The Impact of Variations

One of the topics I get asked most about is variations. It’s such a popular topic that I was asked to address it for the last seminar we hosted for BITA members in March. Although discussed in much more depth at this event, there are a few key matters that business will benefit from knowing. It would appear to be such a straightforward question but usually this will constitute an area of dispute between parties on a regular basis.

What are variations?

A variation is an alteration in the scope of works in a construction contract which will include substitutions, additions and omissions. They happen for two main reasons; events occur external to the contract or there are changes in the design, scope or circumstances.

They can include but are not limited to alterations to the design, quantities, sequence of work and working conditions, but they ought not to make any changes to the fundamental nature of the works. In some instances, an Employer will attempt to omit work from a scope in order to be carried out by another party, this most likely will cause issues surrounding repudiation of the contract entitling the innocent party to terminate and perhaps seek damages.

Fundamentally, two questions will arise as to whether a claim for a variation is a valid one. Firstly, what works were contained within the initial agreement and whether the Contract has a mechanism to establish that in fact it is a valid variation and secondly, what is the correct way to value the change? Those two points can be and regularly are misapplied and misunderstood.

What is the impact of variations?

There can be significant issues when the procedures surrounding variations are not considered properly. Changes to types of product used to complete works can add vast sums to the final costs of the project, and changes to design can lead to delays and more costs. But fundamentally, a party may not in fact realise its true position in terms of value or time which also may need to be addressed on account of a change.

Whether or not there is a disagreement over whether an item of work is a variation itself, most commonly it will be the value of the variation that will cause the issue. Usually the argument is on the price and effect on the works. Remember, the rules of valuation, if they apply, are mandatory, for example JCT sets out a very specific mechanism under Section 5.

If in similar character to the work set out in the contract bills and carried out in similar conditions, the value of the variation will reflect those same rates as set out in the contract. If the variation is of a similar character but in different conditions or where quantities or quality are further considerations, then the rates and value will include a fair allowance for these differences. If however, the additional work set out is not of a similar character, the work will be valued as fair rates and prices. This is a sequential approach to how the variation is valued and ought to be taken in order.

What do I need to look out for?

Contractors are expected to be reasonable and competent when pricing work. The client is not bound to pay for things that a reasonable contractor should have understood to be done. One such example will be in the risk of ground conditions unless expressly excluded.

Standard contracts do generally allow the contract administrator to instruct variations to allow the smooth progression and running of the works, however a party should be very clear as to what is and is not included from the outset, as ambiguous language can often lead to delays, additional costs and disputes.

How can I protect myself?

In general, there must be certainty as to what works are in fact included in the agreement to be carried out. If this is not readily available or understood then there will be considerable difficulty to understand how the variation in fact will exist. This is generally where a dispute will occur. Most likely a party who finds itself in this position will suffer greatly when seeking to establish its right in the first place. Secondly, it is important to understand the mechanics of how the variation is to be valued. These are specific rules and can be readily applied.

Silver Shemmings Ash LLP runs regular seminars for BITA members on different topics to enable them to more effectively manage their businesses and plan for the future. Next seminar: 19th June 2019, Grange City Hotel from 4pm and focussing on ‘Taking the Pain out of the Tendering Process’.

Author Henry Hathaway is a Partner with Silver Shemmings Ash and is a graduate of Trinity College Dublin (Civil Engineering) Tel: 00 44 207 167 6602 Email: henryhathaway@silverllp.com More details on our Seminars can be found at www.silverllp.com or by email to seminars@silverllp.com

Silver Shemmings Ash LLP