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Variation Order





Introduction A variation (sometimes referred to as a variation instruction, instruction, variation order or order or change order ) is an alteration to the scope of works in a construction contract in contract in the form of an addition, substitution or omission from the original scope of works. 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  design,specifications and  and drawings drawings prepared  prepared by the design team. 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 c ontract has been awarded. !n largecivil large civil engineering projects engineering  projects variations variations can  can be very ver y significant, whereas on small building small building contracts they contracts they may be relatively minor. "ariations may "ariations  may include#  Alterations to the design.  Alterations to $uantities.  Alterations to $uality.  Alterations to working conditions.  Alterations to the se$uence of work. "ariations may also be deemed to occur if the contract documents do "ariations may documents do not properly describe the works actually re$uired. "ariations may "ariations  may not (without the contractors consent)#  %hange the fundamental nature of the works.  &mit work so that it can be carried out by another contractor .  'e instructed after practical after practical completion. completion.  e$uire the contractor  contractor to to carry out work that was the subject of a prime a prime cost sum. sum. !n legal terms, a variation variation is  is an agreement supported by b y consideration to alter some terms of the contract. o power to order variation variation is  is implied. *ence there should be e+press terms in terms in contracts which give the power instruct variations variations.. !n the absence of e+press terms in terms in the contract the contractor  contractor may may reject instructions for variations for variations without  without giving rise to any legal conse$uences. tandard forms of contract generally make e+press e+p ress provisions for the contract administrator (generally (generally the architect architect or   or engineer  engineer ) to instruct variations variations (for  (for e+ample, -!!% %lause /0.0). uch provisions enable the continued, smooth administration of the works without the need for another contract. "ariation instructions must be clear as to what is and is not included, and may propose the method of valuation. Valuation of variations "ariations may give rise to additions or deductions from the contract sum. The valuation of variations may include not just the work which the variation instruction describes, but other e+penses that may result from the variation, such as the impact on other aspects of the works."ariations may also (but not necessarily) re$uire adjustment of the completion date. "ariations may be valued by#  Agreement between the contractor  and the client.  The cost consultant.  A variation $uotation prepared by the contractor  and accepted by the client.  'y some other method agreed by the contractor and the client. "aluations 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 be come reasonable or unreasonable by the e+ecution of variations (see *enry 'oot %onstruction v Alstom (1222)). !n 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 o verheads. !f similar types of works to those instructed by a variation cannot be found in the drawings,specification or bills of $uantities, then fair valuation of the contractor 3s direct costs, overheads and profit is necessary.  ' 4% contracts do not value variations based on rates in the tender . 5uidance on assessingcompensation events states# 6Assessment of compensation events as they affect 7rices is based on their effect on efined %ost plus the -ee. This is different from some standard forms of contract where variations are valued using the rates and prices in the contract as a basis. The reason for this policy is that nocompensation event for which a $uotation is re$uired is due to the fault of the %ontractor  or relates to a matter which is at his risk under the contract. !t is therefore appropriate to reimburse the %ontractor  his forecast additional costs (or actual costs if the work has already been done) arising from the compensation event.6 !n other words the contractor can ignore their tender  pricing and claim cost plus on variations. The arguments come on items such as factory overheads and management which are very hard to evaluate. !n addition, given the comple+ity and length of the supply chain in major building works, getting forecast pricing out of all the parties affected takes time, often be yond the date by which the contract administrator  has to make the decision as to whether or not to instruct thevariation. They may then have to decide whether or not to proceed with a variation based on estimates from the cost consultant which in due course get replaced by the actual cost. !t has  been argued that this practicality defeats the rationale of the 4% contracts in relation to cost control and decision making. Source of conflict %onflict can arise when work is not mentioned in the bills of $uantities, drawings or specifications. !n common law this silence does not mean the contractor has an automatic right to claim for e+tra payment. The client is not bound to pay for things that a reasonable contractor must have understood were to be done but which happen to  be omitted from the bills of $uantities. Where there are items that, whilst they are not e+p ressly mentioned, are nonetheless re$uired in order to complete the works, then the contractor should have included them in their price. The bills of $uantities and specification do not necessarily have to include 8every nail to be punched in9. -or e+ample in fi+ing 5% fa:ades it is necessary to have steel supports, and a reasonable e+perienced contractor must make provision for this in the contract price. ;nless e+pressly e+cluded, such supports are not paid for as a variation. %onflict can also arise when a subcontractor  $ualifies that, for e+ample, 8upply < -i+ing of oor is included9 but 8upply < -i+ing of !ronmongery is e+cluded9. A reasonable sub contractor should foresee that a door cannot be fi+ed without hinges = which is a part of the ironmongery. o even if ironmongery is e+cluded, the subcontractor  cannot e+pect a variation for any of the items re$uired to fi+ the doors. Also under the prete+t of variation, the contract administrator  cannot change the nature of works. -or e+ample, if the contract provides for secant pile shoring, they cannot ask for diaphragm wallshoring as it will entirely change the nature of the work. -urther, if the contract administrator omits work from contractor >s scope, such an omission must be genuine# that is, the work omitted must be omitted from the contract entirely, it cannot be used to take work away from thecontractor  to give it to another (for e+ample, see -!!% %lause /0.0). imilarly, the contract administrator is not empowered to order variations to help the contractor  if the contract works are proving too difficult or e+pensive for them. Limits on variations -!!% forms of contract put limitations on variations that can be instructed. !f the value of the contract increases or decreases by more than 0/? of the net contract sum (e+cluding provisional sums and day works) then the contract administrator  can add or deduct from thecontract sum a determined value upon consultation with the contractor , having due regard to their site e+penses and other general overheads. ote that this 0/? increase or decrease is not for a single item of work, but the total contract sum at completion. !n 4%@ (&ption ') if the rate in the bill multiplied b y the final total $uantity of work done is more than 2./? of the priced total of the bill at the contract date, then it will constitute a variation (see %lause 2.B) Extension of time Cany construction contracts allow the construction period to be e+tended where there are delays that are not the contractor 3s fault. This is described as an e+tension of time (4&T). "ariations may (but do not necesarily) constitute relevant events that can merit an e+tention of time and so adjustment of the completion date. ee e+tension of time for more information. Conclusion "ariations are often sources of dispute (either in valuing the variation, or agreeing whether part of the works constitute a variation at all) and can cost a lot of time and money during the course of a contract. Whilst some variations are unavoidable, it is wise to minimise  potential variations and subse$uent claims by ensuring that uncertainties are eliminated before awarding the contract. This can be done by#  ;ndertaking thorough site investigations and condition surveys.  4nsuring that the project brief  is comprehensive and is supported by stakeholders.  4nsuring that legislative re$uirements are properly integrated into the project.  4nsuring that risks are properly identified.  4nsuring that designs are properly coordinated before tender .  4nsuring the contract is unambiguous and e+plicit.  4nsuring the contractor 3s rates are clear.  7reparing concise drawings, bills of $uantities and specifications, providing for all situations which are reasonably foreseeable. A variation order is issued whenever there is a variation to the contracted works. This may include adding or omitting work, increasing or decreasing the $uantity of any work, changing the character or $uality of any material or work, the order in which the works proceed etc. *ow and who values variation orders should be included in the contract documents. ot all variation orders re$uire a variation in the contract co st e.g. substitution of similar materials or a change in the colour of a material. "ariations can be re$uested by either the %ontractor or 7rincipal or come about as a result of conditions outside the control of either party e.g. bad weather. !n construction projects the most disputed variation orders are e+tensions of time, p articularly where concurrent delays (a delay caused by the %ontractor and a delay caused by the 7rincipal  both negatively affecting the critical path occur simultaneously) are concerned as these often have significant cost attached. Any variation to the original cope of Work is called "ariation &rder. !t could have positive or negative time or cost impact. !n very rare cases it might have neither cost nor time impacts. !n some cases it is not easy to determine whether an order from the owner (or c lient) is a variation to the original cope of Work or a part of the original Work which is stated in the contract and its attachments or specifications.) As soon as both parties (contractor and owner) ag ree that an order is a variation to the originally mutually agreed scope of work, they need to find a way to calculate or estimate its cost and time impacts. The method to calculate or estimate cost and time impacts are normally mentioned in the contract. !t might be necessarily essential to mention that even ch anging the specifications, e+ecution methods could be considered as variation order. Cany construction specialists say as a rule of thumb anything beyond the contractor3s control which might affect cost and time delivery targets could be a variation order. To me it is not true and might mislead everyone.