July 31, 2023
The very nature of construction work means unforeseen or unanticipated events which necessitate a change in the scope or nature of the works required to be completed under a contract can be commonplace. These changes are often a significant catalyst for disputes in construction projects – understanding your obligations and entitlements in respect of Variations may assist in minimising the likelihood or severity of those disputes.
Types of Variations
Variations under a construction contract generally fall into two categories:
- Variations directed by the Principal or Superintendent / Administrator; and
- Variations requested by the Contractor (often referred to as “Variations for convenience”).
Without receiving a Variation (of either type identified) a Contractor usually has a contractual obligation to not vary or deviate from the scope of works under the contract.
Variations which are directed by the Principal or Superintendent / Administrator may require the Contactor to:
- Increase, decrease or omit any part of the contracted work;
- Change the character or quality of any material or work;
- Change the levels, lines, positions or dimensions of any part of the contracted work;
- Execute additional works; or
- Demolish or remove material or work no longer required by the Principal.
These directed Variations may arise where an inconsistency or ambiguity between contract documents or scope of work has arisen, where part of the contracted works is no longer feasible in the manner required, or simply where the Principal has a change of mind regarding a certain part of the works.
A Variation for convenience, however, is typically a request from the Contractor to do something differently than required under the contract, for the Contractor’s ease. For example, using a different brand or piece of equipment as that required under the contract, where it is not available or has significantly increased in price.
Obligation to Complete
A Contractor will generally be required to comply with a directed Variation, unless:
- The Variation has been issued after the achievement and certification of practical completion (unless otherwise specified in the construction contract, which may include a provision relating to defects);
- The directed Variation is not at all within the scope or contemplation of the contract; or
- Where a group of directed Variations has resulted in a contracted scope which is so drastically different from that originally negotiated between the parties.
A construction contract will often explicitly comment on Variations which may fall into items 2 and 3 identified above, and whether the Contractor is exempt from complying with such a type of Variation.
Further, it is important to note that an item specifically provided for in the contract, even if directed, will not constitute a Variation. However, disputes often arise in respect of this very point, where the Principal or Superintendent / Administrator considers that it has issued a direction for contracted works to be completed, and the Contractor considers that the direction constitutes a Variation. To avoid such disputes, the parties should insert a clear and comprehensive scope or works into the construction contract.
Entitlement to Claim
Contractual Process
A major cause of contractual disputes arises where the Contractor considers a Variation has been directed and it is consequently entitled to additional payment (and possibly an Extension of Time), but the Principal considers that no Variation has been issued; the direction issued relates to contracted works; or the Contractor is not entitled to claim for a Variation.
To alleviate the risks of disputes associated with Variations, a construction contract should clearly outline the process for directing, claiming and granting Variations, including:
- A directed Variation must be in writing and explicitly reference that it is a “Variation” or it is made under the relevant clause;
- If a Contractor considers a direction has been given, notify the Principal or Superintendent / Administrator that is considers a direction constituting a Variation has been issued;
- The Contactor must not undertake works the subject of a direction which it considers may be a Variation, unless and until this has been confirmed with the Principal or Superintendent / Administrator; and
- The Contractor is not entitled to vary the works unless it has been issued with a Variation (pursuant to the contract).
In some contracts, the Contractor may also be required to respond to a directed Variation with an estimate of the costs to undertake that Variation, and the possible impact on the completion of works. After reviewing the Contractor’s response, the Principal or Superintendent / Administrator may direct the completion of the Variation, or may withdraw it.
Similar to Extensions of Time as outlined in Part 2 of this Series, failure to notify the Principal or Superintendent / Administrator of a directed Variation, may invalidate the Contractor’s entitlement to claim for an Extension of Time associated with a Variation, or otherwise claim costs associated with the Variation. A contract will generally also require a copy of the directed Variation (in writing / in the form required by the contract) as part of a claim for time and/or costs for said Variation.
Payment
Where a Variation has been directed by the Principal or Superintendent / Administrator, the contract will ordinarily provide that the Contractor will be entitled to payment / an adjustment to the contract sum to compensate for additional costs expended in undertaking the directed Variation. However, a Contractor is often not entitled to any time (through an Extension of Time claim) or costs associated with a Variation for convenience.
The amount of payment of a Variation may be drawn from a Bill of Quantities document (where applicable, and if one exists for the relevant contract), or it may otherwise be as assessed by the Superintendent / Administrator based on day works and invoices. The contract may also specify whether (and to what extent) a Contractor may be entitled to claim for costs and overheads associated with a directed Variation.
Whether a Contractor may be entitled to claim for lost profits associated with directed Variations to omit part of the works, will depend on the wording of the contract. However, where significant changes to the scope of works are being made, such that it does not resemble the initial negotiated contract, a Deed of Variation (for example) may instead be required.
Extensions of Time
As mentioned in Part 2 of this series, where a Variation will result in a delay to completion of the works, the Contractor may also be entitled to an Extension of Time and associated delay costs. Any delay costs granted may be in addition to any costs associated with the Variation itself.
Lamont Project & Construction Lawyers
Our Team have the industry knowledge and experience to assist both Principals and Contractors in all major projects and payment disputes. If you would like to discuss any matters raised in the above article or this series as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Lili Hoelscher
Email: [email protected] or [email protected]
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