Variation in Construction Contract

A variation (sometimes referred to as a variation instruction, variation order or change order) is an alteration to the scope of works in a construction contract in the form of an addition, substitution or omission from the original scope of works.

Almost all construction projects vary from the original design, scope and definition. Whether small or large, construction projects will have inevitably depart from the original tender design, specifications and drawings prepared by the design team. This can be because of technological advancement, statutory changes or enforcement, change in conditions, geological anomalies, non-availability of specified materials, or simply because of the continued development of the design after the contract has been awarded. In large civil engineering projects variations can be very significant, whereas on small building contracts they may be relatively minor.

Variations may include...
✔ Alterations to the design.
✔ Alterations to quantities.
✔ Alterations to quality.
✔ Alterations to the sequence of work.
✔ Alterations to working conditions.

Variations may also be deemed to occur if the contract documents do not properly describe the works actually required.

Variations may not (without the contractors consent):

Change the fundamental nature of the works.

Omit work so that it can be carried out by another contractor.

Be instructed after practical completion.

Require the contractor to carry out work that was the subject of a prime cost sum.

In legal terms, a variation is an agreement supported by consideration to alter some terms of the contract. No power to order variation is implied. Hence there should be express terms in contracts which give the power instruct variations. In the absence of express terms in the contract the contractor may reject instructions for variations without giving rise to any legal consequences.

Standard forms of contract generally make express provisions for the contract administrator (generally the architect or engineer) to instruct variations (for example, FIDIC Clause 51.1). Such provisions enable the continued, smooth administration of the works without the need for another contract. Variation instructions must be clear as to what is and is not included, and may propose the method of valuation.

Types of variation

Additions
Omissions
Changes
Substitutes
Location Change

Valuation of variations

Variations may give rise to additions or deductions from the contract sum. The valuation of variations may include not just the work which the variation instruction describes, but other expenses that may result from the variation, such as the impact on other aspects of the works. Variations may also (but not necessarily) require adjustment of the completion date.

Variations may be valued by:
Agreement between the contractor and the client.

The cost consultant.
A variation quotation prepared by the contractor and accepted by the client.
By some other method agreed by the contractor and the client.

Valuations of variations are often based on the rates and prices provided by the contractor in their tender, provided the work is of a similar nature and carried out in similar conditions. This is true, even if it becomes apparent that the rates provided by the contractor were higher or lower than otherwise available commercial rates. They do not become reasonable or unreasonable by the execution of variations.

In some contracts, when rates are applied to the valuation of variations, the contractor is not able to claim for additional payments in relation to profits and overheads.

If similar types of works to those instructed by a variation cannot be found in the drawings, specification or bills of quantities, then fair valuation of the contractor's direct costs, overheads and profit is necessary.

Variations may be initiated by the Engineer at any time prior to issuing the Taking-Over Certificate for the Works, either by an instruction or by a request for the Contractor to submit a proposal.

The Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives notice to the Engineer stating (with supporting particulars) that the Contractor cannot readily obtain the Goods required for the Variation. Upon receiving this notice, the Engineer shall cancel, confirm or vary the instruction.

Variation to Original
This may...

Change to the quality, quantity & characterEx: 225 brick work to 112 brick work

Extra WorksEx: Ladder for water tank

Additional Works
Ex: New A/C System

Limits of variations

FIDIC forms of contract put limitations on variations that can be instructed. If the value of the contract increases or decreases by more than 15% of the net contract sum (excluding provisional sums and day works) then the contract administrator can add or deduct from the contract sum a determined value upon consultation with the contractor, having due regard to their site expenses and other general overheads. Note that this 15% increase or decrease is not for a single item of work, but the total contract sum at completion.

Reason for Variations

Employer

Change the Employer's Requirements
Change of Employer's Economic Background

Consultant

Error in Drawings
Error in specification
Error in BOQ
Discrepancies in Contract

Beyond the control of all parties

Nature
Third party

Structure of the variation claim

Origination & Base
Relevant Clauses
Instruction (Log note, drawing, meeting minutes, verbal confirmation)
Rate analysis/ Material approval
Total Cost with Quantities
Time frame/ Time request
Day Works
Invoices

Pricing of Variation

Nature of the variation Method of Pricing

Same type Same condition BOQ rates

Same type Different condition Adjustments to the BOQ rates

Different type Different condition Rate analysis by using Standard schedules.
(Can be value by using standard schedule)

Different type Different condition Rate analysis/ Day works.
(Can not be value by using standard schedule)

Route for variation

⇩ Born
⇩ Engineer's Instruction (E.I)
⇩ Request for Information (R.F.I)/ Material/ Shop drawing Approval
⇩ Contractor submit the cost breakdown
⇩ Negotiate and agreed to the Cost with Engineer
⇩ Sent to Employer's approval
⇩ Employer's approval
⇩ Variation order to Contractor

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Monday, August 26, 2019