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3.o Discussion Law Latest
3.o Discussion Law Latest
There are four institutions and organizations in Malaysia that produce standard forms of
construction contracts. These are:
The nature of a variation order can be determined by referring to both the reasons for
their occurrence and subsequent effects. Arain and Pheng (2005) distinguished two
types of variation orders namely: beneficial and detrimental variation order which is.
A beneficial variation order is one issued to improve the quality standard, reduce cost,
A detrimental variation order is one that negatively impacts the client's value or project
performance (Arain and Pheng, (2005). For example a client who is experiencing
financial problems may require the substitution of quality standard expensive materials
to substandard cheap materials.
Causes of Variation Order
Variations order arises for a variety of reasons. Some are foreseeable, others are not.
Some result from a genuine change of circumstances and others from the design team’s
own inadequacies. Arain and Pheng (2006) identified four origin agents of variation
orders. These included client, consultant, contractor and other changes.
Client related changes the causes of variations that were initiated by the owner. In some
cases, the owner directly initiates variations or the variations are required because the
owner fails to fulfil certain requirements for carrying out the project. The changes
initiate by client are:
• Change of scope
• Replacement of materials
• Change in specifications
Consultant related changes
In some cases, the consultant directly initiates variations or the variations are required
because the consultant fails to fulfil certain requirements for carrying out the project.
The changes initiate by consultant are as follows:
• Change in design
• Design complexity
In some cases, the contractor may suggest variations to the project or the variations may
be required because the contractor fails to fulfil certain requirements for carrying out
the project. The contractor related changes are as follows:
• Unavailability of equipment
• Defective workmanship
Other changes
Other changes refer to the causes of variations that were not directly related to the
participants. These changes are as follows:
• Weather changes
• Unforeseen problems
Provision of Variation Order According to The “Persatuan Akitek Malaysia”
Many contracts have stipulate the various methods by which the contractor will
be reimbursed either by pre-established unit prices, negotiated lump sum, or by time
and material. Every contract has a specific procedure covering the process of handling
change to the work. Similarly, there is also a provision of variation orders stated in the
PAM 1998 general conditions of contract in clause 11, and also clause 2 summarizes
the clauses related to the variation order as stated in the PAM 1998 standard for of
building contract.
Rajoo (1998) summarizes the related clauses as adapted from PAM 98 form of contract,
• Clause 11: Generally explain on the definition of the term of variation order, instruction
regarding the provisional sum, valuation of variations, rules of variation and also valuation of
variation order claim by the contractor.
• Clause 11.1 (i) - 11.1(vi): Explain in details the definition of variations which intend a tangible
change in the works and also excludes any default and/or breach of contract by the from
contractor being a variation.
• Clause 11.2: Stated the power of architect to issue instruction in regards with the variation
orders. This provision is only applicable as when the employer gives direct instruction to
contractor. It’s also stated that the instruction must be in written and also signed by the
architect.
• Clause 11.3: This clause required the architect to issue instruction for the expenditure of any
prime cost and provisional sum included in the contract bill.
• Clause 11.5: Explain the rules for valuation. It set out several method of valuation based on
types of the variations order.
• Clause 11.6: This clause deals with the issue of direct loss and /or expense arising from
variations.
• Clause 11.7: Stated the requirement for the contractor to submit necessary detail for the claim
made by the contractor.
3.1.2 PWD form
Almost all construction contracts have included variation clauses as the standard
provisions in the contract. We can find them in international as well as national standard forms
of contract. We can also find them in different types of procurement such as traditional, design
and build, management contracting, EPC, etc. Even in bespoke or domestic contracts, there
must be variation clauses which entitle the employers to impose the contractors an obligation
to change the scope of the work during construction stage which subsequently cause the contract
sum to be adjusted either up or down by such variation. As are sult, the contractors are entitled for the
variations in their payment certificates
Each standard form of contract gives its own definition on variation. However,
ingeneral ‘ variation ’ can be defined as the alteration or modification to the basis upon which
the contract was let. It is a famous term known to be inevitable inany construction project due
to the changing nature of construction projects.Powell-Smith (1990) mentioned that in the
absence of variation clauses, the employers or architects would have no power to request to the
contractors tomake any changes in the work that they have agreed to do. In other words, without variations
clauses, the employers and his representatives do not have the power to order variations to the
contractors.
Based on the journal can we get to explain clause about variation order at PWD FORM
is like :
24.0 VARIATIONS
24.1 The S.O may issue instruction requiring a Variation in form a Variation Oder. No
variation required by the S.O shall vitiate this contract. Upon the issuance of such Variation
oder, the contractor shall forthwith comply with the Variation Oder issued by the S.O.
24.2 The term ‘Variation’ means a change in the Contract Document which necessitates
the alteration or modification of the design, quality or quantity of the works as described by
the referred to therein and effects the Contract Sum, including
a) Omission or substitution of any work
b) The alteration of the kind or standard of any the materials, goods to be used in
the works
c) The removal from the site of any work executed or materials or goods to brought
thereon by the contractor for the purpose of the Works other than work,
materials or goods which are not accordance with this contract.
25.0 VALUATION OF VARIATION
25.1 All variations instructed in writing by the S.O in accordance with clause 24 here
of shall be measured and valued bt the S.O. The valuations of variations, unless
previously or otherwise agreed, shall be made in accordance with the following rules:
25.2 Where work cannot properly b measured or valued the S.O may allow daywork
price as specified in Appendix. Unless otherwise provided in the Bills of Quantities,
the day prices for the purpose of this contract shall be taken to mean the actual net cost
to the contractor of his materials,plant and labour for the work concerned. The
contractor shall be paid daywork prices plus fifteen percent (15%) which shall include
for the cost of all ordinary plant, tools, scaffholding, supervision and profit. Provided
always that as a condition precedent to any right to any payment the contractor shall
produce vouchers, receipts and wage books specifying the time for labour and plant
employed and materials used the S.O not exceeding seven days after the works shall
have been done
25.3 The amount of variations shall be certifiied by the S.O and added to or deducted from the
contract Sum as the case may be and the amount shall be adjust accord
3.2.1 CASE 1
The Defendant was the main contractor responsible for structural works in a
condominium construction project (“the project”). The Defendant subcontracted certain works
related to the project to the Plaintiff vide letter of acceptance dated 12 March 2012 (“the
subcontract”). Under the letter of acceptance, the Plaintiff was required to take possession of
the site on 12 March 2012 and to complete the subcontract by 19 November 2012.
The Plaintiff claimed that it had been orally instructed by the Defendant’s
representative to carry out variation and/ or additional works to the value of RM2, 302,493.10;
and 26 variation orders (“VOs”) were cited in support. Following such works, the Plaintiff
made interim or Progress Claim No. 16. The Defendant then issued a draft interim payment
certificate in respect of this interim claim on 12 August 2013, wherein the Plaintiff was back-
charged a sum for labour, which it disputed.
The Plaintiff Subsequently issued Progress Claim No. 17 for the sum of RM2,
315,045.00. The Plaintiff stated that both progress claims were not paid by the Defendant
within the agreed time period of 30 days from the date of presentation of the claims and the
Defendant was consequently in breach of the terms of the subcontract. The Plaintiff’s claim in
the instant case was for that sum in Progress Claim No.17, which was subsequently amended
to RM2, 319,624.49.
Alternatively, it claimed that it ought to be paid on a quantum meruit basis for the
original and variation works that it had completed. The Defendant contended that the Plaintiff’s
VO claims were improper as they lacked supporting documents and the subcontract required
joint inspections to be made before payments could be approved. It counterclaimed for a sum
as back-charges for materials, labour and penalties. It also claimed for liquidated and
ascertained damages (“LAD”) for the Plaintiff’s alleged delay in the completion of the
subcontract works by some eight (8) months from the contractual completion date of 19
November 2012.
The Plaintiff however argued that Progress Claims Nos. 16 and 17 were supported with
documentation; that the Defendant refused to carry out joint inspections and the Defendant had
acknowledged and admitted to the Plaintiff’s variation work vide draft certificate of payment
in email dated 12 August 2013. It furthermore refuted owing the Defendant charges for labour
on the basis that there was, inter alia, no agreement and argued that the Defendant was not
entitled to the LAD claim as the delay in completion was caused by the Defendant itself when
the Defendant delayed in handing over possession of the relevant floors or project areas to the
Plaintiff.
(1) Any instructions from the Defendant to the Plaintiff to do the additional or variation
works were almost all verbal; but they were no less instructions from the Defendant
and the Plaintiff was contractually obliged to carry out such instructions; regardless the
form it was given. Of relevance was the fact that the subcontract did not require orders
for variation work to be in any particular form. It certainly did not require such orders
to be in writing. Clause 15 merely provided for the possibility of variation work to be
done.
(2) Clauses 12 and 16 of the subcontract dealt with the preparation and submission of a
final account and payment. Although these terms required the Plaintiff to submit with
“all particulars, details or information in support thereof for verification”, this was not
the same as saying that the instructions must be in writing.
(3) The want of written instruction had never been an issue for the Defendant. The fact that
the Defendant had already approved and admitted a substantial number of VOs as
shown in the pleadings and at the trial, indicated quite clearly that the lack of written
instruction was actually not an impeding factor. Therefore, the absence of written
instructions on the VO works did not have any material bearing or effect on the
Plaintiff’s claims. There were clear oral instructions given by the Defendant for all the
works which underpin Progress Claims 16 and 17. The parties had a good practical
working relationship where form was not the criteria at all before the Defendant would
pay against the claims made by the Plaintiff.
(4) Oral instructions had furthermore been accepted by the parties as a reality, and that
being practical, was the manner in which the parties instructed and operated. From the
evidence adduced by both sides, the Court was amply satisfied that the Plaintiff was
definitely instructed by the Defendant to carry out the additional or variation works
which were the subject of the present claim.
(5) The Court did not find it necessary to determine the second question on quantum meruit
since the Court found for the Plaintiff by virtue of the first question.
(6) The Court was satisfied that the Plaintiff had in fact proved its claim. There was
sufficient evidence before the Court to prove the amount and value of the work done in
all 26 VOs. The Defendant was invited to conduct joint inspections but the Defendant
had put such inspections off or had thought them unnecessary and it therefore cannot
now complain.
(7) The “normal construction practice” envisaged that the Plaintiff commence its
subcontracted works approximately 30 days after the casting work had been completed
by the Defendant. This meant that although the Plaintiff took site possession on 12
March 2012, it could not get on with its work because the areas for the Plaintiff to work
were simply not available save for some parts of the building. These were the only areas
handed over to the Plaintiff to start work as these were the only areas which had been
erected. The Defendant was therefore guilty of being in delay in handing over the site
for the Plaintiff to carry out its works. As the party at fault, the Defendant was not
entitled to impose any LAD – see Poh Geok Sing v HB Enterprise Sdn Bhd [2006] 1
MLJ 617; Golden Vale Gold Range & Country Club Sdn Bhd v Hong Huat Enterprise
Sdn Bhd (Airport Auto Centre Sdn Bhd & Anor, third party and another appeal) [2008]
4 MLJ 839.
(8) There were no agreements for the Defendant to back-charge labour costs to the Plaintiff.
The Plaintiff had trusted in the accuracy of the information provided in the certified
payments since the Defendant was the party who had the proper and full records of the
materials supplied by them to the Plaintiff. The Plaintiff had paid the sums back-
charged on the understanding that the sums imposed were for the contractually agreed
item of materials. It was not, and, it was never intended to be for the item of labour,
which it had never been consulted at the material time; nor did it ever agree to the same.
Furthermore, the Defendant never back charged for labour in any of the earlier progress
claims (nos. 1 to 15) and the related payment certificates. All certifications were for
materials only, as agreed.
3.2.2 CASE 2
Project Name : Jalan Lingkaran Tengah II, Kuala Lumpur, Pakej 5 - (From
Taman Melati to Ulu Kelang Road)
Case Fact:
At the stage of completion, the Consultant has submitted an application for a canopy
roof for the pedestrian overpass. The purpose is to add `aesthetic 'in line with the existing
pedestrian bridge in Kuala Lumpur with a canopy base. This roof can also provide protection
to walkers. Additionally this bridge is used by school children from 3 nearby schools and
adjacent mosques.
Having examined the environment for the variation work, this application was not
approved as the expected coverage would not be effective because there was no covered way
that connects both sides of the bridge to the nearby bus or building. Also due to the variation
order of this work will result in extension of time to be given to the Contractor.
Lesson:
Application of variation work should be carefully assessed taking into account the
needs in terms of functioning and development of the project environment. The variation order
in the final construction work should be avoided as it will likely result in extension of time. If
this is the case the Contractor may make a claim on any excess expenses incurred due to such
extension. Such change of work should have been tendered separately.
3.2.3 CASE 3
Project Name : Building and Completing Sungai Petani Timur Scheme Road, Kedah
(Phase 1: From Federal Route 1 to Kuala Ketil Road)
Case Fact:
This application is for approval of re-quantification of the quantities found in the Bill
Quantity. The amount of the original value of the interim quantity provided in the Contract is
RM 13,198,135.16 but the final amount of final value after the final measurement is RM
14,737,187.94. With this net amount, the additional value is RM 1,539,052.78. P.P. informs
that a significant increase is due to the total value of earthworks due to the increase in dredging
work. This increase is due to the design change to be made from two `berm 'to seven` berm'.
The design change is due to TNB's 'pylon' and the river is included in the 'pylon' and the river
has not been identified in the original survey work. Some other important information has also
been identified and left behind to be included in the original survey work plan for the project.
This has resulted in some redesigns to be made during the project.
JKR's Claims Committee Resolution:
Lesson:
A Chairman suggests that long-term survey work should be reviewed before tender
documents are provided to ensure the accuracy of the information. For long-term projects have
been postponed, as well as check survey work should be made on the groundwork information,
designs and other possibly changes or differences of information on the build site. Therefore,
it is recommended that revisions be made to the relevant information in order to conform to the
actual situation at the built site before calling the tender. For such cases as above which resulted
in a significant increase in cost after re-measurement, the Chairman requested the
Superintendent to submit a detailed report on the lack of important information of survey work
by the Surveyor appointed to the Planning Branch so that appropriate action could be taken
against the Surveyor.
3.2.4 CASE 4
Case Fact:
Application of additional work to supply and build `soil nails complete with
reinforcement to the details as shown 'should be implemented as there is an amendment to the
design due to contradiction to the original ground level measurement and also the variation
order distance of` soil nailing' from 2.0m to 1.5m. The Committee was also informed that land
surveying and survey work was carried out in 1989 and the design was completed in 1991. The
design was revised in 1993 and the project was only feasible in October 1995. The
Superintendent also informed that the design was carried out by the HSSI Consultant while the
project supervision was conducted by the KJP Consultant. In the early stages of the KJP
consultant has identified a contradiction to the ground level benchmark. The design consultant
has reviewed and submitted technical reports for amendments to the design. The report also
identifies several factors that cause some changes in work including the additional work request
above the amount of RM 1,530,000.00.
Chairman suggests that long-term survey work should be reviewed before tender
documents are provided to ensure the accuracy of the information. The Superintendent
informed that there was a problem with the conflict and complexity that arose when different
designated consultants designing and supervising a project.
3.2.5 CASE 5
Case Fact:
After reviewing the instructions given by P.P. is an additional instruction not provided
for in the contract, the Committee agrees to approve in principle the alteration of the work.
Lesson:
Specifically for the `design & built 'contract, the JKR should carefully review the
required requirements for a project so that it can be clearly defined in the` work requirement'
even for minor items. This is important to avoid any additional costs which should be identified
at the beginning. Work drawings must be certified by an accredited Professional Engineer or
Architect and should be submitted to JKR for written approval prior to commencement of the
work
3.2.6 CASE 6
Case Fact:
The Committee agrees to approve the principle of variation order for the wiring system,
giving a warning that changes in work involving additional costs must be prior approval prior
to execution.
Lesson:
Any variation order involving additional costs shall be subject to prior approval prior
to the execution of the work. If additional work is to be made immediately, the party monitoring
the project must ensure that the agreement is obtained from the Superintendent / Supervisor
who is responsible for the avoidance of any inconvenience that may arise later. Additional work
outside the original and out-of-bound scope should be called on a separate contract. Dato
'TKPKR I also warned as follows: - `design review 'especially for` safety audit' needs to be
made. Statements relating to any damage or disturbance to public utilities during construction
are in progress is the responsibility of the contractor. Any planning of design requirements
should take into account the 'historical and generative needs'.
3.2.7 CASE 7
Reference : Mesyuarat Jawatankuasa APK Peringkat TKPKR Bil. 11/97 & 1/98
bertarikh 11.12.97 & 10.1.98
Case Fact:
The Committee agreed to approve the principle of variation order for the `retaining wall
structure 'and agreed rates. The Committee also stressed that variation order involving
additional costs should be approved prior to the completion of the work.
Lesson:
Any work changes involving additional costs shall be subject to prior approval prior to the
execution of the work. Should additional work be done promptly, the party monitoring the
project shall ensure that the agreement is obtained from the Superintendent / Supervising
Officer in order to avoid any inconvenience that may arise later. Dato 'TKPKR also provided
some guidance as follows: -
1. Before the design of the bridge, a revision should be made taking into account
additional information on floods including the incredible floods of local residents.
2. Any variation order or additions to the design during construction or at the end of the
contractual completion period should be avoided as it normally involves extension of
time and additional costs.