Chapter 8

8.1 Variation clauses

No large construction project is ever perfectly prepared, designed, engineered, managed, supervised and performed. Therefore, well-drafted variation clauses that describe necessary processes of variation management and respective knowledge of these processes by construction project participants are key factors to a successful project.

Variations can have major impacts on costs and time. Construction project participants must therefore know their respective rights and duties regarding variation management. Sample contract forms for large construction projects regularly contain clauses that allow the employer to vary, unilaterally, the scope, quality, sequencing, methods or design of the works. In the same way, the contractor can propose such variations, if there is a need for such variation or if a variation can improve the works.

In construction, the term ‘change’ is sometimes perceived as synonymous with the word ‘variation’. For the purposes of this book, the term ‘variation’ will be used. The word ‘change’ will be used in a different context to mean ‘substantial or significant change’ of works. The latter is not allowed under public procurement law in many jurisdictions.

Various reasons are quoted for initiating variations. These include:

  1. External grounds (outside the influence of the parties) such as:

    • Changed conditions and circumstances (weather, floods, earthquakes, legislative terms, and so on).
    • Uninformed or unrealistic expectations or conditions that differ from those actually encountered—such as unforeseeable ground conditions (of geological/hydrological nature or utilities). The physical on-site conditions in general may differ in material terms from those ‘foreseen’ in the contract. Physical conditions encountered on site may also differ from those normally encountered on similar sites within a particular region.
    • Archaeological findings.
    • Interference by state authorities.

  2. Interest in improvement of the work during realization such as:

    • Technical innovations (and related time and cost savings), acceleration and so on.

  3. Employer’s default such as:

    • Errors of a technical nature in contractual documents. Defective and inadequate documents are the primary source of variations; drawings and specifications are often found to be defective and inadequately describe the nature and scope of the work.
    • Inefficient cooperation of particular contractors and employer’s representatives (bad on-site coordination).
    • Lacking instructions, site access and permissions, insufficient funds leading to suspension and so on.

  4. Contractor’s default such as:

    • Lack of due performance caused by the ignorance of on-site conditions, ignorance of local specifics, ignorance of contract and so on.

Variations are sometimes perceived as negative because of corresponding cost overruns; however, the frequent use of variation provisions in good contracts confirms the inevitable nature of variations in every construction project.

Variation procedures cannot run smoothly without properly formulated contractual provisions to regulate them. In general, these provisions define the procedures the contracting parties must follow to implement a variation in compliance with the contract. The following issues are usually addressed:

  • Options and scope of variations to be mandatorily executed by the contractor as instructed by the employer, including the formal procedure for giving instructions and potential contractor responses.
  • Process to be followed in preparing the design and method statements for new or different works.
  • Impact on cost and time.
  • Requirements and deadlines for notifications that must be sent to the employer by the contractor for proper and timely realization of the variation.
  • Timeframe within which the contractor must submit the variation proposal.
  • Timeframe within which the employer must evaluate the contractor’s proposal and give instructions.
  • Clear identification of persons authorized to instruct and execute variations.
  • Sample variation sheets and forms (variation orders).

Variation procedures are often accompanied by requirements for formal early warnings and notices of pending hazards with impact on time for completion and additional cost. Delay, disruption, suspension and acceleration of works may be caused by the employer’s ill-considered instruction. Likewise, the employer must also be timely notified by the contractor of the consequences of the employer’s defective activity or inactivity or negligence to be able to remedy such a situation in the most efficient and timely way. Therefore, employers and contractors need to effectively cooperate and communicate to mitigate the likelihood of any adverse variations and their impacts.

8.2 Variations under FIDIC forms

Not even the FIDIC forms can avoid the issue of variations and adjustments. According to the FIDIC CONS/1999 Red Book and P&DB/1999 Yellow Book (see Chapter 12), the authorization to give variation instructions belongs to the engineer while it applies that ‘Variations may be initiated by the engineer at any time prior to issuing the taking-over certificate for the works, either by an instruction or by request for the contractor to submit a proposal.’

The engineer’s competences regarding variations tend to be limited in the engineer’s contract with the employer. In the event of variations that affect the price or time for completion, for example, a limitation is that the engineer must first obtain the employer’s prior consent before proceeding.

In general, the contractor does not need to verify if prior consent of the employer has been issued to the engineer. Whenever the engineer gives instruction beyond the scope of its authorization, the engineer is deemed to have received such consent.

The employer must consider thoroughly if, and to what extent, they really want to intervene and limit the engineer’s responsibilities. If the employer needs to control and substantially supervise the engineer by requiring prior consent for the engineer’s numerous decisions, the employer must have the human resources available to make quick and competent decisions and to assume a broad scope of responsibility. A delay on the part of the employer (the engineer) may occur where the review and approval procedures used (e.g. to approve the detailed design, method statements, etc.) are inflexible and unreasonable. In cases of delayed instruction, the contractor may claim an extension of time for completion and additional payment in the form of cost, overhead and profit (subject to Sub-Clause 1.9 of the FIDIC CONS/1999 Red Book). If the engineer is unable to duly perform their duties because of limitations on the employer’s side, then such an engineer is a great hazard to a construction project.

Variations are primarily carried out as instructed by the engineer. There are, however, certain limitations for variations which can only fall into any of the following categories (in accordance with the FIDIC CONS/1999 Red Book):

  • changes to the quantities of any item of work included in the contract (however, such changes do not necessarily constitute a variation);
  • changes to the quality and other characteristics of any item of work;
  • changes to the levels, positions and/or dimensions of any part of the works;
  • omission of any work unless it is to be carried out by others;
  • any additional work, plant, materials or services necessary for the permanent works, including any associated tests on completion, boreholes and other testing and exploratory work, or
  • changes to the sequence or timing of the execution of the works.

Concerning the variation procedure, it is stipulated that the engineer may (before giving an instruction to execute a variation) ask: (1) the contractor to give a description of the proposed work to be performed and a programme for its execution; (2) for the contractor’s proposal for any necessary modifications to the programme and expected time for completion; and (3) the contractor’s proposal for evaluation of the variation.

Such a procedure is appropriate as it can minimize future potential disputes where the effects of a variation on cost and time are not pre-agreed. The engineer must determine ex officio (by virtue of their position) the cost impacts caused by a variation instruction—without any other steps necessarily being taken by the contractor (such as to notify the claim).

According to FIDIC, the contractor may, at any time, submit to the engineer a written proposal which will (in the contractor’s opinion) and, if adopted, accelerate completion, reduce the cost to the employer of executing, maintaining or operating the works, improve the efficiency or value to the employer of the completed works or otherwise be of benefit to the employer. The contractor will gain 50% in costs savings as a bonus should the realization be successful (under FIDIC CONS/1999 Red Book).

8.3 Claims related to variations

The employer usually has the right to order the contractually defined and allowed variations. The contractor, in contrast, has the right to compensation in terms of time and price.

In most cases, variations are managed smoothly via the agreed variation orders.

The position of the SCL Protocol (the Delay and Disruption Protocol published by the United Kingdom Society of Construction Law) on valuation of variations is that (where practicable), the total likely effect of variations should be pre-agreed between the employer/contract administrator and the contractor: (1) to arrive, if possible, at a fixed price of a variation; (2) to include not only the direct costs (labour, plant and materials) but also (3) the time-related costs, an agreed extension of time and the necessary revisions to the programme. A complication often appears where one of the parties is breaching the contract or where contractual interpretation is unclear. In such a case, a routine variation procedure may become a claim for an additional payment and/or extension of time for completion.

In France, for example, the contractor is entitled to an extension of time for completion (prolongation du délai d’exécution) and financial compensation (indemnisation) if there is a modification in the quantity of works or new works are instructed to be performed both in private and public procurement projects (Wyckoff, 2010).

To distinguish the contractor’s individual claims for additional payment or for an extension of time for completion as a result of a variation, the following situations can be defined:

  • directed variation;
  • constructive variation;
  • voluntary variation.

8.3.1 Directed variation

A variation instruction given by the employer (or on their behalf in compliance with the contract) is a directed variation usually taking the form of a written instruction negotiated in a variation order. It may also take the form of an express instruction given orally or implied by conduct. Directed variations are usually issued in compliance with a particular provision in the contract.

These contractual provisions define allowed variations, the period of time within which the contractor should respond to an instruction, the variation design and the approval procedures, the range of additional costs that can be compensated, the pricing method, the specifications of the impact on time and/or other formal procedures. An agreement on price and the time impact of a particular variation will be the key aspects of a successful variation.

If there is enough time, the employer will often proceed by asking the contractor for a variation proposal. The contractor will evaluate the required variation’s influence on the time for completion and price of work. The contractor will then respond within the period of time determined in the contract by providing the proposal, with an evaluation of the feasibility of the variation, including design, impact on the time for completion, and price of work.

This will typically be achieved in a formal manner through a variation order (sample sheet or form). The employer will confirm the variation order, which then becomes an addendum to the contract once a consensus is achieved between the employer and the contractor.

8.3.2 Constructive variation

Constructive variations are defined as any employer conduct that will not result in any directed variation (a formal variation order) but, as a result of which, the employer will require the contractor to carry out different work to that defined in the original contract.

For example, testing and surveillance, implementing higher standards or better workmanship, unjustified refusal to take over the works, performance obstacles and the like. Constructive variations need not influence the technical solution, design or amount of work. They may, for example, include a variation to methods of realization which is then, subsequently, reflected in price or time programme changes. A change in sequencing of operations as instructed by the employer is a classic example. This is discussed in further detail in Section 8.4.2, Constructive Acceleration.

Constructive variations tend to appear during realization of large construction projects. Such variations may be instructed orally but a contractor must be able to document and prove any potential claims for additional payments and extensions of time for completion. Therefore, the practice of confirming oral instructions in writing is appropriate in such a case. FIDIC forms state (Sub-Clause 3.3), for example, that when the engineer:

  1. gives an oral instruction;
  2. receives a written confirmation of the instruction, from (or on behalf of) the contractor, within two working days after giving the instruction; and
  3. does not reply by issuing a written rejection and/or instruction within two working days after receiving the confirmation, then the confirmation shall constitute the written instruction of the engineer.

Whenever the contractor’s claims are in dispute, the judge, arbitrator or adjudicator may investigate whether: (1) the variation was outside the scope of a contractual obligation; (2) the variation was instructed by the employer; (3) if the employer agreed with the compensation; (4) if the necessity of the variation was not caused by a contractor’s mistake; or (5) if the price increase and time impact claimed are adequate and reasonable. In this regard, it is very important to evaluate the potential impact of the governing law in every particular case.

The contract has to be taken as the basis from which variations are valued. It applies in general that either the bill of quantities of a given project, historical data from similar projects, new calculations of rates and prices or industry benchmarks will be used for appropriate valuation. An agreement on how to value a particular variation is then usually reached. Otherwise, retrospective evaluation approaches must be applied to the variation (often after a claim for additional payment is notified), based on actual documented direct costs and agreed surcharges (if any). Different approaches that compare the ‘as-planned’ and ‘as-built’ works need to be considered also. It is further possible to have the price determined by expert opinion, an expert witness or to use a method based on the rules of the unjust enrichment/quantum meruit (Latin for ‘what one has earned’) as per the governing law. If the right method is not found and/or agreed upon, the parties have to treat the variation as a dispute to be resolved in adjudication, litigation or arbitration.

8.3.3 Voluntary variation

A voluntary variation is a variation which is fully under the control and convenience of the contractor. A voluntary variation may be used to re-allocate capacities, make an impression on the employer, manage contractor delay, and so on. Furthermore, if carried out without proper records and without following the procedures under the contract on the contractor’s side, a constructive variation may easily be deemed a voluntary variation.

8.4 Acceleration

It is often necessary, for various reasons, to speed up the construction process by increasing efficiency of related realization processes. Delay may result in significant damages for all participants of a particular construction project. Faster construction leads to increased use of material, labour and equipment or optimization of methods and processes. In other words, ‘acceleration’. This specific variation deserves special attention.

The contractor and the employer (including the contract administrator) are generally obliged to mitigate delay and loss under the contract and the governing law. The position of the SCL Protocol is that the contractor has a general duty to mitigate the effect of employer risk events on its works. Unless expressly included in contract wording or by agreement to the contrary, the duty to mitigate does not extend to requiring the contractor to add extra resources or to work outside its planned working hours. The contractor’s duty to mitigate its loss has two aspects: first, the contractor must take reasonable steps to minimize their loss; and, second, the contractor must not take unreasonable steps that increase their loss.

Acceleration is encountered mainly in the following form:

  • Changes to sequence and timing of works in progress.
  • Increases in labour (e.g. more workgroups, overtime additional shifts or a combination of both).
  • Use of additional equipment and machinery.
  • Acceleration of deliveries of materials, products, plants and the like.

    Acceleration can take one of three forms:

  • directed;
  • constructive;
  • voluntary.

8.4.1 Directed acceleration

Directed acceleration takes place where the contractor is instructed directly, indirectly or even requested by the employer to speed up works according to the contract provisions for variation. The price of acceleration should be agreed upon before an instruction of directed acceleration is given. In case of a subsequent claim for additional payment, the contractor must show their endeavour to accelerate, the acceleration must really take place, and additional costs arise as a result of such acceleration.

8.4.2 Constructive acceleration

Constructive acceleration is encountered where there is a delay caused by the employer (after an employer risk event) and where the contractor has notified the employer of a claim for an extension of time for completion. The employer may then refuse this claim, insisting via an instruction or request, that in fact no delay has occurred and the works should be finished on time. The contractor may express disapproval and will show its endeavour to accelerate. The acceleration will take place and additional costs will arise as a result of such acceleration. Constructive acceleration is therefore a good procedural defence strategy against delay damages and contractual penalties.

The SCL Protocol defines constructive acceleration as:

an acceleration following failure by the employer to recognise that the contractor encountered employer delay for which it is entitled to an extension of time for completion and which failure required the contractor to accelerate its progress in order to complete the works by the prevailing contract completion date.

This situation may be brought about by the employer’s denial of a valid request for an extension of time for completion or by the employer’s late granting of an extension of time for completion.