Contract administration: Changing the contract Paper 0487 Page 10

9 Variations under standard contracts

Not all architect’s instructions are necessarily variations. Many site instructions
merely clarify a situation or cover some aspect in the project documentation. It is
necessary, therefore, to understand what ‘variation’ means in the context of building
contracts.

The JCT Standard Building Contract 2011 (clause 5.1) defines the term ‘variation’ as:

1. ‘The alteration or modification of the design, quality or quantity of the Works

including:
 the addition, omission or substitution of any work,
 the alteration of the kind or standard of any of the materials or goods to
be used in the Works,
 the removal from the site of any work executed or materials or goods
brought thereon by the Contractor for the purposes of the Works other
than work materials or goods which are not in accordance with this
Contract.’

2. ‘The imposition by the Employer of any obligations or restrictions in regard to

the following matters or the addition to or alteration or omission of any such
obligations or restrictions so imposed or imposed by the Employer in the
Contract Bills in regard to:
 access to the site or use of any specific parts of the site
 limitations of working space
 limitations of working hours
 the execution or completion of the work in any specific order.’

Most contracts also state that all such instructions shall be in writing.

Clearly a variation can change not only the work itself but also many of the
contractor’s obligations under the contract. Note, however, that it is the contractor’s
obligations that can be varied, not his rights, and the ability to make changes does
not apply to the terms of contract – these can only be varied by agreement between
the parties.
 Contract administration: Changing the contract Paper 0487 Page 11

The power to issue variations in most contracts is wide, because of the wording of the
clauses. However, this does not necessarily give unlimited power. If a change or
series of changes were to completely alter the scope or nature of the work, this would
probably be held to be outside the contemplation of the parties at the time of entering
into the contract.

9.1 Definitions
Appendix A shows how a variation is defined under various forms of contract. You
should compare these with the general definition given above and with your own
local form of contract. Note that although the words vary, the intention is always the
same: to give comprehensive authority to the site representative to make changes
during the post-contract stages of the project.

Excessive use of this power, however, can have considerable repercussions at the
final account stage, as described earlier.

10 Initiation of variation
A variation can be issued at any time, normally using a standard pro forma. A
standard pro forma is not, however, mandatory; it is common for variations to be
made by issuing amended drawings, in a letter, in the minutes of a site meeting, or
even by verbal site instructions, and so most forms of contract also allow the
contractor to initiate a variation request.

The contractor must keep a careful check on all drawings, information and details
received and note any change from the contract drawings. It is on these that the price
is based and reimbursement of any additional costs will be sought.

The contractor must request a variation for changes as soon as he is or could

reasonably be aware of the change, as any delay in submission could affect his right
to payment. It is not necessary to wait until the effect on cost is known before making
a submission, and often this early notification can be in the best interests of both the
client and the contractor.

It also allows complete documentation procedures to be initiated, alternative steps to

be taken to minimise the effect, and, in the case of time delays, acceleration measures
to be considered where time is an important factor.
 Contract administration: Changing the contract Paper 0487 Page 12

11 Control of variations
Good management procedure will ensure that all requirements for notices, approvals
and reporting are adhered to and that the parties to the contract are kept informed of
the effect of variations on final cost and completion date.

The process should include:

 procedure to indicate authority levels;

 standard documentation for issue of variations;
 request for estimate forms;
 request for variation document;
 authorisation of request forms;
 variation register.

Further control can be exercised by making sure that all variations are channelled
through one person, so that orders are not given to different workmen with no chance
of maintaining a comprehensive list of instructions.

12 Payment
Under a lump sum contract the contractor is only entitled to be paid the contract price.
To establish a claim for extras he must show that the contract provides for them, or
that some new contract has been entered into. If the contractor accepts orders that he
is entitled to refuse, he risks having to prove that such work is outside the terms of the
contract.

If variations were never to be issued on lump sum contracts, there would be no need
to make provision for breakdown of the tender sum. The contractor would complete
the contract and be paid the figure he quoted at the tender stage. However, this rarely
happens. It is important at the tender stage, therefore, to make provision in the
contract documentation for a comprehensive breakdown of prices to allow for valuing
varied work.

It is also important to make sure that schedules of rates or bills of quantities are priced
in detail, and it is useful to establish the items of contract preliminary costs that are
time-related, method-related or value-related.

A widely accepted view on pricing varied work in traditionally procured contracts is:

1. If the work is the same as that in the original scheme, then bill or schedule
rates should be used.
2. If the work is similar to the original, then rates based on the original rates
should be used.

3. If there is no comparable work in the original, then an agreed or reasonable

rate can be used.
4. If the work cannot be measured and valued, then daywork rates may be used.

It might be better to agree the value of the varied work before issue of the instruction
and many contracts contain provision for this.
 Contract administration: Changing the contract Paper 0487 Page 13

Problems have, however, arisen in the past, particularly where the variation has given
rise to a substantial change in quantity, where contractors have claimed that a rate
included in the contract documents is incorrect. In Dudley Corporation v. Parsons
and Morrin (1939) an item for excavating 750 cubic yards (approximately 573m³) of
rock was priced at two shillings (40p) per cubic yard, approximately 20% of the
correct rate. The total amount of rock actually excavated amounted to 2,230 cubic
yards (1,705m³), and a dispute arose about how the work should be valued. Initially
the architect valued the first 750 cubic yards (573m³) at the bill rate, and the
remainder at the correct rate, on the basis that to do otherwise would amount to unjust
enrichment of the client. Such an approach might have had some merit, were it not for
the fact that the contract, an early version of the JCT Standard form, stated that the
rates in the bill were to be used for the valuation of variations. On this basis, the
Court of Appeal decided that under the contract the whole of the rock excavation
should be priced at the bill rate.

A similar problem arose in Henry Boot v. Alsthom Combined Cycles (2000). In this
case, a contract included a sum of approximately £250,000 for sheet piling to a large
excavation. A variation was subsequently issued for similar works to a second
excavation, at which point it became clear that the initial estimate was incorrect,
being approximately twice the correct price. The engineer therefore proposed to value
the varied works at approximately £125,000, but again the Court of Appeal upheld
the clause in the contract (in this case, the ICE Conditions of Contract for Civil
Engineering (6th edition)), stating that variations were to be priced according to the
rates in the bill.

Valuing changes in quantity or quality of the work rarely poses any great problem,
provided there is sufficient pricing information in the contract documents.

To value a variation that cannot be priced at contract rates, and where cost
reimbursement is not being used, it is necessary to check all cost headings to see if
they are applicable to that change.

Major cost headings include:

 labour costs including supervision;

 material cost;
 plant cost;
 temporary works;
 subcontract costs;
 shop and site overheads;
 head office costs and profit;
 other preliminary costs such as insurances, etc.;
 financing costs.

These can be calculated. However, a major area of dispute is the disruptive effect
caused by the variation. In calculating this, it is necessary to compare the timing of
activities in the original proposal with the actual time taken, and to check how, if at
all, the programme completion date is affected.

In these situations a well prepared and detailed priced set of tender documents proves
its worth.

Appendix B summarises the rules for valuing work under the the JCT Standard
Building Contract 2011. Clause 5.3 provides for the contractor to submit a lump sum
quotation for a variation, including taking into consideration any direct loss and
expense.
 Contract administration: Changing the contract Paper 0487 Page 14

Appendix C summarises the rules for valuing variations for different forms of
contract. You should compare these with the general principles given earlier and
those shown in Appendix B.

13 Changes in quantity
It is widely accepted that if there is a significant variation to the quantity of work, a
fair price should be paid.

What does a significant change in quantity mean? There appears to be no hard and
fast rule, and it is often left to the quantity surveyor or engineer to make a decision. A
significant change on some work may not be so on other work. Each situation must be
looked at on its merits.

However, some conditions of contract give some guidance. The ACE Infrastucture
Conditions of Contract do not lay down hard rules:

‘Increase or decrease of rate: Should the actual quantities executed in respect of

any item be greater or less than those stated in the Bill of Quantities and if in the
opinion of the Engineer such increase or decrease of itself shall so warrant, the
Engineer shall after consultation with the Contractor determine an appropriate
increase or decrease of any rates or prices rendered unreasonable or inapplicable
in consequence thereof and shall notify the Contractor accordingly.’

However, the FIDIC Contract Conditions (the Red Book) clause states:

‘No change in rate will be considered unless item accounts for 2% of the contract
value and quantity changes by more than 25%.’

The FIDIC contract also states that if the final account figure varies by more than
15% from the contract price, an adjustment can be added to or deducted from the
contract price to allow for this variation in quantity.

The following example shows the effect on the cost of an item for varying the
quantity.
 Contract administration: Changing the contract Paper 0487 Page 15

EXAMPLE 1
A bill of quantities has an item for temporary sheet piling which has been priced at £61/m²
inclusive of all costs. The quantity is 2 000m².

A breakdown of this price is as follows:

£
Supply and erection of equipment 4 000
Return visit to remove 4 000
Operating costs £200/week × 20 weeks 4 000
Actual sheet costs £55m 110 000
Total £122 000
Price in BQ £ 61 per m²

A variation could change this quantity to delete 500 or 1 500 m². The following calculation
shows the effect of this on the rate:

1 500 m² 500 m²
£ £
Supply 4 000 4 000
Removal 4 000 4 000
Operation 15 weeks 3 000
Operation 5 weeks 1 000
Sheeting @ £55/m² 82 500 27 500
£61.66 per m² £73.00 per m²

If the bill rate were to be used to value this work, then the loss to the contractor would be
£990 for the 500m² reduction and £6 000 for the 1 500m² reduction.