(EPC)

1st edition - Introductory Note

Dr. Sherif EL-Haggan ١

 FIDIC's Red and Yellow Books are During recent years it has been noticed that much of the construction market

requires a form of contract where “certainty” of final price, and often

recognised for their principles of balanced
of completion date, are of extreme importance. Employers
risk sharing ‫ ﻋﻘﺩ ﻣﺗﻭﺍﺯﻥ‬ beneficial for both
on such
h turnkey
t k projects
j t are
parties; the Employer signing a contract at
– for their project if they can
a lower price only having further costs
be “more certain” that the agreed final price will not be
when particular risks actually exceeded. Among such projects can be found many projects financed by private funds,

eventuate  the Contractor avoiding pricing where the lenders require “greater certainty” about a

risks which are not easy ( ) to project's costs to the Employer than is allowed for under the

evaluate accurately. allocation of risks provided for by FIDIC's traditional forms of contracts.

For such projects it is necessary for the

Contractor to assume responsibility for a wider The Employer must also realize that asking
range
g of risks than under the traditional Red
“responsible contractors” to price such
and Yellow Books.

To obtain increased certainty of the final price, the risks

Contractor
Co ac o iss o
often
e as
asked
ed to
o co
cover
e suc
such risks
s s as the
e
and
d result
lt in
i some projects
j t
occurrence of poor or unexpected ground conditions, and
that what is set out in the requirements prepared by the .
Employer actually will result in the desired objective.

Dr. Sherif EL-Haggan ٢

 Vhy variation clause?

The power to vary work is inserted into

construction contracts to enable the
Employer to vary the work,
, as opposed to relying
on the willingness of the Contractor to
agree to the variation.

Dr. Sherif EL-Haggan ٣

 ICE 6th edition FIDIC 4th edition, 1987

Dr. Sherif EL-Haggan ٤

 If the contract is to be varied, then the
same requirements regarding mutual
agreement and consideration apply  Construction contracts therefore
a new contract.
give the employer the power to
If an employer were to negotiate each
unilaterally vary the scope.
scope
change to the scope, this would be very
time-consuming and put the employer in a
weak commercial position.

Parties pre-agree that the employer can

unilaterally change the scope, hence The power to vary the works is drawn

there is very widely

id l  off considerable
id bl benefit
b fit

. to the employer to have no, or very

Consensual variation,
variation compared with a
unilaterally ordered variation, requires
mutual agreement and consideration.
limited restrictions on its right to
limited,
vary to achieve its objectives.

Dr. Sherif EL-Haggan ٥

 Whenever the employer orders

changes through a variation

instruction  this will trigger the

contractor’s entitlement to extra

money and potentially more time to

complete the works 

Ettridge v The Vermin Board of the District of

Murat Bay - 1928
The contactor was engaged to construct a fence
along a railway line on a schedule of rates basis.

The principal instructed the contractor to

deviate from the original line.

The contractor refused and abandoned the

work, arguing that the contract did not provide
the principal with a variations power.

Dr. Sherif EL-Haggan ٦

 The court ruled that the principal did not
have the contractual power to instruct a
variation, and thus it had
contract by insisting that the contractor
depart from the original line.
As a result, the contractor was entitled
to terminate the contract.
Wegan Constructions Pty Ltd v Wodonga
Sewerage Authority [1978]
The contractor was engaged to construct
the
sewers  The superintendent instructed
the contractor to increase the scope of
excavation works by 60% and the sewer
lengths by 40%  This increase in works
would increase the contract price by 40%.

Under the contract, the power to vary the

scope of works prohibited variations which
would increase the contract p
price by
y more
than a reasonable amount.
Valuation of Variations
Held  the superintendent’s instruction did
not constitute a variation under the
contract. As a result, the court said that the
principal had repudiated the contract.

Dr. Sherif EL-Haggan ٧

 FIDIC Red Book 4th edition ICE 5th edition

ICE 6th edition

Dr. Sherif EL-Haggan ٨

 12.3 Evaluation

… For each item of work, rule (I) the appropriate

rate or price for the item shall be the rate or

price specified for such item in the Contract or,

if there is no such item, specified for similar

work.
work

However, a new rate or price shall be

appropriate for an item of work if:

Dr. Sherif EL-Haggan ٩

 (a) (i) the measured quantity of the item is changed rule (II) Each new rate or price shall be derived
20%
by more than 10% from the 100%
quantity of this item from any relevant rates or prices in the Contract,
in the Bill of Quantities or other Schedule, with reasonable adjustments to take account of the
(ii) this change in quantity multiplied by such matters described in sub
sub-paragraph
paragraph (a) and/or (b)
(b), as
specified rate 5%
for this 50,000%
 item exceeds 0.01% of applicable.
the Accepted Contract Amount,
rule (III) If no rates or prices are relevant for the
(iii) this change in quantity directly changes the Cost
derivation of a new rate or p
price,, it shall be derived
5%bymore
per unit quantity of this item 500%than 1%,
1%
and from the reasonable Cost of executing the work,
together with reasonable profit, taking account of
(iv) this item is not specified in the Contract as a
"fixed rate item"; any other relevant matters.

The obligation under Clause 51 places a duty

on the employer, via the contract
administrator, to exercise its power to
The architect’s failure to issue unilaterally vary when this is necessary to

variation orders may constitute complete the works.

breach of contract by the employer This may apply in circumstances where the
employer or the contractor is responsible
for the risk that has led to the standstill on
the project.

Dr. Sherif EL-Haggan ١٠

 The architect’s failure to issue variation orders may The plaintiffs were the main contractors
constitute breach of contract by the employer for the erection of a hospital under JCT 63
(1969 revision).
Holland Hannen and Cubitts (Northern) Ltd
Crittalls; nominated sub-contractors for the
v. supply & installation of the window assemblies,
Welsh Health Technical Services Organisation began
g work in September
p 1973.

January 1974 it was clear that the window

QUEENS BENCH DIVISION (1981) 18 BLR 80
assemblies were failing to keep rainwater out.

Crittalls proposed remedial works which were

discussed at site meetings.
(Crittalls accepted that they would be liable either
Cubitts took the position that the
under the sub-contract, or under the direct warranty defects were due to faulty design
which they had given to the employer).
(employer’s risk) and that it was
The architect took the position that the
impossible to complete the contract
d f t were due
defects d t bad
to b d workmanship
k hi 
without a variation of the design.
Cubitts should put forward Crittalls’ remedial
proposals as their own.

Dr. Sherif EL-Haggan ١١

 Comment. The case concerned a situation
where the inability to otherwise proceed
Held: By their failure to issue a with
ith the
th works
k arose because
b off an
variation order, the architect made it employer’s risk, not a contractor’s risk.
impossible for Cubitts and Crittalls to
The court talks in terms of a dutyy to instruct
complete
l t the
th contract
t t works.
k
a variation rather than a duty to approve
the change as a concession.

Walton-on-the-Naze Urban District Council,

Re - 1905

M contracted to construct works including “cast

iron outlet pipe to low water, as described in the
Remeasurement contracts—
specification and conditions, and set forth on the
schedule of rates
drawings”;

M agreed to deliver a copy of the priced bill of

quantities on which the tender was based.

Dr. Sherif EL-Haggan ١٢

 The general plan of the work showed the
outlet pipe extending to low-water mark, but
the sectional drawing showed it as
extending 280 feet further into the sea.
The length of pipe in the bill of quantities
corresponded with the length of pipe shown in
, but there was
. .
Using the power to omit
Dr. Sherif EL-Haggan
The Engineer decided that M was under an obligation
to carry out the work in accordance with the section.
M constructed the work according to the section
and claimed to be paid for the work beyond low-
water mark at fair and reasonable prices.
, work done beyond low-water mark is
not covered by any price in the schedule of
prices 
١٣
 Commissioner for Main Roads v Stuart - 1974
A contract contained an expensive £3 for importing
topsoil from off the site and placing it in
embankments,
b k t and
d an overallll lump
l sum price
i which
hi h
the contract schedule showed as including a far
cheaper rate of 15 shillings for placing topsoil
obtained on site.

The contract provided that, if there was insufficient

topsoil on site, “the Engineer will direct the
contractor to obtain topsoil from other locations”.

There was an unexpected deficit of on-site

topsoil, combined with an increased total Held (the High Court, Australia)  the

topsoil requirement, and in order to avoid Engineer was in breach of contract in

paying the higher rate, the Engineer failing to instruct the Contractor to
ordered the omission of topsoil import fill where he still intended to have
obtained off site and employed another
the full quantities of topsoil placed.
Contractor for that purpose.

Dr. Sherif EL-Haggan ١٤

 Watson v O’Beirne ‐ 1850
W agreed to do all carpenter’s, joiner’s, glazing and tin
work in the erection of two houses in Ontario for B.
After the contract was entered into, B determined that

Where extra work is outside he would have attics involving 10 extra bedrooms
added to the houses, and he totally changed the plan
the contract of the back of the building, with the object of
converting the premises into an inn.
Half the contract price of £375 was to be paid for in
“store‐goods” from B’s store. The Architect valued the
extra work at £513.

W sued for the balance due and B claimed to rely Meyer v Gilmer - 1899
on the contract for a delay penalty and also for the A contract in New Zealand provided by Cl. 12 that
“store-goods”
g method of p
payment.
y no variations should be paid for unless a

Held. This was not extra work done under the written order was given by the Architect.

contract, but On one of two contracts, which was for the

wholly
h ll deviating
d i ti f
from th
the alteration of an old building,
b ilding there were
ere many
man and

former contract, which could not be in any sense extensive alterations  no resemblances

regarded as work done upon the terms thereof. between the plans and the works as finished.

Dr. Sherif EL-Haggan ١٥

 The jury found the alterations were
The Architect granted a certificate for the value of
the work, on which the Contractor sued the
so many and so great as to be outside

Employer, although he had not obtained the contract and were not such as were
instructions in writing. contemplated by the contract as extras.

The Employer relied on the absence of writing,

and also sought to recover damages for failure to
complete by the original Contract Date.
.

Yorkshire Water v Sir Alfred McAlpine - 1985

The specification required the contractor to
provide a programme sufficiently detailed to show
that he had taken note of the requirements of the
Too specific a contract project  This went further than would have been
required of him under Sub-Clause 14.1 of the ICE 5th
can hide dangers edition.

The contractor's programme & method

statement (produced to comply with the
specification) were made contract documents.

Dr. Sherif EL-Haggan ١٦

 The method statement indicated that the tunnel
The judge agreed with the contractor and
would be constructed from the downstream end
said that the p
purpose
p of the wording
g
working upstream  proved to be impossible.
about the programme in the specification
The contractor started the tunnel at the
was
upstream end and proceeded downstream and

claimed that this was a variation, for which he

was entitled to additional payment. than he would normally have had.

Once it was shown to be impossible to follow Havant BC v South Coast Shipping (1996)

the method statement, doing the work The job was a beach replenishment scheme.

another way amounted to a variation. The contractor was required to provide a

method statement as to how he was going to
‘If the variation was necessary for the carry out the works.
completion of the works, then the He did so and the statement became a
[
[contractor]
t t ] was entiled
til d to
t a variation
i ti order
d contract document  The method involved
with the consequent entitlement to payment mechanical screening of the filling material,
of the value of such variation…’ which was to be carried out on the beach.

Dr. Sherif EL-Haggan ١٧

 It was inevitably a noisy operation. A local
resident obtained an injunction preventing
the contractor carrying out the screening
outside restricted hours (fewer hours than the
contractor was planning to work).

Held. The screening had become a specified

method of working and, when it proved
impossible, the contractor was again
entitled to a variation order and payment for
that variation.

Dr. Sherif EL-Haggan ١٨