A variation (sometimes referred to as a change) is an alteration to the scope of work specified initially in the contract, whether by way of an addition, omission, or substitution to the works, or through a change to how the works are to be carried out.
When the Employer asks the Contractor to vary the work, the variation is made under the contract rather than the contract itself.
Variations generally fall into one of the following categories:
All standard form building and engineering contracts contain provisions which either refer to variations or define what constitutes a variation under that particular form of contract. They all differ slightly depending on the type and nature of the contract.
Variations will generally give rise to additions to or sometimes deductions from the contract price. The valuation of variations may include not just the labour and material costs of carrying out the additional work, but also other consequent expenses (eg overheads) or impact on other works, such as costs associated with the need to re-sequence those works. Variations may also require adjustment of the completion date. The rules for valuing variations will generally be included in the particular contract being used. The appropriate method to be used will depend on the type of procurement, the form of contract and the composition of the contract documents.
Most standard form contracts provide that, where a variation is instructed, the parties are free to agree a price for the extra work or, in the absence of such an agreement, the variation will be valued using the rules contained in the contract.
In traditional lump-sum contracts, the most common method of measuring and valuing the works is to use bills of quantities (boq). Where they are used, the boq will form the basis of valuing additions and omissions from the works.
Most of the issues concerning the valuation of variations arise where the varied works are not exactly the same as the works described in the boq or the priced document. The valuation rules contained in most standard form contracts set out how variations should be valued, including the rules which apply when the rates contained in the bills of quantities or in any other pricing document are not directly applicable to the particular variation.
Where bill rates are not applicable, the parties may have to agree a fair valuation for the work [see, for example, clause 13(b) of the RIAI Contract 2017].
This issue has been considered in Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [1999] where it was found that
“a fair valuation generally means a valuation which will not give the contractor more than his actual costs reasonably and necessarily incurred plus similar allowances for overheads and profit […]” [emphasis added]
Some contracts also permit additional works to be valued on a daywork basis, which can be specified in the contract. This means that the works are valued by reference to the time taken, and resources used, to complete them. Valuing work on a daywork basis therefore entails recording the labour, plant and materials used to carry out the work and applying special rates and percentage additions to these as set out in the contract. [See for example clause 13 (c ) of the RIAI 2017 Contract]
The contract may also provide for additional compensation for the Contractor to reflect that the execution of the additional work may have consequences for other parts of the project. This type of recovery may also include what is usually referred to as loss and/or expense.
The above general rules do not preclude the parties from agreeing other methods for valuing variations in their contracts. However, it will be implied that where a person is fixed with the duty to value (such as a contract administrator), that person will act reasonably.
Finally, where bills of quantities are included as part of the contract, the Contractor will be entitled to be paid for a variation where the bills do not accurately reflect the quantity of works on site. There is therefore an incentive on the Employer's quantity surveyor to ensure the bills are accurate.
A fair valuation generally means a valuation which will not give the contractor more than his actual costs reasonably and necessarily incurred plus similar allowances for overheads and profit
In the RIAI 2017 Contract, the rules are set out in clauses 13 (a) – (c ).
Construction contracts commonly provide that, if a party wishes to bring a claim under the contract, it must follow a prescribed procedure. This often requires the claiming party to give a particular notice, sometimes followed by a further notice and/or more detailed information, to the other party and/or contract administrator, which may have to be in a particular format and meet specific requirements as to content. Often, these notice provisions also contain what is commonly referred to as a ‘time bar’ provision, meaning that the claiming party must give the notice(s) within a specified period of time.
If the time bar is a condition precedent, then a failure to comply with the provisions of the contract will mean that the claiming party loses its entitlement to bring the claim, no matter how strong its claim would otherwise have been.
The use of such time bar clauses has become increasingly common and they now appear in many of the standard form contracts.
Time bar provisions are frequently incorporated into variation clauses in construction contracts by Employers because they mean that they will be notified promptly if a variation event occurs. This means the Contractor cannot stockpile claims, which, in turn, gives the Employer certainty as to how the project is progressing and any time- or cost-related issues that are occurring.
For the Contractor, the use of time bar provisions and the possibility of such clauses being conditions precedent amplifies the usual risks associated with managing and administering the claims process, most commonly that notices are forgotten or served in the wrong format, at the wrong time or to/by the wrong person.
