The Cost Left Behind When Scope Is Removed

Residual cost after omission

A dredging rate can average the cost of easy and difficult material, spread mobilisation across a campaign and assume a continuous sequence of work. Remove part of that package and the original cost distribution changes. Reducing the rate for the remaining work introduces a second change.

The Aberdeen harbour expansion dispute brought both decisions into the same courtroom.

A blended rate under pressure

The 2021 judgment records that Dragados transferred about one-third of Van Oord's dredging scope to others, then proposed cutting the remaining rate from GBP 7.48 to GBP 5.82 and later GBP 3.80 per cubic metre. Breach was accepted. The court held that the relevant NEC 3 price-reduction mechanism excluded instructions issued in breach; other factual issues remained for proof.^[1]

Preserve the package on which a rate was built: its material, work sequence, resources and interfaces as well as its estimated quantity.

Less work can carry a higher unit cost

Consider an IMWO example in CNY. A one-million-cubic-metre package has fixed project costs of CNY 10 million and variable costs of CNY 20 per cubic metre. Its total cost is CNY 30 million, or CNY 30 per cubic metre.

If 400,000 cubic metres are removed and all fixed costs remain, the remaining cost becomes CNY 22 million. Spread across 600,000 cubic metres, that is approximately CNY 36.67 per cubic metre. Quantity falls by 40%; average cost rises by 22.2%. The example excludes profit, tax and other risks.

Actual omissions need a more detailed calculation. Some fixed commitments may be cancellable. Removing difficult material may reduce cost disproportionately. Removing a continuous, accessible workfront may leave scattered pockets requiring more moves and repeat surveys. The assessment should identify the costs genuinely saved and the resources still needed.

The revised work programme belongs with the valuation

An omission instruction often appears as a negative quantity in a commercial register. Site management also needs to know who will work alongside the remaining contractor, where and when.

Will the replacement contractor share the navigation corridor, discharge point or disposal capacity? Does the original vessel still have a workable sequence? Will the remaining package require smaller plant, additional positioning or repeated mobilisation?

The employer and main contractor should assess those interfaces before finalising the revised programme. Otherwise, a decision presented as a saving can create waiting time or a productivity restriction in another contract.

The original contractor should substantiate its response. Costs already incurred, continuing commitments and new interface costs need separate treatment. A claim that every fixed cost is unavoidable requires examination just as a claim that every omitted cubic metre produces the original average saving does.

Compare replacement prices on equivalent terms

Specialist procurement can improve delivery. It can also produce a misleading comparison if one quotation covers excavation alone while another includes surveys, transport, standby and disposal.

Before relying on a replacement rate, align material, depth, quantity basis, haul distance, mobilisation, operating constraints and tax. Value the residual package against the obligations and resources that remain with the original contractor.

Contract authority is a separate question. For each project, identify the rights to omit or transfer work, the required procedure and the valuation mechanism in its own contract.

Four additions to the change register

IMWO recommends recording the original package, the scope removed, the resources left behind and the revised interface responsibilities. The valuation attachment should distinguish saved, continuing and additional costs.

Operations can then update the vessel programme, contract staff can address the valuation and finance can revise the funding forecast. Work already completed and agreed should continue through its payment process while the disputed adjustment is handled separately.

A material omission should also trigger an internal commercial review. Test the remaining revenue against the resources the contractor is still committed to provide. The revised budget must reflect the remaining quantity, sequence and resource commitments.

Source

^[1] Court of Session, Inner House, Van Oord UK Ltd v Dragados UK Ltd, [2021] CSIH 50,5 October 2021, paragraphs 3–15 and 23–31. Court-authored judgment hosted by litigation counsel. Original judgment.