This week featured the ever-contentious subject of variations in construction contracts, hosted by Annie. You can take a look at the video recording below, or read our detailed write-up.
Andy Hewitt of HDP opened the discussions. He notes there are fundamentally three types of variation:
- An addition to the original scope.
- The removal of something from the original plan
- Or a change to the timing or sequence of the works.
Andy notes that the main cause of problems is often that an employer will want a change to happen or it will be needed, but will not usually want to pay more for it.
Contract Forms
Michele DeGregorio of Crown Office Chambers looked at different forms of contract:
On JCT – the form refers to variations as a “change”. Often arguments arise over what is a change in terms of the contract. Michele notes that a notice is usually required by construction contracts – and there will often be a time limit. In most cases, giving notice by the contractor to the Engineer or contract administrator is a ‘condition precedent’. This means you will not be entitled to payment or time unless you have given notice.
In the NEC contract form, there is a long list of ‘compensation events’ at clause 60. Under this form, the project manager will need to give an instruction changing the works information before a variation will be valid.
On the subject of omissions or omitted work, Michele noted that recently the Scottish courts heard the case of Van Ord and Dragados. In this case, the main contractor omitted works from the scope, and there was an argument as to whether it would be a breach of contract to omit the works. However, it was determined that the omission meant there was a change to the defined cost which some might regard as unfair to the sub-contractor. More on this case here.
On the FIDIC contract form, Michele notes that this is a re-measurement contract (in the case of Red book) which generally means contractor’s risk is lower in terms of variations.
There is a need to be alive to the notice requirements in variations, usually ‘conditions precedent’ to extra work. Generally, it is worth noting that each contract form, whether standard, modified or bespoke, is likely to handle variations in a slightly different way.
What If You Can’t or Don’t Want to Vary?
We asked Suzannah Fairbairn of Dentons whether you have to do the work when a variation is instructed? She notes that usually, if extra work is instructed and properly issued, then a contractor will gladly undertake the work. However, there have been situations where this isn’t the case, for example, if resources are unavailable or other commitments are pressing. There may be other scenarios to consider:
- In the Middle East, an engineer often needs the authorisation to vary the contract. People should take care to ensure instructions are being issued from the right people.
- Have you received your instruction in the correct form – for example in writing?
- Notices are important – whether performing or unable to perform a variation.
- Also consider if a variation is a significant change which may take you away from the entire scope of the project.
- Finally – a ‘request’ may not be a variation – in which case it may not be necessary to comply.
Notices, Notices…
Andy notes that in the ideal world, everything would be issued correctly and clearly. But, we don’t live in an ideal world and not everyone performs their obligations in precisely the way they should. Furthermore, no employer wants to spend extra time or money if they can avoid it. Therefore, always submit a notice, or letter to the Engineer or CA whenever an instruction is received. This should let them know that you view the instruction as a variation and will proceed based on price.
Contracts put a lot of importance on notices – ensure you issue them. What happens if you haven’t submitted notices? Suzannah notes that if you get to the end and you’ve not submitted notices you have very little in the way of options available to you for redress, though a lawyer or consultant will do their best to help if such a situation does arise.
In conclusion – Variations:
- Check the contract for conditions precedent – ensure notices are correctly issued.
- Be aware that each contract will deal with variations differently.
- Ensure the right (authorised) person is issuing the variation.
- And ensure notices are issued!