One of the curses of any construction project is that it will never go quite to plan. A project will almost always encounter variations to the original plan, as time progresses.
Fortunately, most construction contracts include mechanisms for dealing with change. As you will probably know, these are generally referred to as variations (if you are using the JCT form of contract). A change typically requires a formal instruction by whoever is administering the contract.
Reasons for Variations
Drawings driven by the design team are often a source of variation. Something to be very alive to as a contractor is the appearance of variations in drawings. These may need notification and assessment of the cost/ programme implications by the contractor in reasonable time as per the contract. They should then be issued to the contract administrator. Normally, this is a change driven by the client. However, they can also be due to a change requested by the design team.
There are tools available to help automate the analysis of drawing changes, such as ‘ShapeDo’. These tools can scan documents and identify changes in a drawing, using an algorithm. This will assist in the process of identifying change, a decision can be then made whether this is a variation or not, and whether this needs pursuing.
Another example is a variation to provisional sums. These can be more complex, as there can be differing types of provisional sums. There are defined and undefined provisional sums to consider. Each is dealt with differently.
Quality and characteristics of works are another area that contractors need to be alive to. If a specification changes, then additional costs may arise. Or, costs may reduce. There will need to be a specific instruction to permit a change whether the costs increase or whether they reduce.
What Is A Variation?
The decision in MacEachern v Monaghan (a Province of Prince Edward Island case) set out four helpful rules outlining what a variation is / is not:
- An item specifically provided for in the contract is not an extra.
- When the contractor supplies material of a better quality than the minimum quality necessary for the fulfilment of the contract, without an instruction, express or implied, from the employer to do so, he is not entitled to charge the extra cost as an extra.
- Where the contractor did work or supplied materials not called for by the contract (plans or specifications) without instructions, express or implied, from the employer, or the consent of the employer, he is not entitled to charge this additional work or materials as an extra.
- When the contractor did work or supplied materials not called for by the contract on the instructions, expressed or implied, of the employer, he is entitled to charge for additional work or materials as an extra.
The case also noted that:
“What amounted to instructions from the employer, is dependent upon the circumstances relating to each item. If the employer, without giving definite instructions, knew the contractor was doing extra work or supplying extra materials and stood by and approved of what was being done, and encouraged the contractor to do it, that in my opinion amounts to an implied instruction to the contractor and the employer is liable.”
Contract Forms & Variations
Each standard contract will specify who it is that is permitted to instruct and approve a variation. For example, the JCT has the Contract Administrator, FIDIC the Engineer. The correct authority as stated in the contract must issue any variation. Also note that the Design and Build form refers to variations in a slightly different way.
FIDIC defines a variation as, “Any change to the works which is adjusted, instructed or approved as a variation under Clause 13”. Clause 13 then goes on to define a selection of specifics that are classed as approved variations.
In the JCT contract, clause 5.1 defines what a variation is. In clause 5.2 there is a reference to the expenditure of ‘provisional sums’. It’s crucial that you have an understanding of whether the sums are defined or undefined. Under JCT these are in the Employer’s Requirements. Whether amounts are defined or undefined will affect the method of valuation.
Under NEC3, variations are called Compensation Events (CE). They are usually dealt with on the issue of an Early Warning Notice (EWN). However, if an event has already happened, there are 19 different circumstances under clause 60 where extra time and money are allowed. There are some very specific events that lead to these compensation events. Note that this is different from other forms, in that one notification may lead to an entitlement to time and money. NEC4 has introduced further compensation events, so it is important to note the difference between the latest NEC form over the more common, older NEC3 form.
In all these scenarios, be very conscious of the time limitations for submitting notices and proof of entitlement / quotations. Each contract will have its own peculiar requirements. If not submitted (or responded to) within the specified timetable, then entitlement may disappear.
If your contract has, as is often the case, been amended, then it is crucial that you check, or get someone to check for you, what the implications of the amendment might be on variations. Sometimes amendments lead to changes in the timescales outlined above. Sometimes the amendment may lead to the entitlements disappearing.
Above all, it is crucial that you take care to check, double check and understand the requirements of your contract.
Article by Dominic Mondino – if any of the issues outlined here affect you, or you’d like to know more, get in touch with us today.