Valuation and the pricing ladder

Two things make this harder than it looks. The first is that the rungs are triggered by different tests in different forms: FIDIC gates the move off contract rates behind arithmetic, JCT behind judgment, AS 4000 behind reasonableness. The second is that one major form has no ladder at all, and practitioners who learned their valuation on JCT or FIDIC routinely misprice NEC4 work as a result.

Everything below assumes the scope question is already settled. If it is not (if the argument is still about whether the work was inside the original scope at all) valuation is premature, and the wider machinery is set out in the variation claims pillar.

What the pricing ladder is, and why you fall to a rung rather than pick one

The pricing ladder is the sequence of valuation rules almost every measurement-based construction contract applies to a variation: contract rates where the work is of similar character executed under similar conditions without significant change in quantity, contract rates as the basis with a fair allowance where character is similar but conditions or quantities have changed, fair rates and prices where the work is not of similar character, and daywork where the work cannot properly be valued by measurement. You do not elect a rung. You fall to it.

The sequence is not a modern invention and it has been construed judicially. In Weldon Plant Ltd v The Commission for the New Towns [2000] EWHC Technology 76, [2001] 1 All ER (Comm) 264, HHJ Humphrey Lloyd QC read ICE clause 52(1) as three sequential rules, bill rates for work of similar character and conditions, bill rates "so far as may be reasonable" as the basis for dissimilar work, and "failing which a fair valuation shall be made". The modern JCT, FIDIC and AS drafting is the same structure with different words.

The practical consequence of "fall, don't elect" is asymmetric and it favours whoever is defending the account. A contractor arguing for a fair valuation must first defeat the contract rate. A contractor running a daywork account must first show the work could not properly have been measured. In both cases the burden sits on the party climbing down the ladder, which is almost always the contractor.

Where each contract form puts the ladder

Every form in common use puts the ladder somewhere different, calls the rungs something different, and hands the fallback determination to a different person. The table below is the ladder as each form actually writes it. Note that two entries are not ladders at all: NEC4 ECC prices from first principles, and the FAR equitable adjustment is a single compensatory measure with no rung hierarchy. Every table in this article states form-default positions: bespoke amendment to valuation provisions is normal on major projects, and the executed contract governs.

Form-default. The rungs and clause locations are read off the published forms. Bespoke amendment is normal on major projects, and the executed contract governs.

Five caveats belong on the face of that table rather than in a footnote.

The AIA number is §7.3.4, and it is not a cost-plus-percentage provision. In AIA A201–2017 the Architect's determination and its cost list sit at §7.3.4. That provision was §7.3.7 in A201–2007, and commentary still citing §7.3.7 is working from the superseded edition. Nor is §7.3.4 a percentage default: it is a closed cost list, framed in "shall be limited to" language, with a reasonable allowance for overhead and profit added on an increase only. The percentage-fee concept sits one level up at §7.3.3 and is a consensual method, not the fallback. The enumerated cost categories in §7.3.4 were not read verbatim for this article and are therefore not reproduced here. Read them off the printed form before you plead them.

JCT SBC 2024 sub-clause numbers. The sequence of the SBC 2024 Valuation Rules at clauses 5.6–5.10 is verified. The sub-clause numbers commonly quoted for the three measurable-work limbs (5.6.1.1, 5.6.1.2, 5.6.1.3) were carried forward from JCT SBC 2016 and not read from the 2024 text. Cite the rule, not the decimal, unless you have the printed form in front of you.

AS 4000:2025 sub-clause numbers are not given here. The standard is paywalled, published commentaries conflict on the sub-numbering of clause 36, and the four-limb hierarchy itself is verified for AS 4000-1997 and the identical AS 4902-2000 provision but not confirmed against the 2025 text. Nothing in the 2025 commentary suggests the hierarchy changed. Cite "AS 4000:2025 clause 36" and check the sub-number against the standard before pleading it.

CCDC 2 – 2020 has a percentage problem. The form values a Change Directive as actual cost plus a percentage fee for overhead and profit. Two independent sources report a 10% allowance where not otherwise agreed. A competing reading of GC 6.3 is that the form specifies no percentage at all and defers entirely to the Contract Documents or the parties' agreement, so that on an unsupplemented CCDC 2 with a blank fee entry the percentage is undefined and becomes a live dispute in every Change Directive. Sub-paragraph numbering within GC 6.3 is unverified. Fill the fee in at tender and the question never arises.

FIDIC's Yellow and Silver Books have no Clause 12. They are lump-sum contracts with no remeasurement, and variations are valued entirely within Sub-Clause 13.3.1. A Schedule of Rates and Prices applied so far as relevant, and otherwise Cost plus Profit. In the Silver Book the Employer performs the valuation function directly, so there is no neutral determiner at all and disputes go straight to the DAAB.

Why NEC4 has no ladder at all

NEC4 ECC rejects the pricing ladder entirely. NEC4 ECC clause 63.1 assesses the change to the Prices for a compensation event as the effect on actual Defined Cost of work done by the dividing date, forecast Defined Cost of work not yet done, and the resulting Fee. There is no rung 1, no contract-rate presumption, and no fair valuation. Every compensation event is priced from first principles, whether it is worth GBP 500 or GBP 5 million.

That design decision does something no other form does: it makes rate abuse structurally impossible. There is no rate to be front-loaded, no windfall to be captured by a quantity increase, and no argument about whether the work is of similar character. Even under Option B, priced with a bill of quantities, the bill rates price the works as originally described and are not a valuation mechanism for change. The one qualification is clause 63.2, new in NEC4 and elevated to a core clause: the Project Manager and Contractor may agree to use rates and lump sums to assess the change. It is optional and agreement-based (neither party can impose it) and it is the most underused provision in clause 63, because it short-circuits Defined Cost forensics on low-value and repetitive changes.

NEC4 removes the rate as a thing to argue about, and relocates the dispute to Defined Cost: forecast assumptions, disallowed cost and the Fee percentage. That is not a smaller fight.

The dividing date under clause 63.1 is the date of the Project Manager's or Supervisor's instruction or communication where the compensation event arises from one, and the date of notification for everything else. Work before it is valued on actual Defined Cost. Work after it on forecast Defined Cost, and the forecast is not revisited when the outturn is known, implementation is final under NEC4 ECC clause 66. Which cost schedule applies inverts most people's expectation: Options A and B, the priced options, use the Short Schedule of Cost Components, because there is no ongoing open-book regime and a simplified basis reduces argument. Options C, D and E, the cost-based options, use the full Schedule of Cost Components, because Defined Cost is already being administered open-book for payment.

Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd [2017] NIQB 43 remains the leading decision on the resulting tension. Where quotations were never agreed contemporaneously, the court permitted retrospective assessment using actual cost records, invoking the mutual trust and co-operation obligation. It is Northern Irish and not binding in England, but it is universally cited and it cuts both ways: a contractor that never submitted quotations cannot insist on a generous forecast when the actuals say otherwise, and an employer that never assessed cannot complain when actuals are used. Beyond it there is very little: no published English authority on NEC4 compensation-event valuation disputes exists, because they are overwhelmingly resolved in adjudication and are therefore structurally unreported. That absence is a feature of the regime, not a gap in the research.

When does a contract rate stop applying?

A contract rate stops applying when the valuation rules themselves say so, and not before. Every form draws that line differently, and the difference decides how the argument has to be run: FIDIC 2017 uses a numeric gate, JCT uses a judgment standard, and AS 4000:2025 uses a reasonableness standard. A numeric trigger and a judgment standard are different animals to argue, and they reward completely different evidence.

FIDIC Red Book 2017, clause 12.3, four cumulative conditions. A new rate is appropriate for a Bill item on the arithmetic route only where all four are satisfied: the measured quantity has changed by more than 10% from the Bill quantity, that change multiplied by the Bill rate exceeds 0.01% of the Accepted Contract Amount, that change directly changes the Cost per unit quantity by more than 1%, and the item is not specified as a fixed-rate item.

Those four conditions are reported consistently across the commentaries, but the verbatim text of FIDIC 2017 clause 12.3 was not read, run the arithmetic from the printed form before you build a case on it. The alternative route is clause 12.3's second limb: work instructed under Clause 13 for which no rate is specified and no specified rate is appropriate, because the work is not of similar character or not executed under similar conditions. That limb is evaluative, and it is where a contractor whose arithmetic fails must go.

JCT DB 2024 clause 5.4 and JCT SBC 2024 clauses 5.6–5.10: judgment. The triggers are "similar character", "similar conditions" and "significant change in quantity", and the remedy where character is similar but conditions or quantity have changed is contract rates as the basis plus a fair allowance for the difference. There is no threshold, no percentage and no arithmetic. There is also, and this is worth stating plainly, no case law construing what a "fair allowance" means where quantities have changed under the JCT Valuation Rules. That is a real gap in English authority, not an omission from this article.

AS 4000:2025 clause 36: reasonableness, twice over. The Superintendent applies contract rates, then rates in a priced bill or schedule of rates even though not Contract documents "to the extent it is reasonable to use them", and only then reasonable rates including profit and overheads. The middle limb is unusually wide and it is a trap: a tender-stage rate build-up submitted for evaluation is capable of being used against the contractor in variation pricing even though it never became a contract document. Assume anything priced and handed over is reachable.

The practical consequence of the FIDIC/JCT divide is easy to state and expensive to learn. A contractor with a loss-making rate and a 9% quantity change has no route at all under FIDIC's first limb and an arguable one under JCT. Under FIDIC, run the arithmetic before you write anything else. If it fails, the only argument left is character and conditions.

The sacrosanct rate cuts both ways

Contract rates are, in the English formulation, "sacrosanct, immutable, and not subject to correction" merely because a party is dissatisfied with them. Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [1999] BLR 123 (TCC), affirmed [2000] BLR 247 (CA), is the authority. Boot had mis-priced temporary sheet piling, variations increased the quantity and generated a windfall, Alstom argued for a fair revaluation and the Court of Appeal refused. A mistaken rate must be used to value the variation.

The rule is defensible precisely because it is symmetrical. An under-priced rate binds the contractor exactly as an over-priced rate binds the employer, and that is the price of a bargain in which rates are fixed at tender and both parties price the risk of being wrong. Contractors discover this on the loss-making side far more often than they enjoy it on the windfall side, because the quantities that grow are rarely the ones that were priced generously.

The front-loading defence. An employer facing a windfall claim on an inflated rate has three moves, in descending order of strength.

1. Attack scope, not rate. Argue the work is not of similar character, so the rate does not apply at all and the fair-valuation rung governs. This is far stronger than asking a tribunal to correct a rate it has just been told is sacrosanct, and it is the argument employers most often fail to run.
2. Attack conditions. Show the work was not executed under similar conditions, which moves the valuation to rates-as-basis-plus-fair-allowance and reopens the number legitimately.
3. Argue the fair allowance can adjust downwards. Whether a "fair allowance" can be used to reduce an over-generous rate where conditions have changed is contested and undecided: no authority on the point was located, and it is framed as an open question in practitioner commentary. Two counterweights sit against it: Henry Boot itself is against reopening rates on grounds of dissatisfaction, since the fair allowance adjusts for the difference in conditions rather than for the rate's inherent generosity, and Van Oord UK Ltd v Dragados UK Ltd [2021] CSIH 50 is adverse to an employer whose change of conditions was self-inflicted. There, Dragados moved a third of the works elsewhere and then relied on the reduced volume to argue the rate should fall from GBP 7.48/m³ to GBP 3.80/m³, the court held that a compensation event which is a breach of contract does not reduce total Defined Cost, and that the mutual trust obligation prevents a party enforcing terms arising from its own breach.

For a contractor sitting on a bad rate, the corollary is that the evidence which wins is evidence about conditions (access, sequence, working hours, weather window, plant availability, gang size) recorded contemporaneously. Comparing your cost to your rate proves only that you priced it badly, which is the one thing Henry Boot says is irrelevant. The "rates are wrong" argument is the single most-attempted and least-successful move in variation valuation. Budget accordingly.

Overhead and profit: three structural models, and what a fair valuation must contain

Standard forms pay overhead and profit on a variation in one of three structurally different ways, and confusing them is how margin gets left on the table. Percentage addition: CCDC 2 – 2020 GC 6.3 adds a percentage fee to the listed actual costs of a Change Directive, and FIDIC 2017 adds a default 5%. Fee percentage: NEC4 ECC carries all overhead and profit inside the Fee applied to Defined Cost, so there is no separate claim for either. Open valuation, JCT's fair valuation and AIA A201–2017 §7.3.4's reasonable allowance for overhead and profit both require the number to be built and justified rather than read off a rate.

Form-default, with the AS 4000:2025 head-office entry unverified against the standard. Bespoke amendment is normal on major projects, and the executed contract governs.

The FIDIC definition that gets written backwards. FIDIC 2017 clause 1.1.19 defines "Cost" as expressly excluding profit. Clause 1.1.20 defines "Cost Plus Profit" as Cost plus 5% unless otherwise stated in the Particular Conditions. Every entitlement in the form that gives "Cost" alone gives no margin, and every entitlement that gives "Cost Plus Profit" gives 5%. Practitioners routinely assert that FIDIC "Cost" includes profit. It does not, and the difference is 5% of every Cost-based head on the project.

Fair valuation includes profit. It does not include head office overhead as a prolongation claim. Weldon Plant Ltd v The Commission for the New Towns [2000] EWHC Technology 76 is the authority, and it holds three things, all load-bearing. Profit must be included: "a contractor is in business to make profit on costs of deploying resources, and accordingly an employer must pay profit in valuations made under any rule" (at [18]). The arbitrator's exclusion of profit was an error of law. Overheads split in two and are proved differently: time-related and site overheads must be proved as actually incurred, or shown to have been denied recovery. Contribution to fixed head office overheads need not be individually proved, but must be included via a reasonable percentage derived from the contractor's accounts (at [19]). And the governing principle is restorative: a fair valuation puts the contractor in the financial position it would have occupied had the variation not been instructed, provided the costs were reasonably and properly incurred.

One asymmetry worth carrying: on deleted work, AIA A201–2017 §7.3.8 measures the credit as actual net cost, so the Contractor keeps its overhead and profit on the deletion, and where a change bundles additions with credits for related work, overhead and profit are figured on the net increase only. CCDC 2 – 2020 GC 6.3 reaches the same commercial result by a different route, reducing the price on a net decrease without adjusting the percentage fee. AS 4000 is reported to run the opposite way on deductions (profit but not overheads) but that limb is unverified against the standard and should be checked before it is relied on either way.

Dayworks is the last rung, and it fails on records rather than on principle

Daywork is available only where the work cannot properly be valued by measurement. It is a residual rule, not an election, and a contractor cannot choose daywork over measurement because it is easier or because the daywork rates are better. JCT DB 2024 clause 5.5 and JCT SBC 2024 clause 5.7 compute it by reference to the RICS Definition of Prime Cost of Daywork carried out under a Building Contract, or the specialist-trades equivalent, plus the percentage additions stated in the Contract Documents. FIDIC 2017 clause 13.5 runs a Daywork Schedule with a daily record discipline attached: the Contractor must submit quotations, invoices, vouchers and accounts for goods, and priced statements each day.

Daywork claims fail because the records will not carry the account.

One structural point about the rates themselves. Daywork percentage additions are set for a general case and rarely reflect the actual cost of a disruptive, small-quantity, out-of-sequence operation, which is exactly the kind of work that reaches rung 4. Daywork is attractive to contractors because it converts a valuation argument into an arithmetic one, and attractive to employers for the same reason, because the arithmetic is usually low.

The valuation clause prices the changed work only

Under almost every form, the valuation clause prices the changed work and nothing else. Prolongation, disruption and thickened preliminaries travel by a different route with its own trigger, notice and proof: loss and expense under JCT Section 4 (JCT DB 2024 clauses 4.19–4.23), a claim under Article 15 of AIA A201–2017, equitable adjustment for impact under FAR, and a clause 20.2 claim under FIDIC 2017. JCT says so expressly, DB 2024 clause 5.7 and SBC 2024 clause 5.10 both state that no allowance is made in the Valuation for the effect of the Change on regular progress or for loss and expense reimbursable elsewhere. Getting this wrong produces either double recovery or no recovery, and both lose.

NEC4 is the sole exception, and deliberately so: NEC4 ECC clause 63 assesses both the time and the cost effects of the compensation event in one quotation, and NEC4 ECC clause 66 makes implementation final. An NEC4 contractor that submits a quotation pricing only the direct work has settled the time and disruption consequences of that compensation event. It is the most expensive routine error in the regime, and it is the same structural risk that runs through change order releases under every other form.

And the mirror-image trap. AS 4000:2025 clause 36 requires the Contractor, when responding to a proposed-variation notice, to give estimates covering the effect on the programme and the Date of Practical Completion and the cost, including all time-related costs. Time-related cost is expressly inside the pricing response. A contractor that carries JCT habits onto an AS 4000 job (pricing the direct work and reserving the delay costs for a separate claim) has, on the face of the clause, omitted the very thing it was asked to include. The habit that protects you on one form under-recovers on the other.

The same collapse happens wherever a quotation procedure is used rather than the default rules. JCT SBC 2024's Schedule 2 Variation Quotation, triggered by clause 5.3, and JCT DB 2024's Schedule 2 Supplemental Provision 2 "Valuation of Changes – Contractor's estimates" both require direct loss and expense and the effect on time to be priced inside the quotation, and acceptance is a final and inclusive settlement of those heads for that Change. Both are optional and apply only if stated in the Contract Particulars. Note also that JCT DB has no "Schedule 2 Quotation". That is an SBC instrument, and the DB analogue is Supplemental Provision 2.

Two practical disciplines follow, and they are the difference between a variation account that survives and one that gets halved.

Reconcile the overlap on the face of the claim. Where both a variation account and a prolongation claim are run, the standard employer answer is that a preliminaries uplift has been recovered twice for the same period. It is usually a good point. Identify the impact window, price the prolongation at the resource levels prevailing then rather than at the tail of the job, SCL Delay and Disruption Protocol, 2nd Edition (February 2017), Core Principles 20 and 22, restrict the variation-account preliminaries to resources deployed for the varied work, and say so in the valuation. A claim that shows it has stripped out the overlap is far harder to attack than one that has to be reverse-engineered. The mechanics of the separate claim are set out in prolongation and delay costs.

Fix the design-and-build preliminaries problem at tender, because it cannot be fixed later. JCT DB 2024 has no bills of quantities. Preliminaries recovery on a Change therefore depends entirely on whether the Contract Sum Analysis discloses preliminaries in a form capable of pro rata adjustment. On a great many projects it does not. The CSA is a handful of elemental lines agreed at tender for payment purposes, not a pricing document. Where that is so the contractor is thrown back on fair valuation and must prove the preliminaries content from first principles, on every single Change, for the life of the job. It is a recurring and entirely avoidable source of under-recovery, and the only fix is to negotiate a Contract Sum Analysis with a preliminaries breakdown capable of adjustment before the contract is signed.

Sobre este material El contenido de la biblioteca es información general sobre la práctica de las reclamaciones de construcción, no asesoramiento jurídico. El derecho a reclamar, los plazos y el procedimiento se rigen por su propio contrato y por el derecho del lugar donde se ejecuta la obra. Revisado el 7 de agosto de 2026 · Informar de una corrección