A princely dispute

So, the Earl of Wessex is Human after all. He and his wife Sophie are in dispute with their builder, CJ Sims (or its receiver), because variations on what the Wessexes thought was a fixed-price contract for £1.8m have cost an extra £600 000.

They join a club of hurt and dissatisfied clients and contractors that have fallen foul of the industry's totally inadequate procurement and project management systems.

I am not party to the details of the contract between CJ Sims and the earl to refurbish Bagshot Park, but from the press reports, it appears to have been a classic case.

The work was carried out under a GC1 – a government contract. Such competitive standard forms of contract are the least suitable way of approaching large domestic refurbishments, particularly those that are sensitive and high-profile. They work only if:

• The original building is surveyed in microscopic detail

• The extent of the refurbishment work is then fully and accurately detailed from the survey

• The designer and client make all major decisions before the work is measured

• The bill of quantities is completely accurate in terms of the description of the work and the measurement of the quantities involved with no "provisional allowances"

• The time scale is realistic

• All parties – contractors, consultants and clients – play their part impeccably and communicate openly with each other

• A generous contingency is included to cover the cost of the inevitable completely unforeseen "extras"

  They join a club of clients that have fallen foul of the industry’s inadequate procurement and project management systems

• The value of essential changes to the scheme is agreed before the extra work commences and included in the valuation in full

• The QS values, the architect certifies and the client pays strictly in accordance with the pre-arranged payment programme

• The final account is agreed and paid within four weeks of completion.

I guarantee that several of these conditions were not satisfied at Bagshot Park, but there is one deliberate omission from that list:

• The contractor proceeds with the work diligently to the standard described in the specification.

That is because the contractor cannot do so unless most of the other conditions are met. Working within a keen competitive price, contractors need to plan and organise their resources efficiently and economically from the start. They cannot afford to spend half their management time chasing and correcting information and decisions that consultants are being paid to make themselves. A major part of the design consultant's job is to help the client make decisions and to ensure that those decisions are made at the right time – not as the contract struggles from crisis to crisis.

Reports suggest that decision-making was a major issue for the earl and his construction team. So, clearly, was the valuation of variations and the cost of the disruption to the regular process of the contract that they caused. As soon as you introduce "provisional" items into a fixed-price contract, you build in arguments and payment delays.

The normal convention is to include rounded lump sums to cover provisionally measured work in each staged payment, on the assumption that the final value of the work will be negotiated later, sometimes by re-measuring the amount of work actually carried out.

In my painful experience, this can take years after the contract has been completed. As long as the rounded lump sums included in the staged payments were adequate to cover the eventual cost, this is not a problem. However, if the job is seriously over-budget, some consultants cut back the penultimate valuation to avoid embarrassing explanations to the client. They delete all the lump sums previously included to cover "provisional" or "extra" items, pending justification by the contractor. This can reduce the penultimate valuation by as much as 30%, and inevitably push the contract into loss, with all the cash flow problems that follow.