Variations in Construction Contracts

Introduction

Variations -often referred to as changes- provide the biggest headaches to the Contract Administrator, who is also referred to as the Architect, Project Manager or Engineer, on construction projects. The 2022 King’s College London Report on the Construction Industry pointed out one of the leading causes of disputes as changes (variations) by the client. Change or variation is inevitable and often required on construction projects because of a number of reasons which include incomplete designs, new technology and materials plus changes in client and end user requirements. What also stands out is the fact that the Works are often unique since there is no prototype built for most construction projects. The Works being undertaken form the prototype and final product and therefore there is a high probability that changes will be effected in order to obtain the project goals.

Why should construction contracts allow variations?

The common law position is that parties have to do what they contracted to do-no more and no less. As such, without a provision for variations built into the contract, no change would be permitted. The Contractor would not be able to execute the Variations since they lie beyond what he contracted to do. This can be counterproductive to achieving project progress or completion where Works which are part of a variation are key to progress or completion. In order to cure this, a variation clause allowing unilateral change by the Contract Administrator allows the changes to become part of what the parties contracted to do.

In case of a contract where the Employer is in charge of design, the Contractor may have a case in misrepresentation against the Employer who claims that a project is fully designed when it is not as was the case in Howard Marine v Ogden & Sons [1]. The provision allowing for variations deals with this liability.

How can change be made in construction contracts?

Change must be made by agreement which could either be by a further agreement between the parties with new consideration or by express agreement in the original contract. Express agreement in the original contract can be seen in JCT SBC/Q 16 in clause 5 supported by clauses 3.14, 2.29 and 4.22. In NEC 4, it is stipulated in clauses 14.1, 18.1,45 and 63.10-11 while in the 1999 FIDIC forms of contract, variations are primarily governed by Sub-Clauses 13.1 to 13.3.

In making a change by further agreement, the parties need to be clear whether what they are attempting to do is one of the following scenarios, namely:

1. Revising the terms of an existing contract which constitutes a variation.
2. Agreeing to a new and additional contract which would lead to the formation of a collateral contract.
3. Replacing the original contract with a new one which would constitute a rescission of the contract.

Change by further agreement cannot be brought about by undue pressure as that would lead to voiding of the new contract. This was seen in the case of D&C Builders v Rees [2].

Change made by express agreement in the original contract means that the Contractor has already agreed to comply with the variations that fall within the ambit of the variation clause. As such, failure to comply with an instruction requiring a variation may amount to a breach of contract by the Contractor. This is subject to the caveat that the Contractor is not obliged to comply with any variation order which is outside the ambit of the variation clause.

In order for a contractual variation instruction to be valid, it must:

1. Be within the ambit of the variation clause and bear some relationship to the Works. As such, the Contract Administration must hinge on the Variation clause while giving such an instruction.
2. Be additional to the original contractual obligation. With this, works that are part of the original scope cannot consist of a variation.
3. Be issued by an authorized person. Variations have to be issued by the prescribed authority who is normally named in the Contract.
4. Be issued in the prescribed manner within the Contract. As such, an instruction may be rendered null if it were issued without following the process which is set out in the Contract.

How do you determine whether an instruction amounts to a Variation?

Determination of whether work amounts to a change is a matter for construction in each contract as was the case in Williams v Fitzmaurice[3] and Sharpe v San Paulo Railway[4]. In order to decide whether a certain instruction amounts to a change, a benchmark is needed against which the change can be judged. This benchmark is established by reference to the original bargain or agreement between the parties. In the case of Chittick v Taylor[5], it was held that items provided for in the contract cannot be extra. It was also held that when a Contractor provides material of a better quality that that required under the Contract without express or implied instruction from the Contract Administrator, the Contractor is not entitled to charge the additional cost. However, if the Contractor carries out work or supplies materials that are not called for under the contract basing on an instruction from the Contract Administrator, the Contractor is entitled to additional costs.

It is also important to remember that on a design and build contract where the Contractor is in charge of design, if there is a need to amend the design, the Contractor will be obliged to remedy that at no additional cost to the Employer as was the case in Davy Offshore v Emerald Field Contracting[6].

Conclusion

Variations are one of the leading causes of disputes on construction contracts. In order for a variation to be properly executed, there is a need to follow the due process that was set out in the Contract and also to correctly identify if indeed a change has been applied in those circumstances. Valuation of the variations has to be properly done and where applicable an Extension of Time awarded in order for the Variations to be completed.

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[1] [1978] Q.B. 574.

[2] [1966] 2 Q.B. 617.

[3] [1858] 11 WLUK 131.

[4] [1873] 4 WLUK 19.

[5] [1954]

[6] [1992] 3WLUK 69.