates under the German VOB and the Singapore private sector contract.

In practice there are many occasions when the BofQ rates are not appropriate for valuing variations. Variations can involve: delays, interruptions, loss of productivity, out-of-sequence working, uneconomic use of labour and plant, additional supervision etc. The Employer’s QS looks to impose BofQ rates, the contractor’s QS looks for full recovery based on cost – significant chance of dispute. The best approach: parties agree on the value of variations before the work is executed – including the costs of delay and disruption (this method is now becoming the standard approach following its introduction into the NEC ECC Contract, the JCT05 and the ICE7th).

7. Can assist the parties in the control and financial management of the works:

Pre-contract estimating: On building works the client’s QS uses data from previous projects to establish the budget price. However, the Building Cost Information Service (BCIS) format requires the BofQ to be in elements. This approach is not favoured by contractors as they require sections in trade format for subcontractors’ enquiries.

Post-contract contract control: BofQ describes the permanent works or materials left on completion; they do not reflect the contractor’s significant items of cost, for example, labour gangs and construction equipment retained on site for continuous periods (tower cranes, scaffolding). Contractors often have a monthly cost-monitoring system (costs com-pared to value) – often too late to do anything about identified variances. The BofQ system may in fact divert contractors from developing effective cost-control systems.

There has been much research work on the post-tender use of BofQs. Skinner (1981) considered that although the existing BofQs make a substantial contribution to the post-tender work, they are not ideally suited, either in format or content, to the needs of tendering or production. He considered that the principal reason for the inadequacy of the BofQ, both as a tender document and as an information source to contracting lies in the fact that the requirements

of production are not considered. Critically contractors must consider both the time and methods reflecting their use of heavy plant and mechanical equipment. However, Skinner (1981) found that the most widespread criticism concerned the use of ‘prime cost sums’ to cover nominated subcontractors – the contractor having no involvement in their selection although contractually responsible for them.

Indeed BofQs might lull clients into a false sense of security and provide contractors with an opportunity for increasing profits. However, the BofQ has been used satisfactorily on many major projects and is still used as the basis for calculating the bids by design and build contractors.