Research on Price Adjustment in Engineering Settlement under Quantity Bill Valuation Based on Building Information Modeling Technology

Headnote

Abstract: China is to further enhance the level of construction industry information, and use Building Information Modeling(hereafter BIM) technology in engineering management. In this background, the calculation formula for prince adjustment in engineering settlement under the quantity bill valuation is proposed. The influence factors of price adjustment are discussed based on engineering practice. The risk clauses should be agreed upon based on the principle of risk sharing. Besides, the two parties must reach a consensus concerning the influence factors of price adjustment by sticking to the principles of comprehensiveness and concreteness. During the contract fulfillment stage, matters such as engineering change, price fluctuations, project site visa, valuation and payment must be properly handled in strict accordance with the contract. The importance of project site visa is highlighted as a timely record of all changes made. The purpose is to achieve the fine management of the project price adjustment in BIM.

Keywords: Building Information Modeling, price adjustment, contract.

1.Introduction

BIM is widely used in project management, but engineering project construction is affected by numerous factors, and the final settlement price is generally different from the price agreed upon in the initial contract. That is why price adjustment is inevitable in engineering settlement. Because the contract price adjustment is influenced by human factors, BIM cannot achieve the fine management of the price adjustment. Construction Contract for Construction Project (Model Form) (GF-2013-0201) (hereafter referred to as the Construction Contract) and 2013 Construction Engineering Quantity List Valuation Standard (GB50500-2013) (hereafter referred to as the 2013 version of Valuation Standard) provide a more detailed specification on price adjustment in engineering settlement, for both the developer and the contractor. It is clearly stipulated that the quantity bill valuation must be adopted for construction project funded by state-owned capital, while quantity bill valuation is recommended for those funded by non-state-owned capital. Quantity bill valuation has already become the mainstream mode of valuation, and we will discuss the topic of price adjustment in engineering settlement under quantity bill valuation (Lino et al., 2016).

Under this valuation mode, a variety of factors causing the changes of contract price should be considered. The overall calculation formula used for the settlement price is: settlement price=contract price+price adjustment related to imperfection of the quantity bill+price adjustment related to price changes+price adjustment related to engineering change+price adjustment related to project site visa+price adjustment related to claim for compensation+price adjustment caused by other factors.

Whether it is reasonable to adjust the price and how to adjust the price are usually the major causes of disputes for the developer and contractor. Price adjustment is closely related to the form of contract and the clauses of the contract, and any adjustment to be made should be based on the contract agreement between the two parties.

Below is a discussion on the influence factors of price adjustment according to the overall calculation formula used for settlement price. To avoid the disputes upon engineering settlement, both parties must be scrupulous with contract signing and implementation (Miramontes et al., 2016).

2.Risk Clauses Agreed upon Based on the Principle of Risk Sharing

Under the quantity bill valuation mode, quantity-related risk is undertaken by the developer, while the price-related risk is undertaken by the contractor within a reasonable range. But beyond this range, the risk will be transferred to the developer; however, the risks associated with construction techniques and management are borne by the contractor. These are the basic principles of risk sharing that should be respected when signing the contract.

2.1. Price Adjustment Related to Imperfection of Quantity Bill

2.1.1. Inconsistency of Characteristics of the Construction Project and Missing Items in the Quantity Bill

According to the Valuation Standard in 2013, quantity bill must be presented as part of the bidding documents. Its accuracy (of quantity) and integrity (no missing items) are within the scope of bidder' s responsibility. Some contracts say that "any missing items in the quantity bill, if not recognized by the developer, are deemed included in the unit price of other items or in the addup. This does not conform to the requirement in the Valuation Standard in 2013.

If the characteristics of the projects in the drawing and those in the quantity bill are inconsistent when the project is under construction, which leads to changes in the engineering cost, the new integrated unit price must be determined. The method for this step is specified in Section 3.1 Engineering Change.

If there are missing terms in the quantity bill, the method for determining the integrated unit price for the newly added items in described in Section 3.1.

2.1.2.Deviation of the Quantity Described in the Quantity Bill from the Actual Quantity

1. Quantity

Under the unit price contract, the actual quantity should be determined upon settlement and the final price is calculated on this basis, and some contracts do include this specification. But whether this specification is included or not, settlement based on the actual quantity is the compulsory clause in the Valuation Standard in 2013. It is improper that "adjustment is only made to the amount of quantity beyond ±3% of the predetermined quantity", as in some contracts.

Under the lump sum contract charged by the quantity bill as specified in clause 8.3.1 in Valuation Standard in 20l3, settlement must be based on actual quantity. But in accordance with the clause 8.3.2, under the lump sum contract with quota pricing, settlement must be based on the quantity in the contract excluding the amount of quantity allowed to be adjusted.

2. Integrated unit price

Within a certain range of quantity deviation, no adjustment is allowed for the integrated unit price. Beyond this range, the integrated unit price of the exceeding quantity can be adjusted. The specific range is agreed upon in the contract. Table 1 shows an example of price adjustment by presupposing that the range allowed to be adjusted is ±15%.

2.2. Price Adjustment Related to Price Changes

2.2.1. Changes of Laws, Regulations and Policies

Changes of engineering costs caused by transitions of laws, regulations and policies should be accommodated by changing the settlement prices, such as electricity, water and fuels, whose prices are limited by the government. Any price changes related to these respects must be borne by the developer, according to the clause 9.2.1 in Valuation Standard in 2013.

2.2.2.Changes of the Market Price

In case of changes in the market prices of manpower, construction materials, engineering facilities and machine shift, the contract should stipulate the risk spectrum and the price range beyond which adjustment is to be made. Here risk spectrum consists of the materials, manpower and machineries with considerable fluctuations of market prices, including steel, concrete, timber, cement, doors and windows, and cables. The risk range is generally from ±3% to ±6%.

Example 1: Under one contract, the risk spectrum for the integrated unit price is as follows: the contractor should completely undertake the technological and managerial risks, as well as the risks of material price fluctuation with ±5%, the risks of machinery use within ±10%, and all risks associated with overhead and profits. The developer should be informed of the price changes within this risk spectrum by the contractor within 7 days, and the new prices are set with the developer's approval.

The contracts must not use the terms "all risks" and "infinite risks" to refer to the potential risks. Some bidding documents say that "unless the proprietor makes the request of modifying the design and changing the construction materials, all budget prices, once submitted and approved, must not be adjusted for fluctuations of policies and market factors". However, this clause is not based on the principle of risk sharing.

To adjust the prices in response to fluctuations in market prices, price index method and cost information method are commonly used, especially the former. Below is an application of the cost information method within the ±5% risk range.

1. Fluctuations in material prices

The baseline unit price of the reinforcing bars is 4000 yuan. Table 2 presents other information.

2. Fluctuations in machinery prices: The adjustment method is the same as with adjustment for fluctuations in material prices.

3. Fluctuations in manpower prices.

The adjustment method for fluctuations in manpower prices is similar to that for the fluctuations in material prices, except for different amplitude of adjustment. The baseline unit manpower price is 80, and Table 3 presents other information.

Example 2: It is stipulated in the contract that © no adjustment for fluctuations in market prices of any materials except the cables is allowed. Setting the adjustment threshold to above or equal to ±5% for the cables, the amplitude of adjustment for the price difference beyond this threshold is determined using the following formula: the amplitude of adjustment=monthly information price in actual purchase during the construction period-monthly information price in the tender list x(i±5%); ©Setting the adjustment threshold to above or equal to ±5% for the manpower, the amplitude of adjustment for price difference beyond this threshold is determined using the following formula: amplitude of adjustment=information price of manpower during the construction period (for structuring, decoration and installing separately)-monthly information price in the tender list. The information price in the construction period is the arithmetic average of the information price released by the local engineering cost supervision authorities. If the upper and lower limits of the information price are given, the median value is taken; otherwise, the market price certified by the developer is used.

The difference between the stipulation in the above example and the calculation in Table 2 is no matter which is higher, tender price or baseline unit price, the increase and decrease are both based on the baseline unit price (i.e., monthly information price in the bidder list).

4.Provisional estimate

Once the provisional estimates of the unit prices of materials and engineering facilities contained in the tender quantity bill are certified, the integrated unit price can only replace the provisional estimates; no adjustments shall be made to the integrated unit price for the overhead or profits.

Example 3: It is stipulated in a tender document that all provisional estimates of the material prices are budget prices and the provisional estimates of the materials and machinery are counted as the integrated unit price for each bidder in the tender stage. The provisional estimates of the materials must be certified by the contractor. Final settlement should be based on the certified purchase prices with price difference considered; however, only the amount corresponding to the price difference is taxed, excluding the overhead or profits.

3.Identify the Influence Factors of Price Adjustment Based on the Principle of Comprehensiveness and Concreteness

As analyzed above, any potential factors that may influence the settlement price must be included in the contract: advance payment, time of payment and method of deductions; quantity measurement, and method, amount and time of progress payment; influence factors and method of adjustment of project cost, as well as the procedures and time of payment; claim for compensation and procedures, amount conformation and time of payment; content and scope of pricing risks borne and method of adjustment for the risk beyond this range; completion settlement system, validation, payment and time.

To avoid any disputes upon settlement, any potential factors that may influence the settlement price must be considered before signing the contract, with a specification on the adjustment procedures and amounts. Apart from the price adjustment related to imperfection of the quantity bill and price changes, price adjustment may be also needed due to the following reasons.

3.1. Price Adjustment Related to Engineering Change

In case of any changes in the priced items or its quantity due to engineering change, adjustments should be made based on the following principles: If the items in the quantity bill are related to the purpose of engineering change, the integrated unit price of this item is used; if the quantity of this item in the original quantity bill deviates from the new quantity by over 15% because of engineering change, adjustment of the unit price of the item shall be done according to Table 1. If the item related to engineering change is not included in the original quantity bill, the unit price of this item shall be determined reasonably. If the item is included in the original quantity bill and neither are there similar items priced in the quantity bill, the integrated unit price of the item shall be proposed by the contractor and submitted for approval by the developer.

If similar items cannot be found in the original quantity bill, they can be looked up in the local quotas, such as the price of manpower, materials and machinery.

The integrated unit price of the item is calculated as follows: local quota for manpower cost+unit price of materials+quotas for other materials (excluding the material concerned) + local quotas for machinery related to this item + overhead + profit x (1-floating rate of the quoted price) where floating rate of the quoted price = (1-bid price/ tender control price) x 100%.

Unit price of the materials is the price released by the local engineering cost supervision authorities (if not available, the price is acquired by market survey).

If the construction plan has been altered and the step item costs have changed, the contractor shall submit the revision of the construction plan for the approval by the developer. The step item costs shall be adjusted as follows: the same adjustment method for step item costs calculated by unit price as above; or by multiplying the actual amount of adjustment by the floating rate of quoted price for step item costs calculated by gross price (or coefficient).

3.2. Price Adjustment Related to Project Site Visa

Some matters inconsistent with the engineering contract or not having been agreed upon in the contract may appear in the construction stage. The two parties shall record the matters to prepare the project site visa, as defined in Valuation Standard in 2013. Other designations are given from one region to another, including project visa, project negotiation and technical authorization sheet.

Developer can make orders on the odd items beyond the scope of contract and other works outside the scope of the contractor's responsibilities. The contractor shall submit the project site visa concerning these matters within 7 days. The contractor shall not begin to work unless the submitted project site visa is approved by the developer.

3.3.Price Adjustment Related to Claim for Compensation

Price adjustment related to claim for compensation depends on the condition and procedures of the claim for compensation.

4.Execute the Contract Process Following the Stipulated Conventions

Table 4 shows the stipulated conventions for handling different matters in the contract implementation stage. Stipulated conventions should be fully respected by both parties to avoid disputes.

Below is an illustration of how the stipulated conventions work in the stage of quantity measurement and payment.

Example 4: It is stipulated in a contract that the contractor submits the report on the quantity already finished in the current month on the 25th of every month. The developer checks the report (quantity measurement) within 7 days. The contractor shall submit the application for progress payment to the developer within 7 days after the checking of the quantity, which specifies the amount entitled to the contractor in the current month: © costs related to engineering change and project site visa are excluded, until the approval of the engineering change amount; therefore this additional amount shall be paid in the following month along with the progress payment; © Price adjustments for the materials and machinery submitted by the contractor are not covered in the interim payment, but are settled in the final settlement.

The developer checks the payment application submitted by the contractor and presents the payment certificate within 7 days after reception. Then the developer makes the progress payment which is 70% of the settlement amount of the previous month within 7 days after presenting the payment certificate.

Progress payment can be made either on a monthly basis or phase by phase. Payment on a monthly basis in coincidence with the cycle of quantity measurement is described in example 6, and phased payment is described in example 7.

Example 5: Phased payment is agreed upon under a contract: 40% of the contract price (excluding the tentative amount) shall be paid when 50% of the quantity is already finished within 28 days after presenting the certificate for progress payment; a total of 72% of the contract price (excluding the tentative amount) shall be paid when 90% of the quantity is already finished; a total of 80% of the contract price (excluding the tentative amount) shall be paid after the project is considered quality upon final acceptance; a total of 95% of the contract price shall be paid after final acceptance. The remaining amount shall be paid after the expiration of the warranty period.

5.Prepare Project Site Visa Based on Project Progress

In case of any of the matters below, the contractor shall issue the project site visa for the developer's approval, as the proofs for potential price adjustment regarding the matters:

Oral orders made by the developer: Contractor shall present the written form of the orders.

2. Written notice issued by the developer: Contractor shall prepare a report on the manpower, materials and machinery required to finish the new task and submit the report to the developer.

3. The actual construction process is different from the description in the contract.

4. The developer does not provide the site, materials or machinery needed for the construction, or cuts off the water and electricity, leading to suspension of the construction.

5. Due to fluctuations in the market price of the construction materials, the contractor proposes the new purchase quantity and unit price.

Matters dealt in the project site visa are usually closely related to price adjustment. To avoid the disputes, post hoc visa and centralization preparation of site visa before acceptance must be avoided.

6. Conclusions

Project construction is influenced by numerous factors, leading to different settlement price as is estimated in the contract. BIM cannot achieve the fine management of the price adjustment To avoid disputes, the developer and contractor should be fully scrupulous in the contract signing and fulfillment stage. In anticipation of potential price adjustment, the risk clauses shall be formulated based on the principle of risk sharing along with a detailed specification of risk spectrum and amplitude of adjustment. Besides, the influence factors of price adjustment shall be specified as comprehensive and concrete as possible. Based on the calculation formula for settlement price, any potential influence factors of settlement price shall be considered and the adjustment method and amplitude shall be specified in the contract. Price adjustment related to engineering change, price fluctuation and project site visa, as well as quantity measurement and payment must be implemented in strict accordance with the stipulated conventions in the contract.

The importance of project site visa as a recording of construction dynamics should be highlighted. All these measures are very important to avoid disputes. The purpose is to achieve the fine management of the project price adjustment in BIM.

Acknowledgements

This work was financially supported by the Civil Engineering Professional Group Construction Project of Beijing Vocational College of Agriculture (2013) and the School-level Research Project of Beijing Vocational College of Agriculture(No. XY-BS-15-03).

References

References

Li M.Y., Zeng Q.J. (2013). Discussion on the Adjustment of Project Price Caused by Engineering Change. JOURNAL OF GUANG DONG COMMUNICATION POLYTECHNIC, 12(2): 17-19.

Lino, A., Rocha, A., & Sizo, A. (2016). Virtual teaching and learning environments: Automatic evaluation with symbolic regression. Journal of Intelligent & Fuzzy Systems, 31(4), 2061-2072.

Liu X., Jiang S.H., Li Z.F.. (2015). Ontology-based Knowledge Representation Approach for Building Cost Estimation. Journal of Engineering Management, 29(3): 19-24.

Miramontes J.M., Mirna C.M., Jose A., Corona B. (2016). Establecimiento del estado del arte sobre el aligeramiento de procesos de software. RISTI - Revista Ibérica de Sistemas e Tecnologias de Informaçâo, n17, 16-25. Doi: 10.17013/risti.17.16-25.

Weng D.F., He Z.T.. (2010). Design of optimal incentive contract of construction projects based on multi-dimensional variables. CHINA CIVILENGINEERING JOURNAL, 43(11): 139-143.

Yan L., Chen L.N. Hu J. (2013). Adjustment of Total Lump Sum Preliminaries under Code of Bills of Quantities and Valuation for Construction Works. Journal of Engineering Management, 27(6): 92-96.

Zhang K.H., Du Y.L., Zhu Z.P. (2015). Research on the Contract Payment Adjustment Caused by Site Instruction of Odd Project Based on Code of Bills of Quantities and Valuation for Construction Works(2013). Engineering Economy, (9): 71-79.

Zhang Y., Shen B.W.. (2008). Establish and Application on Unbalanced Bid Model Under the Figure Pattern of the Bill of Quantities. JOURNAL OF WUHAN UNIVERSITY OF TECHNOLOGY, 30(5): 112-116.

Zhong C. (2010). The example analysis of the quantities bill valuation contract settlement price adjustment. Journal of Yangtze University(Social Sciences), 33(3): 44-46.

Zhou R.Q., Zhen Z.L., Tan D.J.. (2006). Bid Tactics Analysis under Mode of Valuation with Bill of Quantities. Journal of Chongqing Jianzhu University, 28(2): 124-127.