WHAT CONSTITUTE A VARIATION IN CONSTRUCTION
FROM LEGAL PERSPECTIVE
LIM CHENG SIM
UNIVERSITI TEKNOLOGI MALAYSIA
iii
DEDICATION
To my beloved husband,
sister Chin Mooi,
daughters: Ee Chien, Ee Xuan, Ee Han & Ee Lin
……………………….Thanks for everything.
iv
ACKNOWLEGDEMENT
First of all, I would like to express my highest gratitude to my supervisor,
Prof. Madya Dr. Rosli b. Abdul Rashid for his guidance, advice and support in
completing this master project.
Next, I am also indebted to all the lecturers of this course (Master of Science
in Construction Contract Management) especially En. Jamaluddin Yaakob, for their
kind advice during the process of completing this master project.
I would also like to express my gratitude to my fellow course mates for their
guidance and support.
Not forgetting my dearest husband, eldest sister and children, thanks for their
tolerance and support given.
Last but not the least, a special thank to my colleague Mr. Chiew Seng Khoon
for his advice and moral support during the whole course of study.
v
ABSTRACT
Construction projects are complex thus the requirement for changes to be
made before they are completed is inevitable. Construction contracts commonly
include variations clauses to enable the employer’s design team to vary the design and
specification. Various forms of construction contract defined the variation differently
and different standard forms of contract have different wordings for it. The variation
clauses are usually drafted in very wide terms and appeared to be all embracing.
Although the descriptions are clear but it is difficult to determine the point where it is
‘variation’ or ‘new work’, and it is not clear from the ambit of these clauses as to how
extensive a variation may be and still be binding. Thus variation clauses often give
rise to argument, debate and litigation. The main objective of this study is to
determine what constitute a variation in construction from legal perspective. The
scopes of this study are (1) contractual provisions in the three major and popular
forms of construction contract in Malaysia, namely PAM 98 Form, PWD Form 203A
(Rev. 10/83) and CIDB 2000, and (2) Legal cases reported in Lexis Nexis in relation
to variations in Malaysia and other Commonwealth countries. The research
methodology adopted for this report consists of 4 stages. Stage 1: initial study and
finding the research topic, objective, scope and outline; Stage 2: collecting data and
research design; Stage 3: analyzing and interpreting data and Stage 4: writing-up.
This report covers five (5) chapters. Chapter 1 sets the background of the study,
problem statement, objective of the study, scope and limitation of the study, research
methodology and the organization of the chapters. Chapter 2 discusses some basic
terminologies and provides a general understanding of variation, contractual terms
and contract interpretation on variation. Chapter 3 examines the detailed provision of
variation clauses in relation to ‘definition of variation’ and ‘valuation of variation’ of
the most commonly used local standard forms, i.e. PAM 98 Form, PWD 203A (Rev.
10/83) and CIDB Form 2000. Chapter 4 analyses legal perspective of ‘what
constitute a variation’ in construction of the various court cases chosen in order to
achieve the objective of this project report. Chapter 5 summarises the findings of the
research according to the research objective. The finding derived from the analysis of
the court cases is that there is no single legal perspective regarding what constitute a
variation in construction. However, based on the cases analysed, the most common
issue is whether the extra over of the changes fall under reasonable scope and nature
of the original work; but what is reasonable under the circumstances will be a matter
for the courts to establish on the facts of the particular case.
vi
ABSTRAK
Projek-projek binaan adalah kompleks, dengan demikian perubahan
kepadanya sebelum ia dilengkapkan tidak dapat dielakkan. Kontrak binaan biasanya
mempunyai klausa-klausa perubahan untuk membolehkan kumpulan reka bentuk
majikan membuat perubahan pada reka bentuk dan spesifikasi. Pelbagai kontrak
binaan mempunyai taktif yang berbeza untuk ‘perubahan’ dan kontrak yang berlainan
menggunakan perkataan yang berlainan untuknya. Klausa-klausa perubahan biasanya
didrafkan dalam frasa yang sangat luas and kelihatan merangkumi.
Walaupun
gambaran kata-katanya jelas tetapi sukar untuk menentukan bila ia adalah ‘perubahan’
dan bilanya ‘kerja baru’, dan tidak jelasnya sebesar mana perubahan boleh
dibenarkan. Oleh kerana itu, klausa-klausa perubahan sentiasa menyebabkan
pertelingkahan, penghujahan dan tindakan undang-undang. Objektif utama pengajian
ini ialah untuk menetapkan ‘apa yang merupakan perubahan dalam binaan dari segi
pemandangan undang-undang’. Skop kajian ini adalah: (1) peruntukan kontrak dalam
tiga form kontrak umum yang utama iaitu PAM 98 Form, PWD Form 203A(Rev
10/83) dan CIDB 2000, dan (2) kes-kes mahkamah yang dilaporkan di Lexis Nexis
mengenai perubahan binaan di Malaysia dan negara-negara Komanwel. Kajian in
mempunyai 4 peringkat. Peringkat 1: kajian yang pertama dan pencarian topik kajian,
objektif, skop dan garis luar. Peringkat 2: Pengumpulan data dan reka bentuk kajian.
Peringkat 3: Analisis data dan Peringkat 4: Penulisan. Lapuran ini mengandungi lima
(5) bab. Bab 1 menceritakan latar belakang kajian, penyataan masalah, objektif kajian,
skop dan pembatasan kajian, perkaedahan kajian dan susunan bab. Bab 2
membincangkan peristilahan asas dan mengemukakan perfahaman untuk perubahan
binaan. Bab 3 periksa secara teliti klausa-klausa ‘definasi perubahan’ dan ‘cara-cara
penilaian perubahan’ diperolehi dalam PAM 98 Form, PWD Form 203A(Rev 10/83)
dan CIDB 2000. Bab 4 menganalisis pemandangan undang terhadap ‘apa yang
merupakan perubahan dalam binaan’ berdasarkan kes-kes mahkamah terpilih. Bab 5
membuat ringkasan untuk hasil penyiasatan pengajian mengikuti objektif pengajian.
Hasil penyiasatan pengajian ini menunjukkan bahawa tiada satu pemandangan
undang-undang yang tunggal terhadap apa yang merupakan perubahan dalam binaan’.
Walaupun demikian, berdasarkan kes-kes yang dikajikan, isu lazimnya adalah sama
ada tambahan perubahan jatuh dalam skop yang munasabah; tetapi apa adalah
munasabah adalah terpulang pada mahkamah untuk ditetapkan berdasar fakta-fakta
satu-satu kes itu.
vii
TABLE OF CONTENTS
CHAPTER
TITLE
PAGE
Title
i
Declaration
ii
Dedication
iii
Acknowledgement
iv
Abstract
v
Abstrak
vi
Table of Contents
vii
List of Cases
x
List of Tables
xiii
List of Figure
xiv
List of Abbreviations
1
xv
INTRODUCTION
1.1
Background Study
1
1.2
Problem Statement
3
1.3
Objective of the Study
5
1.4
Scope of the Study
5
1.5
Significance of the Study
5
1.6
Research Methodology
6
1.6.1 Stage 1: Initial Study and Finding the Research
Topic, Objective, Scope and Outline
6
viii
1.7
2
1.6.2 Stage 2: Collecting Data and Research Design
7
1.6.3
Stage 3: Analyzing and Interpreting Data
7
1.6.4
Stage 4: Writing-up
7
Organisation of the Report
9
VARIATION ORDER IN CONSTRUCTION PROJECT
2.1
Introduction
11
2.2
Definition of Variation/Variation Order
11
2.3
Reasons For Variations
15
2.4
Reasons For Variation Clauses
21
2.5
Types of Variation
23
2.6
Factors Determining A Valid Variation Order
25
2.7
Conclusion
32
3
PROVISION OF DEFINITION OF VARIATION
AND RULES FOR VALUATION OF VARIATION
IN LOCAL FORMS OF CONSTRUCTION CONTRACT
3.1
Introduction
33
3.2
Definition of Variation
34
3.2.1
Provision of Definition of Variation in
PAM 98 Form
3.2.2
Provision of Definition of Variation in
PWD 203A Form
3.2.3
37
Provision of Definition of Variation in
CIDB Form 2000
3.2.4
35
38
Comparison of Provisions for
‘Definition of Variation’ in the
Local Standard Forms of Contract
39
ix
3.3
Rules for Valuation of Variations
3.3.1
Provision of Rules for Valuation of
Variation in PAM 98 Form
3.3.2
49
Provision of Rules for Valuation of
Variation in CIDB Form 2000
3.3.4
45
Provision of Rules for Valuation of
Variation in PWD 203A Form
3.3.3
45
53
Comparison of Provisions for
‘Rules for Valuation of Variation’ in the
Local Standard Forms of Contract
3.4
4
Conclusion
55
60
VARIATION IN CONSTRUCTION FROM LEGAL
PERSPECTIVE
4.1
Introduction
4.2
Variation In Construction From Legal
4.3
5
61
Perspective
62
Conclusion
99
CONCLUSION AND RECOMMENDATIONS
5.1
Introduction
104
5.2
Summary of Research Findings
104
5.3
Problems Encountered During Research
112
5.4
Further Research
112
5.5
Conclusion
113
REFERENCES
114
x
LIST OF CASES
CASE
AE Farr Ltd v Ministry of Transport (1965) 5 BLR 94
Brodie v Cardiff Corporation [1919] AC 337
Barter v Lord Mayor of Melbourne (1870) 1 AJR 160.
PAGE
87
12,31
28
Blue Circle Industries PLC v Holland Dredging Company
(UK) Ltd (1987) 37 B.L.R. 40.
Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273.
Coker v Yound [1860] 2 F&F 98
68
29,98
51
Commissioner for Main Roads v Reed & Stuart Pty Ltd
& Anor. [1974] ALJR 461
95
Franklin v Drake (1826) 6 L.T. 291.
31
Goodyear v Weymouth and Melcombe Regis Corporation
(1865) 35 L.J.C.P. 12
Hardwood v Civic Construction Pty Ltd 1990 NSW LEXIS 10604.
31
100
xi
CASE
Hill v South Staffordshire Railway Company
PAGE
73
John Laing Construction Ltd v County and District
Properties Ltd (1982) 23 BLR 1
47,51
Kemp v Rose (1858) 1 Giff. 258 at 268.
13
Laidlaw v Hastings Pier Co. (1974).
31
Lamprell v Guardians of Billericay Union
73
London Steam Stone Saw Mills v Lorden [1900]
HBC 4the edn, vol 2, p 301
51
McAlpine Humberoak Ltd v McDermott International
Inc. (No. 1) (1992) 58B.L.R. 1
76
Mitsui Construction Co. Ltd v Attorney General of Hong Kong
Government [1987] 1 HKC 31
83
Molloy v Liebe (1910) 102 LT 616
12,31
Re Chittick and Taylor (1954) 12 W.W.R. 653
22,28
Richards v Oppenhaim (1950) 1 KB 616, 626.
31
Russel v Sa Da Bandiera (Viscount) (1862) 13 cBNS 149;
32 LTCP 68; 7 LT 804.
Sharpe v San Paulo Railway (1873) L.R. * Ch.App. 597
28
13,28,62
xii
CASE
PAGE
Simplex Concrete Piles Ltd v St Pancras Borough Council
(1958) 14 BLR 80.
18,37
Sir Lindsay Parkinson & Co Ltd v Commissioners of
His Majesty’s Works & Public Buildings [1950] 1 All ER 208.
30
Stockport Metropolitan Borough Council v OReilly
[1978] 1 Lloyd’s Rep 595.
2
Tarverner & Co. Ltd. V Glamorgan County Council
(1940) 57 TLR.
32
Tharsis Sulphur and Copper Company v McElroy
& Sons (1878) 3 App Cas 1040
Thorn v London Corporation (1987) 1 App Cas 120 (HL)
72
31,70,91
xiii
LIST OF TABLES
TABLE NO.
Table 3.1
TITLE
Comparison of Provisions for ‘Definition of Variation’
in the Local Standard Forms of Contract
Table 3.2
43
Comparison of Provisions for ‘Rules for Valuation of
Variation’ in the Local Standard Forms of Contract
Table 5.1
PAGE
59
Tabulation for Principles of ‘What constitute a
Variation in construction from legal perspective’
105
xiv
LIST OF FIGURE
FIGURE NO.
Figure 1.1
TITLE
Research Methodology
PAGE
8
xv
LIST OF ABBREVIATIONS
CIDB
Construction Industry Development Board
CIPAA
Construction Industry Payment and Adjudication Act
FIDIC
Federation Internationale de Inginieurs Conseils
HGCR
Housing Grants, Construction and Regeneration
ICE
The Institution of Civil Engineers, UK
ISM
The Institution of Surveyors, Malaysia
JCT
Joint Contract Tribunal
PAM
Persatuan Arkitek Malaysia
PWD
Public Work Department
RIBA
Royal Institute of British Architects
SMM
Standard Method of Measurement
SO
Superintending Officer
VO
Variation Order
1
CHAPTER 1
INTRODUCTION
1.1
Background of the Study
Construction projects are complex thus the requirement for changes to be
made before they are completed is inevitable. There are three ways in which a
variation might occur. Firstly, clients may change their minds about what they asked
for before the work is complete. Secondly, designers may not have finished all of the
design and specification work before the contract was let.
Thirdly, changes in
legislation and other external factors may force changes upon the project. Although
these three origins are very different, construction contracts tend to ignore these
differences and deal with all variations in the same way. 1
Construction contracts commonly include variations clauses to enable the
employer’s design team to vary the design and specification. This is to avoid the
problem that a contract would, in principle, have to be re-negotiated due to the change
of specification of the work. The purpose of the variations clauses is to allow such
changes to be made, and also to permit any consequential changes to be made to the
1
Murdoch,J. , Hughes, W.. Construction Contracts- Law and Management, Spon Press, London
(2000), p.200.
2
contract sum. Each standard or tailored form of construction contract will have a
form of words attempting to address the question of ‘What is a variation?’ Some
attempted definitions are prescriptive, i.e. “You will do anything I tell you to do, or
shown on drawings issued to you by the Architect, and there will be no change in
price or time unless I have previously agreed the extra money and time.” Such a
unilateral definition can work, either by mutual reasonableness or by the contractor
taking an equally robust attitude – “If you want me to do that, you will agree my price
and my additional time before I will even order the materials.”
Mutual
reasonableness cannot be relied on and disputes will have to be referred to a “Third
Party Umpire”. In UK, the trend of the adjudicator as a “Third Party Umpire” which
was formally given statutory status by the Housing Grants, Construction and
Regeneration (HGCR) Act 1996 to make the pre-agreement of variations becoming
the “norm”. 2 However, this is quite impossible to be a scenario in Malaysia in near
future in view of the enactment of the proposed Construction Industry Payment and
Adjudication Act (CIPAA) is still ‘on the way’.
The provision of variation clauses in construction contracts compels the
contractor to obey instructions issued by the contract administrators. However, a
variation order may be issued in terms which contradict the terms of the power and
thus will be an invalid variation.
The issue of a variation order triggers the operation of other provisions in the
contract to adjust the contract price of the contract - it may turn out to be higher or
lower, depending on the nature of the variation. Thus, where a contractor has secured
a project on prices and terms which are profitable, he will have a strong interest to
argue that any additional work should be construed as a variation and valued
according to the prices and rates contained in the contract. There is nothing to prevent
the parties from agreeing that varied work should be undertaken under a separate
contract. 3 Hence, where the contract was awarded on prices and rates which were
2
Jeremy Hackett. Construction Claims: Current Practice And Case Management, (2000), p.116.
3
See Stockport Metropolitan Borough Council v OReilly [1978] 1 Lloyd’s Rep 595.
3
subsequently shown to be unprofitable, a contractor may be expected to press the case
that the subject work should not be construed as a variation on the terms of the
contract and that, instead, it should be the subject of a separate contract or undertaking
between the parties, in which case new prices and rates have to be agreed between the
parties. 4
In Malaysia, majority of the local contractors/sub-contractors are usually less
‘legal-conscious’ or less preferring to legal proceedings. This situation is attributed
by firstly, there is always unequal contractual bargaining power which favors the
employer instead of the contractor; and secondly, the existing dispute resolution
mechanisms are too time consuming and expensive. Therefore, it seems that they do
not have much choice of solutions but to uplift the awareness of the common issues of
disputes in variations claims.
It is thus essential to foster the understanding of variations claims among all
the parties in the construction industry especially the contractors/sub-contractors.
1.2
Problem Statement
Various forms of construction contract defined the variation differently and
different standard forms of contract have different wordings for it. The variation
clauses are usually drafted in very wide terms and appeared to be all embracing.
Although the descriptions are clear but it is difficult to determine the point where it is
‘variation’ or ‘new work’, and it is not clear from the ambit of these clauses as to how
4
Chow Kok Fong. Law and Practice of Construction Contracts (3rd Edition), Sweet & Maxwell Asia
(2004), p175.
4
extensive a variation may be and still be binding. Thus variation clauses often give
rise to argument, debate and litigation.
Uff (2005) pointed out that when there has been a departure from the work
specified in the contract, it is necessary to decide whether there is, in law, a variation
under the contract; if there is a variation, whether the contractor is entitled to be paid
extra; and if so, the amount of the extra payment. 5
He further noted that contracts do not usually place any limit on the
permissible extent of variations. The usual provision that no variation is to vitiate (or
invalidate) the contract, makes it difficult to imply any limit. However, there must
always be some limit to what may be added to the contract. If work exceeding such
limit is ordered, the contractor may be entitled to be paid on a quantum meruit basis. 6
Meanwhile, Vincent Powell Smith (1990) commented that there are more
misunderstandings and disputes about variations than any other aspect of construction
contracts. The wide definition of the term ‘variation’ or ‘varied work’ in the standard
forms of contract also give rise to difficulties. Indeed, it is sometimes suggested that
such definition means that the architect can in fact use the variations clause as a
means of making fundamental changes in the work. 7
Therefore the issue here is “what constitute variation” and when variation is
considered as new works.
5
John Uff. Construction Law – Law and Practice relating to the Construction Industry (9th Edition).
Sweet & Maxwell (2005), p274.
6
Ibid, p277.
7
Vincent Powell-Smith. Problems in Construction Claims. Oxford BSP Professional Books. Pg42.
5
1.3
Objective of the Study
The main objective of this study is to determine what constitute a variation in
construction from legal perspective.
1.4
Scope of the Study
The study is focused on the following:
1.
Contractual provisions in the three major forms of construction
contract in Malaysia, namely PAM 98 Form, PWD Form 203A (Rev.
10/83) and CIDB 2000.
2.
Legal cases reported in Lexis Nexis in relation to variations in
Malaysia and other Commonwealth countries.
1.5
Significance of the Study
Basically, this study is expected to answer some of the uncertain issues that
arise in construction contracts such as issues that in relation to variation orders. In
accordance to that, issues will be analyzed based on the interpretation and judgment
by the courts. It is hoped that this study will be able to help the stakeholders in the
6
construction to have a more complete understanding of judicial interpretation on what
constitute variations in construction projects.
1.6
Research Methodology
The process and method of approach act as guidelines so that the study could
be done in a systematic way to achieve the research objective. The study process
consists of 4 stages. Stage 1: initial study and finding the research topic, objective,
scope and outline; Stage 2: collecting data and research design; Stage 3: analyzing
and interpreting data and Stage 4: writing-up.
Figure 1.1 shows the research
methodology.
1.6.1
Stage 1: Initial Study and Finding the Research Topic, Objective, Scope
and Outline
Stage 1 of the research involves initial study which there are two approaches
used i.e. discussion with friends and lecturers regarding what research topic can be
done. Initial literature review is also done to help get the idea of the research topic.
After the initial study, the rough idea of the research topic is formed. The objective
and scope of the research are fixed then. After this, a research outline will be
prepared in order to identify what kind of data will be needed in this research. Also,
data sources will be identified as well.
7
1.6.2
Stage 2: Collecting Data and Research Design
Collection of all relevant data and information is done during this stage. Data
will be collected mainly through documentary analysis.
All collected data and
information are recorded systematically. Data collected are mainly from the Malayan
Law Journal, Singapore Law Report, Building Law Report, Construction Law Report
and other law journals. It is collected through the Lexis-Nexis online database. All
the cases relating to the research topic will be sorted out from the database. Important
cases will be collected and used for the analysis at the later stage.
1.6.3
Stage 3: Analyzing and Interpreting Data
This stage of research involves data analysis, interpretation and data
arrangement. This process is to convert the data collected to information that is useful
for the research. Arrangement of data tends to streamline the process writing of the
paper.
1.6.4
Stage 4: Writing-up
This stage is the final stage of the research process. It involves mainly the
writing up and checking of the writing. Conclusion and recommendations will be
made based on the findings during the stage of analysis.
8
Stage 1
Initial Study
Approach 1: Literature review
• Books, journals, internet sources
Approach 2: Discussion
• Discussion with friends and lecturers
Fix the research topic
Fix the research objective, scope and prepare the research outline
Identify type of data needed and data sources
Stage 2
Data Collection
Research Design
Approach: Documentary Analysis
• Law Journals, e.g. Malayan Law Journal, Singapore
law Report, Building Law Report, etc.
Stage 3
Data analysis & interpretation
Stage 4
Figure 1.1: Research Methodology
Writing-up
9
1.7
Organisation of the Report
This report covers five (5) chapters as follows:
Chapter 1: Introduction
This chapter sets the background of the study, problem statement,
objective of the study, scope and limitation of the study, significance of the
study, research methodology and the organization of the chapters.
Chapter 2: Variation Order in Construction Project
Chapter 2 discusses some basic terminologies and provides a general
understanding of variation, contractual terms and contract interpretation on
variation, which will be useful to enhance the understanding when reading the
subsequent chapters.
Chapter 3: Provision of Definition of Variation and Rules for Valuation of
Variation in Local Forms of Construction Contract
This chapter examines the detailed provision of variation clauses in
relation to ‘definition of variation’ and ‘valuation of variation’ of the most
commonly used local standard forms, i.e. PAM 98 Form, PWD 203A (Rev.
10/83) and CIDB Form 2000 only.
10
Chapter 4: Variation in Construction from Legal Perspective
This chapter analyses legal perspective of ‘what constitute a variation’
in construction of the various court cases chosen in order to achieve the
objective of this project report.
It is done mainly through documentary
analysis of law journals and law reports, e.g. Malayan Law Journal, Singapore
Law Report, All England Report, Canada Law Report, Building Law Report,
Construction Law Report, etc.
Chapter 5: Conclusion and Recommendations
This chapter is the final chapter that summarises the findings of the
research according to the research objective. It also contains the problems
encountered during the research as well as the recommendations for future
researches.
11
CHAPTER 2
VARIATION ORDER IN CONSTRUCTION PROJECT
2.1
Introduction
This chapter discusses some basic terminologies and provides a general
understanding of variation, contractual terms and contract interpretation on variation,
which will be useful to enhance the understanding when reading the subsequent
chapters.
2.2
Definition of Variation/Variation Order
A number of terms have been employed in the industry to label the instant
topic; the more common of these are Variations, Changes, Extra Works and Extras. 8
8
Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – Post-Commencement
Practice. (2003), p424.
12
Webster Dictionary
9
defines “Variation” as alteration, modification or
mutation or partial change in the form, position, state or quantities of a thing. “Order”
is meanwhile defined as an issued command.
“Variation” is explained as “This is a technical usage of the common term and
refers to a definable alteration to the nature or extent of contract works or to the
conditions under which it has been agreed such contract works will be carried out.
The various standard forms of contract provide in differing ways for calculating the
financial effect of variations and for consequently adjusting the contract sum.” in the
Construction Contract Dictionary 10 .
The said dictionary has a further more precise explanation on variation under
“Extra Work”. It says that: “Extra work is work which is not expressly or impliedly
included in the work for which the tendered sum is payable. Where the contractor
quotes a lump sum based on drawings and/or a specification, there is an implied
obligation to do all indispensably necessary work at no extra cost, whether or not such
work is shown on the drawings or described in the specification. However, where the
scope of the work included in the price purports to be precisely defined, as in a bill of
quantities, any work in excess of the measured quantities, in so far as it is properly
done in response to a valid instruction and not rendered necessary by any default of
the contractor, would be treated as a variation. If extra work is completely outside the
scope of, and quite unrelated to, the original contract work then it may well not be a
variation and may become the subject of an implied new contract and of a quantum
meruit payment. However, if both parties treat it as a variation it might well be
difficult for either party subsequently to contend that it was to be treated as the subject
of a separate contract. [See Law Reports: Molloy v Liebe (1910); Brodie v Cardiff
Corporation (1919.)]
9
The New Webster Encyclopedic Dictionary of English Language.
Leonard Fletcher, Reginald Lee & John A Tackaberry. Construction Contract Dictionary, (1980).
10
13
Similarly, Keating (2001) 11 proffered the meaning of “Extra Work” as “There
is no generally accepted definition of extra work, but in a lump-sum contract it may
be defined as work not expressly or impliedly included in the work for which the
lump sum is payable. 12 If work is included in the original contract sum the contractor
must carry it out and cannot recover extra payment for it, although he may not have
thought at the time of entering into the contract that it would be necessary for the
completion of the contract. 13 The question is one of construction in each case, but
lump-sum contracts may be broadly classified into those in which the contractor’s
obligation is defined in wide terms, such as “to build a house”, and those in which it is
defined in exact terms, such as “to execute so many cubic metres of digging.”
James R. Knowles (1994) 14 defined the term “variation” as works, which are
not expressly or impliedly included in the contract and therefore are not included in
the contract price. They represent a change of alteration of the original work or
simply an addition to or omission from it.
Prof. Haji Hashim Sikan (1999) 15 described “variation” as “ In plain language
a variation in a construction contract could possibly be construed as the introduction
during the progress of the construction work of something mostly work-related in
nature added to or deducted from that which was tendered and accepted originally.
However, the proper technical definition can be found in the standard forms of
contract between a client and a building contractor commonly used in the construction
industry.”
He added further that “It is a change or deviation in design, material or
workmanship from that specified in the original tender document. Variations may
11
Stephen Furst & Vivian Ramsey, Keating On Building Contracts, Seventh Edition, (2001), p.106.
Kemp v Rose (1858) 1 Giff. 258 at 268.
13
Sharpe v San Paulo Railway (1873) L.R. * Ch.App. 597
14
James R. Knowles. A Full Day Seminar On Construction Claims : Their Mysteries Unraveled.
(1994).
15
Prof. Haji Hashim Sikan. Salient Points On Contract Administration Of Building And Civil
Engineering Works (Local Practice). (1999). P51.
12
14
occur any time not only during the progress of the construction work but also prior to
the possession of site. As a rule no instruction for variation will be issued after the
practical completion has been certified.”
Meanwhile, Chow (1980) 16 described the terms “Variations” or “extras” in a
more legal term as works, which are not expressly or impliedly included in the
original contract and therefore not part of the works covered by the original contract
price. Variations could represent either additional works, or omissions or alterations
to the works originally included in the contract.
Jabatan Kerja Raya’s P.W.D. Form 203A (Rev. 10/83), Condition Of Contract
To Be Used Where Bills of Quantities Form Part Of The Contract, Clause 24:
“Variation means the alteration or modification of the design, quality or quantity of
the Works as shown upon the Contract Drawings, Bills of Quantities and/or
Specification, and includes 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 and the removal from the Site of any of the materials or goods executed or
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.”
Pertubuhan Akitek Malaysia (PAM) Standard Form Of Building Contract
(With Quantities), Clause 11: “Variation as used in these Conditions means the
alteration or modification of the design, quality or quantity of the Works as shown
upon the Contract Drawings, and described by and referred to in the Contract Bills,
and includes 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, and the
removal from the Site of any work materials or goods executed or 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.
16
Chow Kok Fong. The Law Relating To Building Contracts – Cases and Materials. (1980).
15
No matter how the variation is being defined, Harbans Singh (2003) 17
concluded that “Although there is a proliferation of terms being employed in the
industry, the essential elements of all the terms are fundamentally similar; these
being:
(a) There must be a change effected;
(b) This change must be in relation to the scope of the work; and
(c) The scope of work being changed must be as:
(i) Expressly included in the contract documents, i.e. detailed or described
in the specifications, BQ, drawings, employer’s requirements,
contractor’s proposals, etc; 18 and/or
(ii) Impliedly included in the contract documents. 19
For the purpose of this study, it can be said that variation is “the addition or
omission of cost to the original contract sum.”
2.3
Reasons For Variations
As commented by Harbans Singh (2003) 20 , the actual reasons for variations
plaguing the engineering and construction industry have never been a subject of any
17
Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – PostCommencement Practice. (2003), p424.
18
As applicable.
19
Eg as necessary or incidental.
16
comprehensive study on the local scene despite the impact of these on the said
industry.
However, Prof. Haji Hashim Sikan (1999) 21 has mentioned some good
examples of the reasons for variations and they could be classified under three major
categories as below:
•
Changes in design and technology of construction
It is considered imperative and practical for a construction contract to have
a provision for variations in its working procedures because of the length
of time for the completion of a project and the complexity of design
especially for a prestigious project in which changes in design and
technology of construction will have to be accommodated in pursuit of
aesthetic excellence and to comply with the changing needs of
environment. Take a prestigious project which needs two or three years to
complete for instance. When the project was approved to be constructed
about four years ago the design was acclaimed to be of the highest quality
ever and the construction technology was methodically worked out and
programmed for a targeted completion date. But when the work started
and the project gradually took shape new idea to improve the design was
conceived.
Perhaps the owner (the client) has just returned from an
extensive tour and inspired by some projects he happened to see he
decided to include some interesting features into his own to make it his
dream project, so to speak. This new idea or the features to enhance the
aesthetic qualities of the project causes amendments on the original design,
hence a variation.
20
Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – PostCommencement Practice. (2003), p428.
21
Prof. Haji Hashim Sikan. Salient Points On Contract Administration Of Building And Civil
Engineering Works (Local Practice). (1999). p51 & p52.
17
•
Unforeseen site, underground or environmental issues
On the technical aspect, it may deal with site, underground or
environmental issues. Prior to the design work, it is pre-requisite that the
site survey and possibly underground investigation are conducted to
determine the prevailing conditions which will have great influence on the
structural design work. It is normal to accept that the data obtained from
such investigation will only serve as a guideline to help the design work
but will not guarantee that the design will work. The actual conditions will
only be known when they are encountered and exposed during the
progress of the construction work. Since the design was mainly based on
the survey report, the discovery of the actual conditions which is different
from that shown in the report will make it mandatory for the designer to
make relevant changes in his original design, hence a variation.
•
Change of the statutory regulations
The statutory regulations in the Local Authorities in which area the project
is constructed may contribute to a change within the procedure of the
construction work. A new bye-law or an amendment to the prevailing
regulation will cause changes to be made in the design or work procedure
of the on going project that has been approved previously, hence a
variation. Changes in the requirements on the fire safety precautions by
Jabatan Bomba during the progress of work is a good example.
18
Meanwhile, Harbans Singh (2003) 22 has covered a wider range of the same
aspect and has classified the reasons for variations into two major categories as
follows.
(A)
Employer Induced/Initiated Variations
Prima facie, in most contracts, the employer is the main cause, directly or
indirectly 23 for the bulk of the variations. These can be summarized as:
•
Changes in the employer’s/user’s requirements post-contract, e.g.
owing to a rethinking of the needs, change in the nature and use of the
anticipated/future utilization of the finished works, etc;
•
Review or reassessment of the design 24 by the designers due to issues
such as safety, buildability, correction of deficiencies/errors, etc;
•
Correction of discrepancies, ambiguities, etc in the contract
documents, e.g. defective specifications, drawings, etc;
•
Wrong or negligent advice being issued to the contractor by the
contract administrator; 25
22
Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – PostCommencement Practice. (2003), p429.
23
Vicariously for his designers, contract administrator, etc.
24
For an ‘employer designed’ contract.
25
Simplex Concrete Piles Ltd v St Pancras Borough Council (1958) 14 BLR 80.
19
•
Interference in the contractor’s undertaking of the works under the
contract either by the employer and/or the contract administrator, e.g.
changing the method and/or sequence of working, etc;
•
Revisions attributed to statutory or legislatives changes post contract
award;
•
The need to address safety concerns or issues arising in relation to the
carrying out of works, e.g. changes in site conditions, effects of
neighbouring owners, etc;
•
Adverse environmental factors impacting on the contract works, e.g.
safety, quality of work, etc;
•
Changes in commercial and/or political factors; and
•
Miscellaneous reasons, e.g. due to/arising from properly ordered
suspension of work, inadequate site investigation prior to contract
award, impossibility, etc.
(B)
Contractor Induced/Initiated Variations
Though relatively uncommon in practice, there are a number of reasons for
contractors to be the source of variations to the contract. This is becoming
increasingly common in the so called ‘package deal’ type of contracts. The
principal reasons for the contractor to initiate variations are:
20
•
Review or reassessment of the design where the contractor is
responsible for this element, e.g. in Turnkey Contracts, Design and
Build Contracts, Contracts with Employers Design, 26 etc;
•
Changes in contractor’s proposals in line with design development in
‘package deal’ type of contracts;
•
Correction of discrepancies, ambiguities, etc in contract documents
prepared by the contractor, e.g. in ‘package deal’ type of contracts;
•
Revisions attributed to statutory or legislative changes;
•
Need to address safety issues in undertaking the works, e.g. changes in
site conditions, 27
•
Adverse environmental conditions affecting the undertaking of the
works, e.g. safety, quality, etc.
•
Correction of tendering errors, e.g. rates in ‘remeasurement’ type of
contracts, etc;
•
Non-availability of materials, equipment, plant, etc for reasons beyond
contractor’s control, e.g. discontinuance of product line/manufacture,
redundancy, obsolescence, etc;
26
E.g. where Option Module D is used for the CIDB Form (2000 Edition), etc.
Also to address safety concerns arising out of activities of neighbouring owners e.g. landslips,
drainage, erosion, etc.
27
21
•
Product improvement due to quality/safety reasons, better technology,
improved efficiency, etc;
•
Value engineering undertaken post-contract award;
•
Considerations involving buildability; and
•
Miscellaneous reasons, e.g. due to/arising from sub-contractors,
suppliers, impossibility, etc.
Not discounting the fact that a relatively high proportion of the contractor
initiated changes result in the so called ‘extra work’ or ‘extra cost’ to the
employer, it is nevertheless important to appreciate that many of these changes
also constitute omissions; the latter being particularly so in equipment related
and ‘package deal’ types of contracts.
2.4
Reasons For Variation Clauses
Variation clauses are inserted into nearly all construction contracts. Wallace
(1995)
28
pointed out that there are two principal reasons to insert variation clauses
into construction contracts.
28
I.N. Duncan Wallace Q.C., M.A. OXON. Hudson’s Building And Engineering Contracts. (1995),
p880.
22
In the first place, they give the owner the power to require a variation of the
work, unilaterally and as of right, as opposed to relying on the willingness of the
contractor to agree to the variation, which would otherwise enable the contractor to
exert unacceptable pricing or other pressures on the owner in return for his agreement
to carry out the variation.
In the second place, it has already been seen 29 that an architect has no implied
authority to contract on behalf of his employer. 30 In the absence of such a provision,
therefore, the contractor will not be able to recover payment for any additional or
varied work which he has done on the Architect/Engineer’s instructions, unless he can
show a separate contract with the owner that he should do it and be paid for it (as, for
example, where the owner knows of the architect’s instruction and does not
countermand it, provided that it is realized or ought to be realized by the owner that a
change of price is intended or probable as a consequence of the instruction).31 With
such a provision the contractor, provided he complies with any requirements of form,
is protected from any denial by the owner of the Architect/Engineer’s authority to
order the variation.
Wallace added further that a third and subsidiary reason for variation clauses
is that they enable the parties to agree in advance on the basis for valuing and pricing
the varied work.
Meanwhile, Prof. Haji Hashim Sikan (1999), having the same meaning as the
first reason pointed out by Wallace (1995) above, stated a good example to the point:
29
Ibid, Chap. 2, paras. 2.061-2.063. See, however, the case of Carlton Contractors v. Bexley
Corporation there referred to, in which a local authority’s salaried architect was held to have implied
authority to contract.
30
See, e.g. he case of Ashwell and Nesbit v. Allen (1912), Hudson, Building Contracts (4th edn.), Vol.
2, p. 462, illustrated ante, Chap. 6, para. 6.016.
31
See, e.g. Re Chittick and Taylor (1954) 12 W.W.R. 653, Canada, referred to infra, para 7.072.
23
“Imagine what would be the situation in the construction work if there is no
built-in provision in the contract that allows changes or variations to be made?
The work cannot accommodate the new idea on the aesthetic qualities and
consequently the design and the appearance of the project remain the same as
the original. The designer cannot make adjustment to his structural design to
suit the actual conditions found on site. As a result the project will have to be
aborted because the ground conditions do not permit the work to proceed if
amendments to the original structural design cannot be carried out. As for the
statutory regulations the work would proceed in accordance with the original
design but the possibility that the work being ordered to stop, the owner being
fined or the building will not be allowed to be occupied when completed. (no
Certificate of Fitness) is great. This is all because the construction work
cannot comply with the recently amended or newly introduced bye-laws.” 32
2.5
Types of Variation
The most popular categorization preferred by most practitioners is to classify
the variations according to the nature of the change itself.
Harbans Singh (2003) 33 stated that variations or changes can be classified
according to three different criteria, namely the identity of the initiator; the nature of
the variation; and the consequences/effects of the variation.
While under the
classification per nature, there are three main types of variation and these could be
summarized as follows:
32
Prof. Haji Hashim Sikan. Salient Points On Contract Administration Of Building And Civil
Engineering Works (Local Practice). (1999). p52.
33
Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – PostCommencement Practice. (2003), p447 & p448.
24
•
Additions
Additions or Additional Variations are also labeled as ‘Extra Work’… the
instant type of variations involves an increase in the:
•
•
Quantity of the works; and/or
•
Quality of the works; and/or
•
Scope of the works; and/or
•
Nature of the works.
Omissions
Generally, an ‘omission’ involves a decrease in:
•
Quantity of the works; and/or
•
Quality of the works; and/or
•
Scope of the works; and/or
•
Nature of the works.
25
•
Hybrid.
Despite the apparently clear terminological and definitive demarcations
between ‘additions’ and ‘omissions’, the dividing line between variations
actually undertaken in real life is not that clear cut. There is seldom, if
ever, a pure ‘addition’ or ‘omission’. In most cases, there is a mixture of
the two, i.e. ‘omission and addition’ or ‘addition and omission’; thereby
giving rise to the so-called ‘hybrid’ variations or changes.
2.6
Factors Determining A Valid Variation Order
A variation must be valid in order to be tenable at law. Unless a variation
meets the validity test, the contractual consequences ensuing thereof cannot arise and
accordingly cannot be enforced.
Chow (2004) 34 identifies two main factors determining the validity of a
variation order, namely:
1. The formalities governing the change:
a. Issue of the variation order by the designated person
b. The applicable procedural requirements.
34
Chow Kok Fong. Law and Practice of Construction Contracts (3rd Ed.). (2004), p179.
26
2. The legal nature of the proposed change:
a. Contract conditions governing variations
b. The common law rules governing the scope of change
Harbans Singh (2003) 35 , quoting the same factors as later identified by Chow
(2004), illustrated them in the greater depth. It could be summarized as below:
(1a)
Issue of the variation order by the designated person
For a variation order to be upheld as contractually valid, one of the main
requirements is that it must be issued by the person empowered under the
contract to effect the same. Such a body or person might be:
•
The employer himself; or
•
The contract administrator; or
•
Any other body or person designated in the contract or authorized
expressly under the contract.
35
Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – PostCommencement Practice. (2003), p457.
27
(1b)
The applicable procedural requirements
A primary factor in ensuing the validity of a variation order issued by the
contract administrator is the satisfaction of the relevant procedural
requirements prescribed in the contract pertaining to the same. It can be
gleaned from the various express contractual provisions considered
previously, most contracts require such orders to be in the form of written
instructions.
(2a)
Contract conditions governing variations
It is settled law that a contractual valid variation order can only be issued if
there is a term or clause in the contract permitting the same and strictly in
accordance with this term. Should there be no such term or that the provisions
of an existing term be not complied with, any variation thereupon issued may,
for all intents and purposes, be invalid and therefore unenforceable.
(2b)
The common law rules governing the scope of change
Notwithstanding the presence of and the satisfaction of the express contractual
provisions governing the subject of variation orders, the parties to a typical
contract in implementing such changes must be mindful of and comply with
the applicable common law rules e.g.:
28
•
Works which are indispensably necessary to give effect to the intention of
the parties when they enter into the contract are not additional works or
variations. 36
•
Extras are works which are not contemplated by the parties at the time of
the execution of the contract and are not provided for. 37
•
If work is included in the original contract sum the contractor must carry it
out and cannot recover extra payment for it, although he may not have
thought at the time of entering into the contract that it would be necessary
for the completion of the contract. 38
•
In the absence of express provisions to the contrary, the following rules as
laid down in the Canadian case Re Chittick & Taylor may be of some
guidance:
(a) An item specifically provided for in the contract is not an ‘extra’ or
‘variation’;
(b) If the contractor supplied material of a better quality than the
minimum quality necessary for the fulfillment of the contract without
any express or implied instruction from the principal to do so, he was
not entitled to charge the extra cost as an ‘extra’ or ‘variation’; and
36
Russel v Sa Da Bandiera (Viscount) (1862) 13 cBNS 149; 32 LTCP 68; 7 LT 804.
Barter v Lord Mayor of Melbourne (1870) 1 AJR 160.
38
Sharpe v San Paulo Railway (1873) LR 8 Ch App 597.
37
29
(c) If the contractor did work, or supplied materials, not called for by the
contract documents (plans or specifications) without any expressed or
implied instruction from the principal or the consent of the principal,
he was not entitled to charge for this additional works or materials as
an ‘extra’ or ‘variation’.
Other areas of the variation process where the relevant common law rules have
to be observed include:
•
Invalid omission
A meticulous study of the various express provisions contained in the standard
forms of contract reveals that the designated person, i.e. the contract
administrator is empowered to order not only additional work but also work to
be omitted with the consequent adjustment of the contract price.
Notwithstanding the conferment of such power on the designated person, it
certainly is not a ‘carte blanche’ for him to carry out omissions
indiscriminately; there being a limit in practice for such a variation. Such a
limit may be either agreed upon by the parties expressly in the contract, e.g. up
to twenty percent of the Contract Price or may be implied from the various
judicial decisions that have been expounded pertaining to the said matter.
Where the exercise of the power of omission has been misused for improper
purposes, an omission undertaken thereupon has been conveniently labeled as
an ‘invalid omission’.
Such omission, being not a ‘genuine’ omission
involves situations where the omission has been carried out with the object of
giving it to a third party, e.g. another contractor perhaps at a cheaper price:
Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273.
30
•
‘Cardinal’ changes
The general rule as to the employer’s or the contract administrator’s power to
vary the work through the issuance of a variation order is that it is valid only if
it falls within the general scope of the works reached ‘consensus ad idem’ of
the parties at the time of contracting. Should the scope of the variation order
be ‘materially in excess’ of the agreed sum or ‘fundamentally changes’ the
nature of the works, prima facie, such a variation order would be contractually
invalid: Sir Lindsay Parkinson & Co Ltd v Commissioners of His Majesty’s
Works & Public Buildings [1950] 1 All ER 208. These changes have been
labeled as ‘Cardinal Changes’ in the United States of America, i.e. changes to
the works which are substantially different from that which would be expected
from the intended exercise of the variation provisions. 39
•
Recovery without written variation orders
As pointed out by Chin (1988), 40 who commented that instruction to vary and
compliances of the same were invariably seldom recorded by parties involved
(i.e. employer and contractor) and it is only when the contract has neared an
end or when their relationship is soured up, that the contractor is making a
host of claims under variations.
In certain circumstances, the courts have permitted recovery by the contractors
without written variation orders. In this instance, the courts are prepared to
impute and implied promise by the employer to pay, which has not been
ordered in accordance with the formalities stipulated in the contract. Such
instances are:
39
Chow Kok Fong, Law and Practice of Construction Contract Claims (2nd Edn) at p77.
W.Y. Chin. Contracts Administration And/Or Contractual Claims – An Architect’s viewpoint.
Seminar on Construction Management & Contractual Claims (1988: Kuala Lumpur).
40
31
•
Most standard conditions of contract forms require that any variation order
should be effected in writing.
Where a written variation order is a
condition precedent to the contractor’s right for additional payment, the
contractor can nevertheless recover without an order in writing if the
additional work is outside the scope of contract.
Thorn v London
Corporation (1987).
•
Where the condition precedent requiring an order in writing has been
expressly or impliedly waived but something more than mere oral
instructions is necessary to achieve this effect. Franklin v Drake (1826) 6
L.T. 291.
•
Where the employer is proved to have done some act suggesting that he is
waiving the condition precedent and which has the effect of leading the
contractor reasonably to believe that the strict legal rights will not be
insisted on. Molloy v Liebe (1910) 102 LT 616; Richards v Oppenhaim
(1950) 1 KB 616, 626.
•
The contractor has the right for additional payment where there has been
an improper refusal to give an order in writing.
Brodie v Cardiff
Corporation (1919) A.C. 337 H.L.
•
The contractor has the right for additional payment where a final or
conclusive certificate includes the additional work. Goodyear v Weymouth
and Melcombe Regis Corporation (1865) 35 L.J.C.P. 12; Laidlaw v
Hastings Pier Co. (1974).
32
It is important to note that the Contract Administrator is not considered to
possess the required power to waive a term of the contract requiring extras to
be ordered in writing. As such, the waiver of the condition of contract would
have to be effected, in most cases, by the employer himself. Tarverner & Co.
Ltd. V Glamorgan County Council (1940) 57 TLR.
2.7
Conclusion
From the literature review above, it can be concluded that even though the
standard forms of construction contract have clear definitions on what is a variation,
the variation clauses are somehow or rather subject to the judicial interpretations
under common law. Therefore, analysis on the common law cases in relation to
definition of variation will be essential and will be done in the later part of this study.
Meanwhile, comparison of the clauses on definition of variation will be made among
the three most commonly used standard forms of contract in Malaysia namely PAM
98 Form, PWD Form 203A (Rev. 10/83) and CIDB 2000 Form to enhance the
understanding of the proviso of the said variation clauses.
33
CHAPTER 3
PROVISION OF DEFINITION OF VARIATION
AND RULES FOR VALUATION OF VARIATION
IN LOCAL FORMS OF CONSTRUCTION CONTRACT
3.1
Introduction
The most commonly used construction contracts in Malaysia in the past two
decades are the local standard forms of contract, the choice of which is mainly
between PWD 203A (Rev. 10/83) issued by the Public Works Department, commonly
used for public sector projects and the PAM 98 Form, issued by the “Pertubuhan
Arkitek Malaysia”, widely used by the private sector. The other standard forms, not
so commonly used, are the Institute of Engineer Malaysia’s standard forms of contract
for civil engineering works and mechanical engineering works. In the year 2000 then,
it emerged the CIDB Form 2000, issued by the Construction Industry Development
Board (CIDB) in September 2002, which is quite new for the industry and have yet to
gain the popularity.
Due to the rapid expansion of the construction industry in Malaysia over the
past twenty years and the large numbers of major infrastructure works, there has been
an increased use of international standard forms like the FIDIC contracts, ICE
34
contracts and the JCT contracts with necessary modifications to suit local
arrangements. This recourse to UK standard forms is largely due to the lack of
development to the local standard forms and the absence of local provisions suited for
specific procurement systems such as “cost reimbursement” contracts and turnkey
packages. Another factor is the increase in foreign participation and expertise in the
construction industry and their lack of familiarity with local standard forms.
This chapter examines the detailed provision of variation clauses in relation to
‘definition of variation’ and ‘valuation of variation’ of the most commonly used local
standard forms, i.e. PAM 98 Form, PWD 203A (Rev. 10/83) and CIDB Form 2000
only.
3.2
Definition of Variation
The main reason for the provision of variation clauses in the contract is
summed up by Eggleston (2001) as “In the absence of an express provision in the
contract giving the employer the power to order variations, the contractor is not
obliged to undertake them. The contractor’s general obligation is merely to complete
the work specified in the contract and such work as can reasonably be inferred for
completion.” 41 Thus, most if not all standard forms of building and construction
contract provide for the variation clauses and primarily ‘definition of variation’.
41
Brian Eggleston. The ICE Design and Construction Contract: A Commentary. Blackwell Science Ltd
(2001). p.292.
35
3.2.1
Provision of Definition of Variation in PAM 98 Form
Sundra Rajoo (1999) has made detailed examination on the clauses in PAM 98
Form of Contract. His comment for Definition of Variation under Clause 11.1 of the
PAM 98 Form is precise and straight forward. He started his comment on Clause
11.1 saying that “Clause 11.1 contains a definition of ‘variation’ for the purposes of
the contract. It is the restatement of Clause 11(2) of the PAM/ISM 1969 Form with
two additional provisions, namely Clause 11.1(v) and 11.1(vi). The definition gives
the architect a wide right under the PAM 1998 Form to issue variation instructions.
However, the inclusion of these two new provisions defines and limits the architect’s
power as regards to variations.
The right of the architect to issue variation
instructions is not absolute, nor can he assume that employer has given him absolute
authority to use what power he has been given under the contract.” 42
‘Definition of Variation’ of the PAM 98 Form covers five main areas. Clause
11.1(i) to (v) intend a tangible change in the works whereas Clause 11.1(vi) excludes
any default and/or breach of contract by the contractor from being a variation.
Clause 11.1 of the PAM 98 Form reads:
11.1 Definition of Variation
The term ‘Variation’ as used in these Conditions means:
11.1 (i)
alteration or modification of the design, quality or quantity of the
Works as shown in the Contract Drawings and described by or
referred to in the Contract Bills.
11.1 (ii)
the addition, omission or substitution of any work.
11.1 (iii) the alteration of the kind or standard of any material or goods to be
used in the work.
42
Sundra Rajoo. The Malaysian Standard Form of Building Contract (The PAM 1998 Form) 2nd
Edition. Malayan Law Journal Sdn Bhd 1999. p114.
36
11.1 (iv) 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.
11.1 (v)
the addition, alteration, or omission of any expressed obligation or
restrictions imposed by the Employer under the Conditions of
Contract with regards to any limitation of working hours, working
space, or access to or utilization of any part of the site or the
execution and completion of the work in any specific order.
11.1 (vi) For the avoidance of doubt the term ‘Variation’ shall include any
changes as aforesaid which may be designed to alter the ultimate
use to which the Works will be put or changes in the obligations
and/or restrictions which may be imposed on the Contractor’s
methods of working, but shall exclude any instruction which has
arisen due or is necessitated by or is intended to cure any default of
and/or breach of contract by the Contractor.
Clause 11.1(v) relates to changes in obligations or restrictions imposed by the
employer in the contract with regards to matters connected with the manner the
Works is constructed.
It sets out situations where the employer may affect the
contractor’s activity under the contract on the site. These matters may overlap to
some extent. For example, access or use of parts of the site may be inseparable from
limitations of working space. Again working space may be restricted only at certain
times of day, say to allow passage of the employer’s employees or plant, effectively
causing a restriction of working hours at those times. The first three situations,
namely ‘limitation of working hours, working space or access to or utilization of any
specific part of the site’, all affect the contractor’s Works programme negatively by
setting bounds to his activities. The last situation namely, ‘execution and completion
of the work in specific order’ may overlap with the earlier three situations. 43
43
Ibid. pg117.
37
Clause 11.1(vi) states that it is variation to alter ultimate use or change the
contractor’s methods of working. It excludes any instruction necessitated by or to
cure any default of or breach of contract by the contractor. This provision arrests the
problem such as that arose in Simplex Concrete Piles Ltd v St Pancras Borough
Council (1958) 14 BLR 80. A pile driving specialist proposed RC piles. The test
piles failed. They then proposed bored piles and wrote to the architect seeking his
‘instructions and views as to the extra cost which will be involved’. The architect
accepted the proposal with further conditions. It was held that the architect’s letter
was an instruction for a variation to use bored piles. The contractor was entitled to be
paid extra despite the contractor conceding that, but for the work sanctioned by the
architect’s letter, he would have been in breach of contract. 44
3.2.2
Provision of Definition of Variation in PWD 203A Form
PWD 203A (Rev. 10/83) Form of Contract defines variation under Clause
24(b).
Clause 24(b) reads:
The term “variation” means the alteration or modification of the design,
quality or quantity of the Works as shown upon the Contract Drawings, Bills
of Quantities and/or Specifications, and includes the addition, omission or
substitution of any work, the alteration of the kind or standard or any of the
materials or goods to be used in the Works and the removal from the Site of
any work, materials or goods executed or brought thereon by the Contractor
44
Ibid.
38
for the purposes of the Works other than work, materials or goods which are
not in accordance with this Contract.
3.2.3
Provision of Definition of Variation in CIDB Form 2000
CIDB Form of Contract 2000 defines variation under Clause 1.1 which is the
general provision clause for definitions for all contractual terms.
Clause 1.1, under the definition for variation, reads:
any change in the original Contract intention as deduced from the Contract
Documents as a whole describing or defining the Works to be carried out and
shall include but is not restricted to:
(a)
an increase and/or decrease in the quantity of any part of the Works;
(b)
an addition to or omission from the Works (but not if the omitted work is
to be carried out by the Employer or by another contractor),;
(c)
a change in the character, quality and/or nature of any part of the Works;
(d)
a change in the levels, elevations, layout and dimensions of any part of
the Works;
(e)
the demolition of or removal of any part of the Works, Equipment,
materials or goods no longer desired by the Employer or the
Superintending Officer;
(f)
a change in the Contractor’s Temporary Work and/or method of working
and/or Construction Plant imposed by the Employer or the
Superintending Officer;
(g)
the postponement of any part of the Works desired by the Employer;
and/or
39
(h)
a requirement to complete the Works or any part or section of the Works
by a date earlier than the relevant Time for Completion desired by the
Employer.
For the avoidance of doubt the term “Variation” shall include changes which
may be intended to alter the use to which the Works will be put, but shall
exclude any instruction which has arisen due to or is necessitated by or
intended to cure any default of or breach of contract by the Contractor.
3.2.4
Comparison of Provisions for ‘Definition of Variation’ in the Local
Standard Forms of Contract
PAM 98 Form provides for ‘definition of variation’ under Clause 11.1(i) to
(vi); while PWD 203A Form defines variation all under a single sub-clause 24(b);
whereas CIDB Form 2000 includes definition of variation under Clause 1.1
(variation), sub-clause (a) to (h).
Table 3.1 shows the comparison of ‘Definition of Variation’ as provided for in
the three local standard forms of contract mentioned above, of which the PAM 98
Form is taken as the basis for comparison.
Clause 11.1(i)
Both PAM 98 Form and PWD 203A Form have quite the similar wordings
where Clause 11.1(i) of PAM 98 Form reads “alteration or modification of the
design, quality or quantity of the Works as shown in the Contract Drawings
40
and described by or referred to in the Contract Bills.” Whereas PWD 203A
Form has included one extra document out of the ‘Contract Drawings and
Contract Bills’, which is the ‘Specifications’. On the other hand, there are
three sub-clauses of the CIDB Form 2000 Clause 1.1 which resemble the
PAM 98 Form Clause 11.1(i), namely (a) an increase and/or decrease in the
quantity of any part of the Works; (c) a change in the character, quality and/or
nature of any part of the Works; and (d) a change in the levels, elevations,
layout and dimensions of any part of the Works.
Clause 11.1(ii)
Part of the PWD 203A Form Clause 24(b) is exactly the same as Clause
11.1(ii) of the PAM 98 Form, where they both read as “the addition, omission
or substitution of any work.” However, the CIDB Form 2000 Clause 1.1
(variation) (b), similar to that which reads “an addition to or omission from the
Works” but with the further wordings “but not if the omitted work is to be
carried out by the Employer or by another contractor.” The CIDB Form
intends to include the rule of common law.
Clause 11.1(iii)
Part of the PWD 203A Form Clause 24(b) is almost the same as Clause
11.1(ii) of the PAM 98 Form which reads “the alteration of the kind or
standard of any material or goods to be used in the work”, except in PWD
203A Form Clause 24(b) the words ‘of any’ after ‘the alteration of the kind or
standard’ is replaced by the word ‘or’. And there is no similar provision in the
CIDB Form 2000.
41
Clause 11.1(iv)
Although the wordings are of a little difference, part of the PWD 203A Form
Clause 24(b) is having the exact meaning as Clause 11.1(ii) of the PAM 98
Form which reads “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.” The similar clause of CIDB Form 2000 to this is the sub-clause
(e) of Clause 1.1, where it adds a word ‘demolition’ before the removal and
‘Equipment’ to the ‘work executed…’ and ‘no longer desired by the
Employer/S.O.’ in lieu of ‘brought thereon by the Contractor… .’
Clause 11.1(v)
This sub-clause of PAM 98 Form expresses the ‘extra requirements’ imposed
by the Employer as variations. It reads “the addition, alteration, or omission
of any expressed obligation or restrictions imposed by the Employer under the
Conditions of Contract with regards to any limitation of working hours,
working space, or access to or utilization of any part of the site or the
execution and completion of the work in any specific order.”
There is no provision for this aspect under PWD 203A Form.
Unlike PAM 98 Form, CIDB Form 2000 divides the ‘extra requirements’
imposed by the Employer as variations under three separate sub-clauses (f) to
(h). Sub-clause (f) allows for “a change in the Contractor’s Temporary Work
and/or method of working and/or Construction Plant imposed by the
Employer/S.O.” as a variation. Sub-clause (g) allows for “the postponement
of any part of the Works desired by the Employer” as a variation, and sub-
42
clause (h), “a requirement to complete the Works or any part or section of the
Works by a date earlier than the relevant Time for Completion desired by the
Employer.”
Clause 11.1(vi)
The last paragraph of definition of variation under Clause 1.1 of CIDB Form
2000 closely resembles Clause 11.1(vi) of PAM 98 Form, even though there is
minor difference in the wordings in the first part of the text. The important
fact is that both the forms of contract intend to exclude “changes which has
arisen due or is necessitated by or is intended to cure any default of and/or
breach of contract by the Contractor.”
Similar to Clause 11.1(v), again there is no provision for this aspect under
PWD 203A Form.
43
PAM 98 (Clause 11.1)
(i)
PWD 203A (Clause 24(b))
alteration/modification of the
design/quality/quantity of the
Works ‘as shown in the
Contract Drawings’/‘described
by/referred to in the Contract
Bills’.
-
(ii)
The addition/omission/substitution
of any work.
-
the addition/omission/substitution
of any work.
(iii)
The alteration of the
kind/standard of any
material/goods to be used in the
work.
The removal from site of ‘any
work executed’/‘materials/goods
brought thereon for the purposes
of the Works’.
-
the alteration of the kind/
standard/‘any of the material/
goods to be used in the work’.
(iv)
alteration/modification of the
design/quality/quantity of the
Works as shown upon the
Contract Drawings/Bills of
Quantities/Specifications..
CIDB 2000 (Clause 1.1-Variation)
(a)
(c)
(d)
-
the removal from the site of ‘any
works’/‘materials/goods
executed/brought thereon for the
purposes of the Works’.
(b)
an increase and/or decrease in the
quantity of any part of the
Works.
a change in the character/quality/
nature of any part of the Works.
a change in the levels/elevations/
layout/dimensions of any part of
the Works.
addition to/omission from the
Works (but not if the omitted
work is to be carried out by the
Employer or by another
contractor).
-
(e)
the demolition/removal of any part
of the Works/Equipment/
materials/goods no longer desired
by the Employer/S.O.
Table 3.1: Comparison of Provisions for ‘Definition of Variation’ in the Local Standard Forms of Contract
44
PAM 98 (Clause 11.1)
(v)
(vi)
the addition/alteration/omission
of any expressed
obligation/restrictions imposed
by the Employer regarding any
limitation of ‘working
hours’/‘working space’/‘access
to/utilisation of any part of the
site’/‘the execution and
completion of the work in any
specific order’.
The term ‘Variation’ shall
- include ‘any changes as
aforesaid ….
- exclude any instruction which
has arisen due/is necessitated
by/is intended to cure any
default/breach of contract by the
Contractor.
PWD 203A (Clause 24)
CIDB 2000 (Clause 1.1-Variation)
(f)
(g)
(h)
-
change in the Contractor’s
Temporary Works/method of
working/Construction Plant
imposed by the Employer/S.O.
the postponement of any part of
the Works desired by the
Employer.
a requirement to complete the
Works/any part/section of the
Works by a date earlier than the
relevant Time for Completion
desired by the Employer.
The term ‘Variation’ shall
- include changes which
may be intended to alter the
use to which the Works will
be put,
- exclude any instruction
which has arisen due/is
necessitated by/is intended to
cure any default/breach of
contract by the Contractor.
Table 3.1: Comparison of Provisions for ‘Definition of Variation’ in the Local Standard Forms of Contract (Cont’d)
45
3.3
Rules for Valuation of Variation
Reeves (2002): “Because the power to instruct variations under most forms
of contract is very wide, the provisions included to value them must be drafted to
deal with the range of potential variations which may result. Rules for the valuation
of variations are therefore usually found to be in fairly general terms and open to
some interpretation and judgment as a result. Standard forms of contract express
these rules in somewhat different terms with the result that a variation may be
valued differently depending on the contract being used.” 45
3.3.1
Provision of Rules for Valuation of Variation in PAM 98 Form
Clause 11.5 of the PAM 98 Form reads:
11.5
Rules for Valuation of Variation
The valuation of Variations and of work executed by the Contractor for
which a provisional sum is included in the Contract Bills (other than for
work for which a tender had been accepted under Clause 27.8 46 ) shall, unless
otherwise agreed, be made in accordance with the following rules:
11.5 (i)
the prices in the Contract Bills shall determine the valuation of
work of similar character executed under similar conditions as
work priced therein.
11.5 (ii)
where work is of similar character to work included in the
Contract Bills but may not be executed under similar conditions
the rates in the Contract Bills shall, as far as may be reasonable,
45
Kevin Reeves. Valuing Variations – Read The Small Print. JUBM-Construction News and Views,
Issue 3/2002, p5.
46
Clause 27.8: Contractor Shall Be Permitted to Tender for PC Sums
46
be the basis for valuation, which shall include a fair allowance for
the difference in conditions.
11.5 (iii) Where work cannot be properly measured and valued the
Contractor shall be allowed day work rates at the prices
prevailing as far as may be reasonably ascertained at the time that
such work is carried out or at the day work rates stated in the
Contract Bills or if no such rates are included at the actual prime
cost to the Contractor of his materials, transport and labour for the
work concerned plus fifteen percent (15%), which percentage
shall include of the use of all ordinary plant, tools and
scaffolding, supervision, overheads and profit. Provided that in
any case vouchers specifying the time spent daily upon the work,
the workers’ names, the plant and the materials employed shall be
delivered for verification to the Architect or to the Quantity
Surveyor as instructed by the Architect not later than seven (7)
days after the work had been completed.
11.5 (iv) The prices in the Contract Bills shall determine the valuation of
item omitted. If omissions substantially vary the conditions under
which any remaining items of work are carried out, the prices of
such remaining items shall be valued under sub-clause 11.5 (ii).
11.5 (v)
Effect shall be given to measurement and valuation of all
Variations in Interim Certificates and by adjustment of the
Contract Sum.
Same as for Definition of Variation, Sundra Rajoo (1999) has also made
detailed and precise examination on the clauses of Valuation of Variation. His
review of the clauses are as follows 47 :
Clause 11.5 provides for the rules for valuation to be only applicable to
variations as defined by Cluase 11.1, and to any contractor’s work ordered
47
Sundra Rajoo. The Malaysian Standard Form of Building Contract (The PAM 1998 Form) 2nd
Edition. Malayan Law Journal Sdn Bhd 1999. p121&122.
47
by the architect when issuing instructions on the expenditure of provisional
sums. The rules apply ‘unless otherwise agreed’ between the employer and
the contractor. The phrase ‘unless otherwise agreed’ had occasionally been
interpreted to mean ‘agreed by or with the architect or the quantity surveyor’.
But this view was decisively rejected by the court in John Laing
Construction Ltd v County and District Properties Ltd (1982) 23 BLR 1 for
reasons which are entirely convincing. The words actually mean ‘agreed
between the contracting parties’ although employer may give the architect or
quantity surveyor express authority to make such an agreement.
Clause 11.5 sets out four methods of valuation based on the conditions and
character of the variations. These can be termed as ‘rules’ of valuation under
the PAM 98 Form.
Rule 1 says that the prices in the Contract Bills shall determine the valuation
of work of similar character executed under similar conditions (Clause
11.5(i)). The word ‘similar’ should be interpreted to mean ‘of a like nature’
and not taken to mean ‘identical’. The character of an item is that of the
description given in the Contract Bills. An item is not of a similar character
if it is required to be measured or described differently. Just because an item
of work is different in character does not itself mean that the contract rates
set out should not be applied for the work. The item must not only be
different in character but be required to be measured and/or described
differently on account of the variation. Similar conditions under which the
work will be executed, for example, similar site and weather conditions,
must also be ascertained.
Rule 2 says that where the work is of a similar character but not executed
under similar conditions, the Contract Bill rates and prices ‘so far as may be
reasonable’ shall be used with a fair allowance for the difference in
48
conditions. The Bill rates and prices provide the starting point (Clause
11.5(ii)).
Rule 3 applies where work cannot be properly measured and valued. Unless
otherwise provided in the Contract Bills, the contractor will be allowed daywork rates on the prices prevailing when the work is carried out. This is to
be done at the rates (if any) which the contractor has put in the Contract Bills
or Form of Tender. If no rates have been so inserted, the actual prime cost to
the contractor of his materials, transport and labour for the work concerned,
plus 15 percent will be taken into account. The percentage added is inclusive
of the use of all ordinary plant, tools, scaffolding, supervision, overheads and
profit. The provision makes it clear that in both cases day-work vouchers
must be produced for verification not later than seven days after the work has
been completed (Clause 11.5(iii)).
Rule 4 deals with omitted work. The Bill prices determine the valuation of
the omitted work.
However, if the omission substantially changes the
conditions under which any remaining items of work are carried out the
prices of the remaining items are ascertained in accordance with Rule 2
(Clause 11.5(iv)).
Clause 11.5(v) provides for the cost of variations so valued to be included in
Interim Certificates and the Contract Sum to be adjusted accordingly.
49
3.3.2
Provision of Rules for Valuation of Variation in PWD 203A Form
PWD 203A (Rev. 10/83) Form of Contract lists down rules for valuation of
variation under Clause 25(b).
Clause 25(b) reads:
25. MEASUREMENT AND VALUATION OF WORKS INCLUDING
VARIATIONS
(b) Unless where the quantities of the Works or any part thereof are stated
as “provisional” in the Bills of Quantities such quantities are conclusive
and not subject to remeasurement.
For purposes of valuation of
variations in respect of the said Works or part thereof where the
quantities are conclusive, unless previously or otherwise agreed, such
valuation shall be made in accordance with the following rules:
(i)
The rates in the Bills of Quantities after adjustment if necessary as
provided in Clause 24(c) 26(d) hereof, shall determine the
valuation of work of similar character and executed under similar
conditions as work priced therein;
(ii) The said rates, where work is not of similar character or executed
under similar conditions as aforesaid, shall be the basis of rates for
the same, so far as may be reasonable, failing which a fair
valuation thereof shall be made by the SO;
(iii) The rates in the Bills of Quantities shall determine the valuation of
items omitted, provided that if the omission substantially vary the
conditions under which any remaining items of work are carried
50
out, the rates of such remaining items shall be valued under rule
(ii) of this sub-clause.
(c) Where the quantities of the Works or any part thereof are stated as
“provisional” in the Bills of Quantities the amount to be paid to the
Contractor in respect of the said Works or part thereof upon the
completion of this Contract shall be ascertained by remeasurement and
valuation of the Works including any variation authorized or
subsequently confirmed by the SO in writing under Clause 24 thereof,
as they are actually executed. The valuation of such remeasured works
including any variation shall be in accordance with rules (i) and (ii) of
sub-clause (b) above.
(d) Where work cannot properly be measured or valued the Contractor shall
be allowed day-work price, plus fifteen percent, which shall include for
the cost of all ordinary plant, tools, scaffolding, 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 to the SO not exceeding seven(7) days after the work shall have
been done. Unless otherwise provided in the Bills of Quantities the
day-work 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.
(e) The SO shall when he requires any part or parts of the Works to be
measured give reasonable notice to the Contractor who shall attend or
send a qualified agent to assist the SO or SO’s Representative in making
such measurement and shall furnish all particulars required by the SO.
Should the Contractor not attend or neglect or omit to send such agent
then the measurement made by the SO or approved by him shall be
taken to be the correct measurement of the work. The Contractor shall
be supplied with a copy of the measured bill in respect of the said part
or parts of the Works.
51
(f)
The amount to be allowed in respect of variations, as ascertained under
the provisions of this Condition shall be added to or deducted from the
Contract Sum as the case may be.
Lim (2004) 48 when commenting on Clause 25(b) of the PWD 203A Form
pointed out that:
Clause 25(b) serves two (2) important functions. Firstly it provides that the
quantities in the Bills of Quantities are conclusive, unless provided therein as
provisional. The Bills of Quantities are not subject to remeasurement other
than for those items stated as provisional. Consequently, the Contractor will
not be able to recover the difference if the actual quantities of work as-built
are in excess of those provided in the Bills of Quantities (see Coker v Yound
[1860] 2 F&F 98), nor the Government if the actual quantities are less than
those in the Bills of Quantities (see London Steam Stone Saw Mills v Lorden
[1900] HBC 4the edn, vol 2, p 301). In this regard, it should be noted
particularly by the Contractor that this is a departure from the normal and
traditional understanding that the Contractor does not in a Bills of Quantities
contract assume the risk of any error in the quantity provided by the
employer.
Secondly, the clause sets out the rules for the valuation of variations ordered
in accordance with clause 24. The rules for valuation apply unless the
valuation has been otherwise agreed between the Contractor and the
Government.
In John Laing Construction Ltd v County and District
Properties Ltd (1982) 23 BLR 10, it was held that the phrase “unless
otherwise agreed” was confined to agreement between the contracting parties
although the employer may give his quantity surveyor express authority to
make such an agreement. In this regard, it is common of many contractors to
48
Lim Chong Fong. The Malaysian PWD Form of Construction Contract. Sweet & Maxwell Asia
2004.
52
submit a quotation each time a variation instruction is issued. However,
unless the Government (or the Superintending Officer with the
Government’s express authority) has accepted the Contractor’s quotation, the
variation rules in this sub-clause would apply. The Contractor cannot refuse
to comply with the instruction for want of acceptance of the quotation.
The variation rules are set out in the order of application as follows:
(i)
The rates in the Bills of Quantities after rationalization (see clause
26(d) by virtue of the Addendum and not 24(e)) shall determine the
valuation of work of similar character executed under similar
conditions.
(ii) Where the work is not of similar character, or is executed under
dissimilar conditions, or both, then the rates in the Bills of
Quantities shall be used so far as may be reasonable. The usual
differences in character are sizes and brands whilst the differing
conditions of work include height, confined space, accelerated
working, etc. If the bases of using the rates are inapplicable, a fair
valuation must be made, usually at fair market prices.
(iii) The rates in the Bills of Quantities shall similarly be used for
valuing omissions and if the conditions of executing the remaining
items of work substantially differ, then the rates of these remaining
items shall be valued in accordance with rule (ii).
(iv) Although not expressed in clause 25(b), but instead in clause 25(d),
where the work cannot be properly measured and valued, then the
Contractor is to be allowed day work price computed from rates
found in the Bills of Quantities or otherwise the actual nett costs is
incurred by the Contractor plus 15% profit and attendances. The
proviso thereto makes it clear that the day work vouchers must be
53
produced for verification not later than 7 days following that in
which the work is executed.
Clause 25(c) basically provides that the remeasurement of the items of work
in the Bills of Quantities which are stated as provisional would be
undertaken after the completion of the Contract….
The Superintending Officer is obliged under clause 25(e) to notify the
Contractor to attend to any measurement made for the purposes of this
clause. ….
By clause 25(f), it is stated that the Contract Sum shall be adjusted in respect
of variations valued under this clause.
3.3.3
Provision of Rules for Valuation of Variation in CIDB Form 2000
CIDB Form of Contract 2000 sets out Valuation Methods for variation under
Clause 29.1, which reads:
All Variations shall be valued in accordance with the following valuation
methods:
(a)
Where the varied work is of a similar character to, is executed under
similar conditions as, and does not significantly change the quantity of
the work described
in the Contract Documents, the Rates for the
Works as set out in the Contract shall be used for the valuation; or
54
(b)
Where the varied work is of a similar character to the work described in
the Contract Documents and/or is not executed under similar conditions
and/or involves significant changes in the quantity of such work
described in the Contract Documents, the Rates for the Works as set
out in the Contract shall be basis for the valuation but with a fair
allowance for any differences in conditions and/or changes in quantity;
or
(c)
Where paragraphs (a) and (b) above don not apply, then by valuation at
fair market rates and prices; or
(d)
Where none of the above methods is applicable or appropriate in the
circumstances of that particular varied work, the valuation shall be
based on Daywork rates and prices of necessary Plant, materials or
goods, labour and any additional Construction Plant necessary for the
execution of the varied work subject to the following:
(i)
As a condition precedent to any right to any payment under this
paragraph, the Contractor shall have received from the
Superintending Officer an instruction authorizing that the varied
work be executed on Daywork basis.
(ii) Unless otherwise specified the Contractor shall be entitled to
additional 15 per cent on the Daywork rates which percentage shall
be deemed to compensate adequately the Contractor in respect of
all supervision, the use of Construction Plant (except for additional
Construction Plant necessary for the execution of the varied work),
overheads, profit and all other loss, expense, costs or damages
incurred in or connected with the execution of the varied work.
(iii) The Contractor shall maintain proper daily records specifying the
time spent by each workman of the relevant trade (and if required
by the Superintending Officer, specifying the workmen’s names),
55
any Construction Plant employed and Equipment, materials or
goods used in the execution of the varied work.
(iv) Such records together with the relevant vouchers, delivery orders
or receipts shall be delivered to the Superintending Officer for
verification not later than 7 Days after the varied work shall have
been executed. In the case of continuing work, such records shall
be delivered to the Superintending Officer at weekly intervals for
verification with the final records delivered not later than 7 Days
after varied work shall have been completed.
(e)
The Rates for the Works as set out in the Contract shall be used for the
valuation of work omitted; provided that if the omission varies the
conditions under which any remaining work are carried out, the values
for such remaining work shall be determined in accordance with subclauses 29.1(b) or (c) or (d) as the case may be. For the avoidance of
doubt, the Contractor shall not be entitled to Loss and Expense for
omission of work unless such work is carried out by the Employer or
by another contractor.
3.3.4
Comparison of Provisions for ‘Rules for Valuation of Variation’ in the
Local Standard Forms of Contract
PAM 98 Form provides for ‘rules for valuation of variation’ under Clause
11.5(i) to (iii); while PWD 203A Form provides the rules under Clause 25; whereas
CIDB Form 2000 includes them under Clause 29.1(a) to (d).
The valuation rules of the three local forms of contract are summarised in
Table 3.2. From the table, observations made are:
56
(i)
Provision of the very first rule where contract rates are to be used,
where the nature of variation is having ‘similar character and executed
under similar conditions’ to the contract work, is the very typical
provision where all the three forms have inclusions for it. The CIDB
Form 2000 has additional wording which provides that rates may be
adjusted if the quantity is significantly changed.
(ii) The second rule which is also a common provision, which states that
“where the nature of variation is of ‘similar character but not executed
under similar conditions’ to the contract work, then contract rates shall
be the basis with a fair allowance for differences.” Both the PAM 98
Form and CIDB Form 2000 have the provision for this but surprisingly
the PWD 203A has done away with this rule.
(iii) The third rule is for the situation where the first and second valuation
rules do not apply. PAM 98 Form keeps silent on this, while PWD
203A Form says ‘contract rates to be the basis so far may be reasonable
failing which a fair valuation shall be made’ and CIDB Form 2000
suggests ‘valuation at fair market rates’.
(iv) The fourth rule seems to be the last resource for the valuation of
variation, where work cannot be properly measured or valued, then,
daywork rates shall be used. All the three forms have the provision for
this, and with the similar method of allowances though are drafted in
different wording.
(v) One peculiar happening is that all the three forms of contract are
without the provision of valuation method for circumstances where the
variation is ‘not with similar character and the conditions may or may
not be similar’, of which is provided in the PAM 69 Form. For the
57
PAM 98 Form especially, this is of significance if, for example, a
variation involves concrete in column of a different grade to that in the
contract. The ‘character’ is not similar so the contract rates cannot be
used and the only basis of valuation left would appear to be dayworks.
This cannot be the intention, particularly as the dayworks are stated to
apply only where ‘work cannot be properly measured and valued’, but
would seem to be the only method of valuing the works left.
In conclusion, by applying the rules for the valuation of variations under the
PAM 98 Form, PWD 203A Form and CIDB Form 2000 to any set of circumstances,
it can be seen that they may produce different results. For example, Reeves (2002) 49
expressed his point of view for ‘how similar is similar?” of the character or
condition of the works by pointing out that:
The typical PAM69/PAM98/CIDB2000 type provisions for “similar
character” and “similar conditions” are used in a lot of contracts but what
do they mean in practice?
The words “similar character” has tested construction commentators who
are in legal agreement that it does not mean “identical”, but fail to reach
consensus on the extent to which variation work needs to be similar for the
contract rates to apply unadjusted. This is not surprising as clearly an
element of judgment applies. However, on balance, I would suggest that
evaluation appears to fall into two stages. Firstly, the description for the
work should be the same, or at least subject to only very minor differences.
Secondly, the character of the work as shown on the drawings and other
contract documents would also have to be similar (even if the description is
the same) – brickwork in smaller areas or involving more complicated
setting out may be considered not to be similar.
49
Kevin Reeves. Valuing Variations – Read The Small Print. JUBM-Construction News and Views,
Issue 3/2002, p5
58
The term “similar conditions” is probably open to wider interpretation and
conditions which are not similar may be considered to include, for example,
work in a restricted space or in wet site conditions.
It is submitted that in PAM69/PAM98 “similar conditions” are to be
construed as relating in quite general terms to similar site and weather
conditions under which the contract and variation works are carried out.
CIDB 2000, however, refers to similar conditions as “described in the
Contract Documents”.
This gives a more restricted meaning in that
conditions may only be considered to be dissimilar where the variation work
is to be executed under conditions that are different to those which have been
expressly described in the Contract Documents.
You may find this a
surprising result, but it shows how a minor change in the wording can result
in a quite different interpretation.
Other than the above examples given pertaining the problem of different
interpretation on “similar character” and “similar conditions”, Reeves (2002) 50 also
pointed out some practical examples of the problems faced on “when are rates no
longer applicable?” and “when the contract rates no longer apply”.
Thus as advised by Reeves 51 , the lesson is simple, read the contract
carefully. It may not give the result you initially expected.
50
Kevin Reeves. Valuing Variations – Read The Small Print. JUBM-Construction News and Views,
Issue 3/2002, p6
51
Ibid.
59
Nature of Variation
(In order of
Application)
PAM 98 (Clause 11.5)
Similar character and
executed under similar
conditions.
Contract rates
(11.5(i))
Similar character but not
executed under similar
conditions.
Contract rates to be the basis so
far may be reasonable with a
fair allowance for differences
(11.5(ii))
If above valuation rules do
not apply.
If all else fails
Daywork rates where the work
cannot be properly measured
and valued
(11.5(iii))
PWD 203A (Clause 25)
Contract rates
(25(b)(i))
CIDB 2000 (Clause 29.1)
Contract rates (rates may be
adjusted if the quantity is
significantly changed*)
(29.1(a))
Contract rates to be the basis
with a fair allowance for
differences
(29.1(b))
Contract rates to be the basis so
far may be reasonable failing
which a fair valuation shall be
made (25(b)(ii))
Valuation at fair market rates
(29.1(c))
Daywork rates where work
cannot properly be measured or
valued
(25(d))
Daywork rates where none of
the above methods is applicable
or appropriate
(29.1(d))
Table 3.2: Comparison of Provisions for ‘Rules for Valuation of Variation’ in the Local Standard Forms of Contract
60
3.4
Conclusion
The table shows that contracts do not usually set any limit on the permissible
extent of variations. Thus, in practice, it is always difficult to decide whether a
departure from the contract works is a ‘variation’ or ‘new work’. Similarly, the
typical PAM 98/PWD 203A/CIDB 2000 forms of contract’s type provisions for
“similar character” and “similar conditions” are used in a lot of contracts but what do
they mean in practice? The words “similar character” have tested the construction
commentators who are in general agreement that it does not mean “identical”, but fail
to reach consensus on the extent to which variation work needs to be similar for the
contract rates to apply unadjusted. This is not surprising as clearly an element of
judgment applies.
The term “similar conditions” is probably open to wider
interpretation.
Due to the above scenario, it is essential to examine the decided court cases in
order to determine what constitute a variation in construction in legal perspective.
61
CHAPTER 4
VARIATION IN CONSTRUCTION
FROM LEGAL PERSPECTIVE
4.1
Introduction
This chapter analyses legal perspective of ‘what constitute a variation’ in
construction of the various court cases chosen in order to achieve the objective of this
project report. It is done mainly through documentary analysis of law journals and
law reports, e.g. Malayan Law Journal, Singapore Law Report, All England Report,
Canada Law Report, Building Law Report, Construction Law Report, etc.
62
4.2
Variation In Construction From Legal Perspective
After the literature review on ‘variation’ in Chapter 2 and Chapter 3, it is
learnt that even though that the contract conditions have been drafted effectively to
embrace all respects of the validity of a variation work, it will still be subject to
common law principles in governing the scope of change.
The analysis of the
selected court cases as follows show the perspectives of the court decision on what
constitute a variation in construction.
Perspective 1:
_____________________________________________________________________
(a)
Case Analysed
Sharpe v San Paulo Railway Company (1873) LR 8 Ch App 597
(b)
The Fact of the Case
In this case, J. Brunlees, the engineer of San Paulo Railway Company
(hereafter referred as the company) prepared a detailed statement of the nature and
quantities of the various works to be executed, and the materials to be provided on a
proposed railway, and submit the same to Messrs. Sharpe & Sons (hereafter referred
as the contractors). The contractors accordingly made a tender, offering to form and
complete the line of railway, and fixing prices to the different items of the statement,
which made the sum total amount to ₤1,850,000. On the 8th of February, 1860, the
63
contractors entered into a contract with the company, which was under the seal of the
company.
In 1862, a supplemental contract was made, by which the time was extended,
and the contractors acknowledged that they had then no claim for extra additional
works. On the 8th of April, 1864, a second supplemental contract was made, by which
after reciting that the contractors had claimed ₤98,000 for extra works, and altered
and additional works, and that the company denied their liability, and alleged that all
was to be covered by the contract sum of ₤1,745,000, and that this supplemental
contract was by way of final settlement of all differences between them; the company,
amongst other things, agreed to pay ₤30,000 in full discharge of all past, present and
future claims by the contractors against the company for all works, matters, and things
in connection with the railway, for which but for the now stating contract the
contractors might claim to be paid, on the ground of their being extra, or altered, or
additional works; and on these terms the contractor agreed to complete the whole
railway on or before the 1st of January, 1868. It was further agreed that if the railway
was completed before the 1st of July, 1866, the contractors should receive a graduated
bonus.
The contractors alleged that when the railway was partially completed it
became obvious that the proposed mode of conveying the traffic up and down a
mountain called the Serra was wholly inadequate. The engineer prepared new plans
and requested the contractors to construct the railway according to these plans; the
contractors objected as that the execution of these new plans would occasion the
excavation of earthworks greatly in access of the quantities specified.
Brunlees
assured the contractors that he would, as engineer, be able to effect considerable
savings in other parts of the railway. The contractors constructed the inclines on the
Serra in accordance with the new plans. During the progress of the works it became
apparent that the actual quantities of earthwork being done by the contractors were
greatly in excess of the quantities specified in the schedule. The contractors objected
and Brunlees agreed that if it should prove that the total quantity of earthwork was in
excess the contractors should be compensated by savings in sidings, stations, and
64
other things. The contractor continued to work on the railway in reliance on the
promise. Brunlees did some alterations, but the savings effected thereby were not
sufficient.
The contractor then filed a bill against the company, the company
demurred generally and the Master of Rolls allowed the demurrer, and the contractors
appealed.
(c)
Critical Issues and Judgments
The central issue related to what constitute a variation is whether the
contractors are to be paid for the extra works, when the quantities and drawings
supplied to the contractors for tender were wrong.
Sir W. M. James, L.J., the judge in this case stated that:
“I think that the decision of the Master of the Rolls is perfectly unquestionable
upon any principles of equity.
In this case the contractors undertook to make the railway, not to do certain
works; but they undertook to complete the whole line, with everything that was
requisite for the purpose of completion, from the beginning to the end; and
they undertook to do it for a lump sum, …
The first contract was that the line should be completed for a fixed sum. But
the Plaintiffs say they are, upon several heads, entitled to a great deal more
than that sum.
The first head is that the earthworks were insufficiently
calculated, that the engineer had made out that the earthworks were two
million and odd cubic yards, whereas they turned out to be four million and
odd cubic yards. But that is precisely the thing which they took the chance of.
65
They were to judge for themselves. There was no fraud; it is not alleged that
Mr. Brunlees had willfully made miscalculations for the purpose of deceiving
them; and if so, that would be the personal fraud of Mr. Brunlees himself. But
he made the calculations apparently to the best of his ability, and calculated
that the earthworks would be of a certain amount. The Plaintiff say it is quite
clear that this was a miscalculation.
But that was a thing the contractors ought to have looked at for themselves. If
they did not rely on Mr. Brunlees’ experience and skill as an engineer, they
ought to have looked at the consequences and made out their own
calculations. … But that is one of the things which, in my mind, was clearly
intended to be governed by the contract, the company virtually saying,
“Whether the earthwork is more or whether it is less, that is the sum we are to
pay.”
Then there was a considerable item as to the inclines up the Serra, but every
statement in the bill, it seems to me, puts the Plaintiffs completely out of Court
as to that. The bill says that the original specification was not sufficient to
make a complete railway, and that it become obvious that something more
would be required to be done in order to make the line. But their business,
and what they had contracted to do for a lump sum, was to make the line from
one terminus to terminus complete, and both these items seem to me to be on
the face of them entirely included in the contract. They are not in any sense of
the word extra works.
Then it is alleged that the engineer, finding out that this involved more
expense than he had calculated upon, promised that he would make other
alterations in the line, making a corresponding diminution so as to save the
contractors from loss on account of that mistake. And then in the vaguest
possible way it is said that all these promises of the engineer were known to
and ratified by the company. I am of opinion you cannot in that way alter a
66
contract under seal to do works for a particular sum of money. The Plaintiffs
cannot say that the company is to give more because the engineer found he
had made a mistake and promised he would give more, and the company
verbally, or in some vague way, ratified that promise. To my mind it was
perfectly nudum pactum. It is a totally distinct thing from a claim to payment
for actual extra works not included in the contract.”
Held, the appeal must be refused with costs.
Held, that the contractors could not, on mere verbal promises by the engineer,
maintain against the company a claim to be paid sums beyond the sums specified in
the contract under seal.
Held, that, although the amount of the works to be executed might have been
under-stated in the engineer’s specification, the contractors could not under the
circumstances maintain any claim against the company on that ground.
(d)
Principles Applied
In this case, the principles applied on what constitute a variation are:
(i)
If work is included in the original contract sum the contractor must carry
it out and cannot recover extra payment for it, although he may not have
thought at the time of entering into the contract that it would be necessary
for the completion of the contract.
67
(ii) Indispensably necessary works. Where the contractor must complete a
whole work, such as a house, or a railway from A to B, for a lump sum,
the court readily infer a promise on his part to provide everything
indispensably necessary to complete the whole work. 52
(iii) Works not taken out on the quantities supplied to the contractor for tender
are not extras for they are impliedly included in the lump sum contract.
(iv) Generally, an agent such as the architect or engineer is not considered to
possess the required authority to waive a term of the contract requiring
extras to be ordered in writing.
(v) If a contractor alleged that work he was ordered to do was an extra and
refused to continue without a promise to pay for it, and the owner on that
account promised to pay extra for it, he would not be liable on such a
promise for it is ‘lack of consideration’.
52
Williams v Fitzmaurice (1858) 3 H. & N. 844
68
Perspective 2:
_____________________________________________________________________
(a)
Case Analysed
Blue Circle Industries PLC v Holland Dredging Company (UK) Ltd (1987) 37
B.L.R. 40.
(b)
The Fact of the Case
On 23rd December 1977, the appellants (Blue Circle) invited the respondents
(Holland) to tender for the execution of dredging works in Lough Larne, Eire. The
contract conditions were described as substantially the ICE Conditions 5th Edition.
Special Condition 72 provided that the areas within Lough Larne for the
deposition of the dredged material would be submitted upon approval by the local
authorities. Holland tendered against this invitation on 3rd January 1978 (the tender
incorporated the general conditions) and in particular allowed for the deposition of
dredged material within Lough Larne. Blue Circle responded to the tender on 14th
August 1978 by an order form which, in print, referred to conditions on its reverse but
on its face in typescript referred to the tender in terms equivalent to an unqualified
acceptance.
Contemporaneously with the exchange of these documents, multi-lateral
discussions were taking place between Blue Circle, Holland and certain statutory and
non-statutory interested bodies. In consequence of the discussions, general agreement
was reached that the dredge material should be used to form a kidney-shaped island
appropriate for use as a bird sanctuary. On 28th September 1978, Holland quoted for
69
the work of forming the artificial island which required, inter alia, the forming of
bund constructed of basalt. On 4th October, Blue Circle accepted this quotation by
letter, which continued “An Official Works Order will follow in due course”. The
works order for the forming of the artificial island was issued on 19th October, which
was in the same printed form as the first order.
In the event, the execution of the works for the construction of the artificial
island was only partly successful; the resultant island merely broke the surface at low
water.
Blue Circle commenced proceedings against Holland claiming inter alia
damages for negligence, breach of collateral warranty and misrepresentation in
advising as to the construction of the artificial island. Holland applied to have the
action stayed pursuant to s 4 of the Arbitration Act 1950 contending that their offer on
28th September was no more than a confirmation of an agreed variation of the
dredging contract within clause 51 of the Conditions. The application was successful
before the Master and Blue Circle appealed.
(c)
Critical Issues and Judgments
The main issue of this case has centered upon the terms and co-relation of the
two “agreements” and whether the “island agreement” was in truth and effect a
variation of the “dredging agreement”, or was it a separate contract entered into
collaterally with the dredging contract?
The judge in this case, Purchas LJ quoted the statement made by Mr. Joseph
(counsel for Blue Circle) in his submission as follows:
70
“On the first issue Mr. Joseph contended that the agreement for the
construction of the island was quite separate and in its manner of creation
wholly inconsistent with it being a variation of the contract under clause 51 of
the General Conditions.
In support of this submission he relied upon a
passage in Halsbury’s Law of England, 4th Edn, Vol 4, para 1178:
“1178. Work falling outside the contract. If the nature or extent of the
variation or additional work is such that it is not contemplated by the
contract, the contractor can refuse to carry it out or can recover
payment for it without complying with the requirements of the
variation clause. For the varied work to fall outside the contract, it
must, it seems, either result in it being impossible to trace the original
work contracted for or be a kind totally different from that originally
contemplated.”
He also relied on Thorn v Mayor and Commonalty of London (1876) 1 A C
120 per Lord Cairns at p127:
“My Lords, it appears to me, that under those circumstances, the appellant
must necessarily be in this dilemma, either the additional and varied work
which was thus occasioned is the kind of additional and varied work
contemplated by the contract, or it is not. If it is the kind of additional or
varied work contemplated by the contract, he must be paid for it, and will be
paid for it, according to the prices regulated by the contract. If, on the other
hand, it was additional or varied work, so peculiar, so unexpected, and so
different form what any person reckoned or calculated upon, that it is not
within the contract at all; then, it appears to me, one of two courses might
have been open to him; he might have said: I entirely refuse to go on with the
contract – non haec in foedera veni: I never intended to construct this work
upon this new and unexpected footing. Or he might have said, I will go on with
71
this, but this is not the kind of extra work contemplated by the contract, and if
I do it, I must be paid a quantum meruit for it.
In considering whether a particular turn of events comes within clause 51 of
the General Conditions as a variation, as Mr. Joseph correctly submitted, the
question must be posed:
Could the employer have ordered the work required by it against the wishes of
the contractor as a variation under clause 51? If the answer is “No” – then
the agreement under which such work is carried out cannot constitute a
variation but must be a separate agreement. … In my judgment, Mr. Joseph’s
submission that the island contract is separate from the dredging contract is
correct.”
Held, the appeal allowed. Because the construction of the island was work
wholly outside the scope of the original dredging contract, Holland would not, had
they been unwilling, have been obliged to accept the work as a variation. Therefore
the construction of the island was not a variation of the dredging contract but was the
subject of a separate agreement.
(d)
Principles Applied
In this case, the principles applied on what constitute a variation are:
(i)
A variation order is not valid if the effect is to change the scope of the
contract so that the works as varied attains a character which is
fundamentally different from that contemplated by the parties at the
time when the contract was made.
72
(ii)
If the variation work is wholly outside the scope of the original
contract, the contractor would not, been unwilling, is obliged to accept
the work as a variation.
Perspective 3:
_____________________________________________________________________
(a)
Case Analysed
Tharsis Sulphur and Copper Company v McElroy & Sons (1878) 3 App Cas
1040
(b)
The Fact of the Case
In 1872 the Appellants, the Tharsis Sulphur and Copper Company (hereafter
referred as the company) entered into a contract with the Respondents, M’Elroy &
Son, engineer in Glasgow (hereafter referred as the contractors), for the construction
of large iron buildings for a lump sum of ₤25,000.
The terms of the contract were embodied in a formal deed in May 1873,
contained a clause, inter alia, that no alterations or additions should be made without a
written order from the employer’s engineer, and no allegation by the contractors of
knowledge of, or acquiescence in, such alterations or additions on the part of the
employers, their engineers or inspectors, should be accepted or available as equivalent
to the certificate of the engineer, or as in any way superseding the necessity of such
certificate as the sole warrant for such alteration and additions.
73
During the execution of the contract the contractors alleged it was impossible
to cast certain iron trough-girders of the weight specified in the contract, and
subsequently the engineer allowed them to erect girders of a much heavier weight.
The actual weights were entered in the engineer’s certificates issued from time to time
authorizing interim payments. On the completion of the work the contractors claimed
a considerable amount in excess of the contract price for the extra weight of metal
supplied. Disputes arose, and in 1876 the contractors raised the action for the extra
cost. The company resisted the claim on the ground that they did not order, or desire,
the extra weight; that it was unnecessary; that the girders could with care have been
made of the specified thickness and weight; that no oral agreement had been entered
into by their engineer for furnishing the additional material; and that though the
engineer’s certificates, issued solely for the purpose of authorizing interim payments,
included as a matter of course the actual weight, this was not a written order such as
was required under the contract.
(c)
Critical Issues and Judgments
The main issue of this case is whether the contractors entitled to extra payment
relying on the fact that the addition weight of girders was reflected in the interim
certificates.
The judge of the House of Lords, Lord Cairns, L.C., citing the cases of Hill v
South Staffordshire Railway Company and Lamprell v Guardians of Billericay Union:
“… The contract has been carefully scanned and brought before your
Lordships. It is sufficient for me to say that, as I understand that contract and
its construction, it was one which obliged the Respondents to execute the work
which was contracted for, and if in the execution of the work the castings
which were to be supplied (the casting, for example, for the girders),
occasioned any difficulty in the work, if the girders had to be of a length
74
different from what was specified or of a breadth different from what was
specified, that was a risk which the contractors took; and they were obliged to
execute the work with the necessary alterations in the size of the castings….
Now what happened was this: the girders for the structure which I have
referred to came to be cast by the Respondents, and it was found that if these
girders were made of the thickness mentioned in the specification the result
was that in the process of cooling they were liable to crack… . On the other
hand, the Respondents were in this position: they were obliged to execute the
work; as I understand the contract, they were obliged to execute it with the
girders. If they could not cast the girders of the scantling, that is to say, of the
exact thickness, mentioned in the contract, that was so much the worse for
them. They ought to have known that they undertook to execute the work in
that form. …
The certificates I look upon as simply a statement of a matter of fact, namely,
what was the weight and what was the contract price of the materials actually
delivered from time to time upon the ground, and the payments made under
those certificates were altogether provisional, and subject to adjustment or to
re-adjustment at the end of the contract. I repeat, the utmost that can be said
of these certificates is, that in their form they were equivocal and consistent
with either view turning out to be the facts of the cases; either that there was
or that there was not a verbal agreement to pay for extra work. I am of
opinion, upon the evidence, that there was no such verbal agreement, and
therefore the certificates, in my opinion, cannot make better the case of the
Respondents.”
Held, that the engineer’s certificates were not written orders, and the claim
was therefore excluded by the terms of the contract.
75
(d)
Principles Applied
In this case, the principles applied on what constitute a variation are:
(i)
Mere references in progress payment certificates to some extra work, in
the absence of Variation Order Instructions, did not constitute as Valid
Variation Orders.
(ii) There is authority for the proposition that when a contractor undertakes to
execute a contract for a lump sum price, he basically warrants that the
works as described in the drawings and specifications could be
constructed.
76
Perspective 4:
_____________________________________________________________________
(a)
Case Analysed
McAlpine Humberoak Ltd v McDermott International Inc. (No. 1) (1992)
58B.L.R. 1.
(b)
The Fact of the Case
On 8 October 1981, the plaintiff (McAlpine) was in invited by the defendant
(McDermott) to tender for the construction of nine steel pallets forming part of the
weather deck for a tension leg platform in the Hutton Oil Field in the Shetland Basin.
McDermott was employed as main contractor by Conoco (UK) Ltd to construct the
whole of the deck structure.
On 18 November 1981, McAlpine was awarded the contract for four of the
pallets, number W3, W4, W5 and W6. The contract was not signed until 24 March
1982. But it was to take effect from 18 November 1981. The total contract was
₤890,330.
The completion dates for W3 and W4 were 8 and 1 February 1982
respectively. In the event W3 was not delivered until 17 July 1982, and W4 until 11
September 1982. W5 and W6 had already been withdrawn by the defendants. The
costs actually incurred by the plaintiffs, as agreed between the parties at the trial,
came to ₤2,590,000, including overheads. The plaintiffs put forward a claim for
₤3,548,848, well in excess of their actual costs. McAlpine’s case was that it had been
considerably delayed in constructing the pallets due to considerable numbers of
drawings issued in December 1981 and January 1982 which in turn gave rise to
technical queries; and thus it was entitled to extra payments in respect of the delays
which it had suffered. McDermott counterclaimed for certain additional costs which
77
it alleged it had suffered, and for the costs of remedying allegedly defective work
performed by McAlpine.
The trial of the action took place over 92 days between November 1987 and
June 1989 before His Honour Judge John Davies QC, who, in a judgment given in
1990 held: (1) the issue of the drawings had distorted the substance and identity of the
contract, and that as a result it had been frustrated; (2) the effect of the frustration was
that there had come into existence a substituted contract which entitled McAlpine to a
reasonable time within which to complete its works, and to a reasonable price for
performing those works: (3) McAlpine was entitled to a further payment of
₤1,838,805 under the terms of the substituted contract; (4) McDermott’s counterclaim
failed save as to the sum of ₤5,208.50 in respect of defective work.
McDermott was given leave to appeal on findings of fact and also appealed
against the decision on the issue of law.
(c)
Critical Issues and Judgments
The main issue of this case was whether the considerable numbers of drawings
issued effected cardinal changes to the contract thus they were not valid variation
orders.
The judge in this case, Lloyd LJ, in reversing the judgment of Judge John
Davies QC for the trial, and while examining the judgment for the trial commented
that:
“We found ourselves unable to agree with the reasoning in this passage, or
with the judge’s conclusion that the contract was frustrated. The revised
78
drawings did not “transform” the contract into a different contract, or
“distort its substance and identity”.
It remained a contract for the
construction of four pallets until 24 March 1982, when W5 and W6 were
withdrawn. It is not suggested by the judge that it was the withdrawal of W5
and W6 which frustrated the contract. Rather it is found that the contract was
frustrated as early as 11 December 1981 on the receipt of the second drawing
issued. This was, of course, over three months before the contract was signed.
The contract, when signed, provided expressly by clause 6(b) and clause 35(d)
that the receipt of drawings would constitute change instructions for the
purpose of clause 35.
It was further provided (1) by clause 2 that the
plaintiff’s rights to time and recompense were covered elsewhere in the
contract where disruption and delay ensued due to reasons beyond the
plaintiff’s control and (2) by Exhibit C clause 2.6 that recompense for
additional work not being carried through on revised drawings to fabricate
was covered by the variation order clauses and the contractor’s right to claim.
If we were to uphold the judge’s finding of frustration, this would be the first
contract to have been frustrated by reason of matters which had not only
occurred before the contract was signed, and were not only well known to the
parties, but had also been provided for in the contract itself”
Held, allowing the appeal. The trial judge’s decision on frustration could not
be supported in fact or in law.
(d)
Principles Applied
In this case, the principles applied on what constitute a variation are:
(i)
If a change makes fundamental alterations to the contractor’s
obligations, and it could not have been foreseen at the time the contract
was entered into, it is beyond the scope of a variation order.
79
(ii) A long series of design changes to a contract does not necessary frustrate
the original contract if the scope of the work has not been transformed.
Perspective 5:
_____________________________________________________________________
(a)
Case Analysed
Wegan Construction Pty Ltd v Wodonga Sewerage Authority [1978] VR 67
(b)
The Fact of the Case
The defendant (the Authority) entered into three contracts with the plaintiff
(the Contractor) in respect of the construction of stage 4a and 4b, stage 7 and stage 8
of the sewers. The latest completion date was that provided for in the stage 8
contract, namely 16 March 1976. The contract incorporated the General Conditions
of Contract for Civil Engineering Work CA 24.1-1973 (Standard Association), with
the provision of variation under CL 40.1, which also provided that “The extent of all
such variations shall not, without the consent of the contractor, be such as to increase
or decrease the moneys otherwise payable under the contract to the contractor by
more than the sum which is the percentage stated in the Annex A of the contract sum,
or if not so stated, by a reasonable amount.
The owner of the stage 8 land redesigned the proposals for the development of
the land and consequently the Authority prepared new plans and quantities for the
construction of stage 8 which were given to the Contractor on or about 15 June 1976.
80
Evidence was given for the Contractor and substantially accepted by the Authority
that in the new plan excavation was increased by about 60 per cent; sewer length from
840 to 1181 metres, or 40 per cent; manholes from 19 to 27, requiring 90 per cent
more concrete; and the number of house connection branches from 47 to 91. In
addition the specification for pipe bedding was altered in respect of various lengths
and a schedule of quantities derived from the new design made provision for 160
metres of excavation below 4 metres which was not required by the old plan. The
original contract price was $30,867.40; the total extended price of the new design was
$43,200. One of the claims made in an action by the Contractor relating to the stage 8
contract was for damages for breach of contract alleged to be constituted by the
repudiation of the contract on or about 15 June 1976 by the defendant requiring the
plaintiff to carry out altered and increased works which were not a variation of the
original contract but substantially different.
(c)
Critical Issues and Judgments
The main issue of this case was whether the extensively altered and increased
works merely variations to original contract or repudiation of the contract.
The judge Lush,J stated the relevant facts of the case and proceed to consider
the question whether the Authority had repudiated the contract, with the key points as
follows:
“Was the amended plan a variation which increased the moneys payable by
more than a reasonable amount?
This question raises a matter of
interpretation. Although general condition 40.1 is a standard term, there
appears to be no authority upon it.
81
Mr. Smith submitted that the only consideration relevant to the question of
reasonableness was the amount of the increase, stressing that price only was
significant and the amount of the change not the percentage was to be
regarded. He said, although the total increase was 40 per cent the amount of
the increase was $13,000 – a very small sum in the context of a construction
contract. I find the word “reasonable” difficult to construe in this paragraph.
Reasonableness is not an abstract quality but one which is to be judged
against the background of surrounding circumstances. What circumstances
can be taken into consideration? Again, it may be reasonable for a principal
to seek variations to an ascertainable amount; it could be equally reasonable
for the contractor to decline to undertake them. Still again, it might be
reasonable for a contractor to undertake the variations but at the same time
reasonable for him to refuse them.
There remains the question: what matters can be taken into
consideration in assessing reasonableness? An exhaustive definition cannot
be attempted. … Other factors which I would regard as relevant are the past
history of the contract, the time at which the variation is ordered, and any
changes in circumstances between the date of the contract and the date of the
variation.
In the present case the amount of the increase may have been small but
it was large in proportion to the expected contract price, and the increase
represents a proportionately large increase in the work to be done. … Labour
costs had risen by 12 ½ per cent since the contract date. Subject to general
condition 40.4 the contract did not provide for variation in prices. The totality
of the work to be done was not identifiable with the original project, but was
manifestly a large project extending over additional ground.
In these
circumstances, my conclusion is that it was not 15 June 1976 reasonable in
the relevant sense to increase the estimated price in the proposed way and so
to require the contractor to remain on site to perform the additional work
upon the terms of the existing contract.”
82
Held: In the circumstances the amended plan did not constitute a variation
permitted by the original contract.
Per curiam: The test o the reasonableness of a variation is that of objective
assessment by an independent by-stander, namely whether the amount of the increase
or decrease is such that it would be judged by the by-stander to be reasonable for the
principal to require the contractor to submit to the increase or reduction of the total
sum and so to the increase or reduction of the work involved, and to the performance
of the extra or reduced work on the contract terms.
(d)
Principles Applied
In this case, the principles applied on what constitute a variation are:
(i)
The essence of an invalid variation order is the magnitude and quality of
the changes.
(ii) What is reasonable under the circumstances will be a matter for the courts
to establish on the facts of the particular case.
83
Perspective 6:
_____________________________________________________________________
(a)
Case Analysed
Mitsui Construction Co. Ltd v Attorney General of Hong Kong Government
[1987] 1 HKC 31.
(b)
The Fact of the Case
The appellants (Mitsui) entered into an agreement with the respondent
(Government of Hong Kong) for civil engineering works intended to improve the
water supply of Hong Kong. The only part of the works with which the dispute arose
is the excavation and construction of a tunnel some 3,227m in length and 3.6m in
diameter from Ma Mei Ha to Nam Chung. It was impossible to predict in advance the
nature of ground through which the tunnel was to pass. The contract provide for five
different types of lining for the engineer to decide which type was needed for
particular parts of the tunnel as work proceeded. The contract, however, included
bills of quantities priced by the contractors with reference to estimated lengths of
tunnel which were to be left unlined and to be lined with each of the different types of
lining respectively.
In the event the estimates turned out to be wrong and the work on the tunnel
took much longer than expected. The billed length of tunnel to be left unlined was
1,885m; the length left unlined in the event was 547m. The billed length of tunnel to
be lined with the heaviest and most expensive type of lining was 275m; the length so
lined in the event was 2,448m. The billed quantity of steel required for lining support
was 40 tonnes; the quantity required and used in the event was 2,943 tonnes. As a
result of these differences, work on the tunnel took very much longer than it would
84
have done if the quality and quantity of lining required had corresponded reasonably
closely with the billed quantities. The time allowed by the contract for completion
was two years. The engineer exercised his power under the contract to grant an
extension of time of 784 days to compensate for the extra time required to cope with
ground conditions in executing the tunnel excavation and lining works.
The appellants were paid at the bill rates for the amount of linings actually
carried out but they contended that they were entitled to a fresh determination by the
engineer of the rates. The respondent contended that any adjustment of bill rates
could only be made under clause 74, which could only be triggered by variation
orders by the engineer under clause 73 of the general conditions and that there having
been no variation orders under clause 73, there could be adjustment of the bill rates
and the engineer had no power to agree or fix any new rates.
The arbitrator made an interim award in favour of the appellant in the form of
a special case for the High Court, which upheld the arbitrator. The Court of Appeal,
however, allowed the government’s appeal against the decision of the High Court by a
majority. The appellants appealed to the Privy Council.
(c)
Critical Issues and Judgments
The main issue of this case was whether the contractor should be paid contract
rates or new rates when the actual quantities of work executed exceed the quantities
shown in the contract bills, whereby it is obvious that the extra over is not within a
reasonable limit.
In the judgment delivered on behalf of the Privy Council, Lord Bridge of
Harwich commented that:
85
“It is obvious that this is a badly drafted contract. This, of course, affords no
reason to depart from the fundamental rule of construction of contractual
documents that the intention of the parties must be ascertained from the
language they have used, interpreted in the light of the relevant factual
situation in which the contract was made. But the poorer the quality of the
drafting, the less willing any court should be to be driven by semantic niceties
to attribute to the parties an improbable and unbusinesslike intention if the
language used, whatever it may lack in precision, is reasonably capable of an
interpretation which attributes to the parties an intention to make provision
for contingencies inherent in the work contracted for on a sensible and
businesslike basis. As already stated, the ground conditions which would
largely dictate the scope of tunnel lining works required were unpredictable.
As the government themselves stated in a document entitled a ‘brief’ which
was before the arbitrator in lieu of a pleading: ‘All tunneling work is mainly
determined by ground characteristics on which planning and methods of
construction are largely dependent’. Later, they added: ‘ … time related costs
are a significant factor and are closely determined by ground conditions’.
Against this background of facts, if the contract documents were understood in
the sense contended for by the government, engineering contractors tendering
for the work would have two options.
They could either gamble on
encountering more of less favourable ground conditions or they could
anticipate the worst case and price their tenders accordingly. It is clear from
what happened here that the worst case might double or more than double the
time required to do the work with a consequent increase in time related costs.
On this basis, tenders gambling on favourable ground conditions would risk a
large loss while conversely if all tenderers anticipated the worst case but in
the event reasonable conditions were encountered, the government would be
the losers. It follows that if the government are right, there is a large element
of wagering inherent in this contract. It seems to their Lordships somewhat
improbable that a responsible public authority on the one hand and
responsible engineering contractors on the other contracting for the execution
86
of public works worth many millions of dollars should deliberately embark on
a substantial gamble.
By contrast, if the contractors’ submission is correct, tenderers can and will
base their tenders on the expectation that the scope of the tunneling and lining
work is reasonably to be inferred from the billed quantities.
Then, if
unexpectedly bad ground conditions dictate so large a departure from those
quantities and consequent alteration of the scope of the work, that, in the
opinion of the engineer, the bill rates are rendered unreasonable or
inapplicable, the rates can be suitably adjusted.
Given the inherent
uncertainty as to the scope of the work that will be required, a provision to
this effect would seem an eminently sensible means of ensuring that the
contractor receive no less and the government pay no more than a reasonable
price for the work actually done.”
Held, allowing the appeal.
(d)
Principles Applied
In this case, the principles applied on what constitute a variation are:
(i)
Where the actual quantities of work as executed by the contractor exceed
the quantities shown against the particular item in the contract bills of
quantities, this may constitute a ‘variation’
(ii) Accordingly, if such extra over is not within a reasonable limit, the
contract rates may have to be adjusted. For the purposes of the latter, it is
87
immaterial that they do not stem from an express exercise of the variation
powers.
Perspective 7:
_____________________________________________________________________
(a)
Case Analysed
AE Farr Ltd v Ministry of Transport (1965) 5 BLR 94.
(b)
The Fact of the Case
This was an appeal by AE Farr Ltd, the contractors, from a decision of the
Court of Appeal on December 4, 1964, reversing a judgment of Salmon, L.J., who had
confirmed an arbitrator’s award in favour of the company’s claim against the Ministry
of Transport for payment for certain additional excavation work at the junction of
Western Avenue and Hanger Lane, Ealing, where they had agreed to construct a dual
carriage-way, an underpass, a pedestrian subway and other works. The arbitration
award was for ₤171,959, with interest at 6 per cent from July 23, 1960.
The contract in question was formulated on the conditions of contract issued
by the British Institution of Civil Engineers. Clause 57 of the contract conditions had
incorporated the rules contained in the Standard Method of Measurement (SMM). It
was provided that the bills of quantities should be prepared on the basis of the
measurement rules contained in the SMM. The bills stated that the price or rate for
each item shall be the full inclusive price or rate of the finished work described in
88
each item, including timbering works used in connection therewith, except those in
respect of which separate items have been provided. The particular rule of the SMM
provided that the measurement of excavation was to be the net plan area and any
additional excavation required for working space was to be given and paid for as
separate items. The main excavation work of the project was measured and billed
without allowing for working space, although separate items for working space was
provided for a minor part of the excavation work.
The argument had turned in the main on the meaning of clause 16 of bill of
quantities, which followed closely that of clause 40 of the SMM of Civil Engineering
Quantities issued by the Institution of Civil Engineers (1953), which read as follows:
“The measurement of excavation in pit or trench for the structure shall, unless
otherwise state, be the net plan area of the permanent work multiplied by the
depth measured from the mean ground level at the top of the pit or trench
down to the authorized bottom; any additional excavation which may be
required for working space, etc., will be paid for under separate items, the
measurement being the sum of the areas of the sides of the excavations based
on the outline of the net plan area. Rates for working space shall be inclusive
of all consequent refilling. In all other cases the measurement of excavated
material shall be the volume of the said material in the ground before being
excavated.”
(c)
Critical Issues and Judgments
The main issue of this case was whether the contractors were entitled to be
paid for additional excavation for working space, there being no separate item in the
bill of quantities that expressly entitled them to make a charge.
89
Lord Morton of Henryton said that:
“The crucial words of clause 16 were “any additional excavation which may
be required for working space, etc., will be paid for under separate items.”
Counsel for the appellants had pointed out that these words were looking to
the future.
The words referred to excavation that might be required in
addition to all the work specified in the numerous items set out in the bill of
quantities. If this work was done it would be “separated” from the items
already appearing in the bill of quantities. Counsel for the respondents had
argued that these words applied only to work that fell to be paid for under
items appearing on the bill of quantities. If this contention was well-founded,
the appellants would get no payment for the additional work they had done,
for it was common ground between the parties that this work was not covered
by any of these items.”
Sir Derek Walker-Smith, counsel for the respondent, had submitted that it was
inherently improbable that the words in question contained a promise to pay “at
large”. Secondly, he said that the appellants’ construction did not tie in with the
pattern and logical sequence of the relevant provisions of the contractual documents
as a whole. In particular, he said the appellants’ argument ascribed to clause 40 of the
Standard Method a meaning other than the meaning it was intended to have and did
have. Thirdly, he said that the object of the bills of quantities was to afford a basis for
tenders, and clause 16 tended to defeat that object if the appellants’ construction was
correct. His Lordship was at one time inclined to think that the arguments for the
respondents should prevail, but he had come to the conclusion that the words of
clause 16 could not bear the meaning the respondents sought to attach to them. He
could not believe that the reference to “separate items” under which any additional
excavation would be paid for, if in the course of carrying out the work any such
excavation was required, was a reference to items that had already been set out and
priced in the bill of quantities. The words used were quite inappropriate to convey
such a meaning, but they were quite appropriate to convey the meaning for which the
90
appellants contended, and no unfair or absurd result followed if they were given that
meaning.
Held, the contractors’ appeal allowed by bare 3-2 majority; whatever working
space required should be paid by the Ministry of Transport.
(d)
Principles Applied
In this case, the principles applied on what constitute a variation are:
(i)
When certain parts of the contract bills have not been prepared in
accordance with the stipulations of the Standard Method of Measurement,
then the non-compliance are to be treated as “departures or errors” which
should be corrected by mean of a variation.
(ii) The Standard Method of Measurement, has the effect of overriding any
specific words in the contract documents which evince a clear intention
to depart from the practice assumed by these standard documents
.
91
Perspective 8:
_____________________________________________________________________
(a)
Case Analysed
Thorn v London Corporation (1876) 1 App Cas 120 (HL).
(b)
The Fact of the Case
On the 24th of May, 1864, the plaintiff, Thorn contracted with the defendants,
London Corporation, to take down an old bridge at Blackfriars, and erect a new bridge
in its place. The works were to be completed within three years, for the sum of
₤269,045. The employer’s engineer had prepared plans and specifications, part of
which described the use of caissons to enable the works to be executed despite the
tide. The descriptions given were stated to be “believed to be correct”, but were not
guaranteed; and, in one particular matter at least, he was warned to make an
examination of the physical conditions for himself. As it turned out, the caissons
failed to withstand the tidal pressures and had to be abandoned. Accordingly, the
remaining works had to be executed during periods of low tides, entailing
considerable additional costs.
The contract contains provisions as to the payment for extra work, and the
work had (with the contract work) been duly paid for. The contractor sought for
compensation for his loss of time and labour occasioned by the failure of the caissons,
and in his declaration alleged that the defendants had warranted that the Blackfriars
Bridge could be inexpensively built according to the plans and specification. This
was refused, and this action was brought.
92
The facts were turned into a special case for the opinion of the Court of
Exchequer. The case was argued in May, 1874, and the Lord Chief Baron, Mr. Baron
Pigott, and Mr. Baron Amphlett, gave judgment for the defendants on the ground that
there was no implied warranty in the contract. On Error, this judgment was affirmed
in the Exchequer Chamber. Error was then brought to this House (House of Lords).
(c)
Critical Issues and Judgments
The main issue of this case was whether the contractor can sustain an action
for the loss he had suffered, as upon a warranty, when the loss was not resulted by his
own fault but by the mistakes of the person whose directions he was bound to obey.
The following passage appears in their lordships’ judgment:
“There can be no doubt that the Plaintiff (the contractor) in the exercise of
common prudence, before he made his tender, ought to have informed himself
of all the particulars connected with the work, and especially as to the
practicality of executing every part of the work contained in the specification,
according to the specified terms and conditions. It is said that it would be
very inconvenient to require … the contractor to make himself thoroughly
acquainted with the specification, as it would be necessary upon each
occasion for him to have an engineer by his side … But if the contractor ought
prudently and properly to have full information of the nature of the work he is
preparing to undertake, and the advice of a skillful person is necessary to
enable him to understand the specification, is it any reason for not employing
such a person that it would add to the expense of the contractor before making
his tender? It is also said that it is the usage of contractors to rely on the
specification and not to examine it particularly for themselves. If so, it is a
usage of blind confidence of the most unreasonable description.”
93
Lord Cairns, in particular, said that:
“My Lords, it appears to me, that under those circumstances, the Appellant
must necessarily be in this dilemma, either the additional and varied work
which was thus occasioned is the kind of additional and varied work
contemplated by the contract, or it is not. If it is the kind of additional or
varied work contemplated by the contract, he must be paid for it, and will be
paid for it, according to the prices regulated by the contract. If on the other
hand, it was additional or varied work, so peculiar, so unexpected, and so
different from what any person reckoned or calculated upon, that it is not
within the contract at all; then, it appears to me, one of two courses might
have been open to him; he might have said: I entirely refuse to go on with the
contract - I never intended to construct this work.”
Held, the appeal dismissed with cost.
Where plans and specification, for the execution of a certain work, are
prepared for the use of those who are asked to tender for its execution, the person
asking for the tenders does not enter into an implied warranty that the work can be
successfully executed according to such plans and specification.
The contractor for the work cannot, therefore, sustain an action for damages,
as upon a warranty, should it turn out that he could not execute it according to such
plans and specification.
94
(d)
Principles Applied
In this case, the principles applied on what constitute a variation are:
(i)
A contractor who has been put to unexpected expense because of
inaccurate plans and specification provided by the employer, cannot
usually recover the expense by bringing an action for breach of an
Implied
Warranty
that
the
plans
and
specification
are
accurate/practicable.
(ii) The employer in a construction contract does not warrant that the works
can be constructed according to the plans and specification prepared by
his professional consultants.
95
Perspective 9:
_____________________________________________________________________
(a)
Case Analysed
Commissioner for Main Roads v Reed & Stuart Pty Ltd & Anor. [1974] ALJR
461.
(b)
The Fact of the Case
The contractor (Reed) contracted with the Commissioner for Main Roads of
New South Wales to perform the works and supply all the materials set forth in the
contract for the construction of the Warringah Expressway. The works included:
Topsoil, placing only – 49,700 cubic yards at 15s. -- ₤37,275. The contract provided
also: Supply, haul and spread topsoil – Schedule of rate only at ₤3 per cubic yard.
The contract, which was for a bulk or lump sum, provided that (see clause
B3.03 of the specification): “If sufficient topsoil to meet the requirements of the
Works cannot be obtained within the right-of-way, the Engineer may direct the
Contractor in writing to obtain topsoil from other approved locations. The excavation
and removal of topsoil from such locations shall be under the direction of the
Engineer. Payment for such a additional topsoil per ton will be made at the scheduled
rate, and such price shall include the excavation or stripping of topsoil, loading and
cartage of up to three (3) miles from source of supply to point of delivery and
placement on the surface to be topsoiled.”
96
The contract contained clause 18, a common enough provision to be found in
engineering contracts, which permitted the omission from time to time by the
Commissioner of portion of the contract works.
The site yielded only some 25,000 cubic yards of topsoil whereas it had been
estimated that some 49,700 cubic yards would be required and the position was
aggravated when it was later discovered that this estimate was in any event in error, a
total considerably in excess of 60,000 cubic yards being in fact required so as to
accord with contract drawings.
When the shortfall of topsoil manifested itself the respondents sought to, but
the Commissioner refused to, invoke those provisions of the contract which were
designed to deal with that eventuality; instead the Commissioner adopted a quite
different course. The Commissioner’s engineer decided that, rather than incur the rate
of ₤3 per cubic yard, he would instead, by the exercise of what he regarded as powers
available to him under the contract, arrange for work of importing topsoil onto the site
to be done by a third party, no doubt at cheaper rates. Having initially informed the
respondents in the above terms, the Commissioner’s engineer later somewhat
modified his stance; he maintained his right to employ a third party to bring the
necessary quantities of topsoil onto the site ready for spreading but offered to permit
R to undertake placement of all topsoil on the site, the respondents thereby avoiding
the penalty of any deduction from the lump sum price although gaining no entitlement
to any part of the rate of ₤3 per cubic yard. This offer the contractor rejected,
adhering to its contention that if imported topsoil were to be brought onto the site this
should be done by it and it should be remunerated at the tendered rate of ₤3 per cubic
yard.
The Supreme Court of New South Wales made a declaration at the instance of
the contractor that on the true construction of the contract, and in the events which
had happened, the Commissioner was in breach of the said contract “by obtaining
from a contractor other than Reed the supply, haul and spread and placing of topsoil
97
necessary to make up the deficiency between topsoil yielded from the site of the
works the subject of the said contract and the total amount of topsoil required for such
works”.
The Commissioner then appealed to the High Court of Australia for judgment.
(c)
Critical Issues and Judgments
The main issue of this case was whether the Commissioner’s engineer had the
right under clause 18 of the contract to omit portion of the contract work in order to
enable the omitted work to be executed by a third party.
Gibbs J. in his judgment stated that:
“For my own part I should not have thought it necessary to vary the
declaration made by Taylor J. As my brother Stephen has shown, the first
respondent was entitled under the contract to place all the topsoil as shown in
the contract drawings, unless the engineer required the omission of any of that
work under clause 18 of the General Conditions.
In the absence of a
requirement by the engineer under clause 18, it was a breach of contract for
the appellant to render it impossible for the respondent to do the work. The
appellant did render it impossible for the respondent to do the work, and
thereby committed a breach, by getting someone else to do the work and also
by failing to give the direction under clause B3.03 of the specification without
which the respondent could not do the work. The declaration made by Taylor
J and that suggested by my brother Stephen describe in alternative ways that,
in my opinion, amounts to one breach, but nothing, I would think, turns on this
difference of form.”
98
Held, per Gibbs, Stephen and Mason JJ, the appeal should be dismissed; but
per Stephen and Mason JJ, the declaration made by the Supreme Court should be
varied by declaring that on the true construction of the contract, and in the events
which had happened, the Commissioner was in breach of the said contract “by failing
to give a direction to Reed pursuant to the fourth paragraph of clause B3.03 of the
specification …”, because:
(i)
Clause 18 clearly did not permit the taking away of portion of the
contract work from Reed in order that the Commissioner might have that
portion performed by some other contractor. The case of Carr v JA
Berriman Pty Ltd (1953) 89 CLR 327; 27 ALJ 273 applied.
(ii) The Commissioner’s engineer was mistaken in regarding the fourth
paragraph of Clause B3.03 as conferring on him the opinion of having the
work of importing topsoil onto the site performed either by Reed or by a
third party: for the only choice which that paragraph left open to the
engineer in the event of a shortfall of on-site topsoil was between
directing Reed to obtain it elsewhere, cart it to the site and there
undertake its placement, all for the agreed rate of ₤3 per cubic yard, and,
on the other hand, abstaining from exercise of his powder of direction but
instead electing under clause 18, the omissions clause, to omit so much of
the work of topsoil placement as may be necessary due to the deficiency
of on-site topsoil.
(iii) The Commissioner was in breach of his contractual obligations under the
contract. First there was the failure of his engineer to direct Reed to
obtain additional topsoil from outside the site once it was decided that the
contract work of spreading topsoil to the extent shown in the contract
drawings should proceed despite the shortfall of on-site topsoil; secondly,
there was the closely allied act of taking away from the contractor the
balance of topsoil placement work, using imported topsoil, and, in
99
consequence, the deduction from the lump sum price of an amount
calculated by reference to the uncompleted portion of the original
estimated cubic yardage of topsoil required to be placed on site.
(d)
Principles Applied
In this case, the principles applied on what constitute a variation are:
(i)
The power to vary the works in a construction contract are exercised
within the bounds of the expectations of the parties at the time when they
entered into the contract.
(ii) Omissions of work can only be validly exercised in respect of
genuine omissions. It is now settled law that work cannot be omitted
where the overriding purpose of the omission is to enable the omitted
work to be executed by some other party. Thus, work cannot be omitted
merely because it could be done by some other party at a reduced price or
lower rate.
4.3
Conclusion
The above case analysis shows 9 legal perspectives regarding what constitute
a variation in construction, which applied the same or different principles in the
judgments. Generally, the findings are found to be in parallel with the principles as
discussed in the literature review. It shows that the principles applied by the courts in
giving perspectives of what constitute a variation discussed in Chapter 2 and Chapter3
100
have been satisfied, for example indispensably necessary works are not variations,
invalid omissions are not variations and etc.
Despite all the above, attention is drawn to note that the principles may only
be the guideline to show the principles where the courts ordinarily giving their
perspectives or what constitute a variation.
Through the analysis, it is observed that the courts will not simply improve the
contract conditions which the parties have made for themselves however desirable the
improvement might be. This is due to the fact that the court’s primary function is to
interpret and apply the contract conditions which the parties have made for
themselves. 53
The principles derived from the cases analysed, in the writer’s opinion, can be
categorized (according to Chow (2004)’s suggested factors determining the validity of
a variation order) as follows:
(1a) Issue of the variation order by the designated person
-
Mere references in progress payment certificates to some extra work, in
the absence of Variation Order Instructions, did not constitute as Valid
Variation Orders.
-
Generally, an agent such as the architect or engineer is not considered to
possess the required authority to waive a term of the contract requiring
extras to be ordered in writing.
53
Hardwood v Civic Construction Pty Ltd 1990 NSW LEXIS 10604.
101
-
The power to vary the works in a construction contract are exercised
within the bounds of the expectations of the parties at the time when they
entered into the contract.
(1b) The applicable procedural requirements
Not applicable.
(2a) Contract conditions governing variations
-
Where the contractor must complete a whole work, such as a house, or a
railway from A to B, for a lump sum, the court readily infer a promise on
his part to provide everything indispensably necessary to complete the
whole work.
-
Works not taken out on the quantities supplied to the contractor for tender
are not extras for they are impliedly included in the lump sum contract.
-
The employer in a construction contract does not warrant that the works
can be constructed according to the plans and specification prepared by
his professional consultants.
(2b)
-
The common law rules governing the scope of change
If a contractor alleged that work he was ordered to do was an extra and
refused to continue without a promise to pay for it, and the owner on that
102
account promised to pay extra for it, he would not be liable on such a
promise for it is ‘lack of consideration’.
-
A variation order is not valid if the effect is to change the scope of the
contract so that the works as varied attains a character which is
fundamentally different from that contemplated by the parties at the time
when the contract was made.
-
If the variation work is wholly outside the scope of the original contract,
the contractor would not, been unwilling, is obliged to accept the work as
a variation.
-
There is authority for the proposition that when a contractor undertakes to
execute a contract for a lump sum price, he basically warrants that the
works as described in the drawings and specifications could be
constructed.
-
If a change makes fundamental alterations to the contractor’s obligations,
and it could not have been foreseen at the time the contract was entered
into, it is beyond the scope of a variation order.
-
A long series of design changes to a contract does not necessary frustrate
the original contract if the scope of the work has not been transformed.
-
The essence of an invalid variation order is the magnitude and quality of
the changes.
103
-
What is reasonable under the circumstances will be a matter for the courts
to establish on the facts of the particular case.
-
Where the actual quantities of work as executed by the contractor exceed
the quantities shown against the particular item in the contract bills of
quantities, this may constitute a ‘variation’
-
Accordingly, if such extra over is not within a reasonable limit, the
contract rates may have to be adjusted. For the purposes of the latter, it is
immaterial that they do not stem from an express exercise of the variation
powers.
-
The Standard Method of Measurement, has the effect of overriding any
specific words in the contract documents which evince a clear intention
to depart from the practice assumed by these standard documents
-
It is now settled law that work cannot be omitted where the overriding
purpose of the omission is to enable the omitted work to be executed by
some other party. Thus, work cannot be omitted merely because it could
be done by some other party at a reduced price or lower rate.
In conclusion, it can be seen from the above analysis that there is no single
legal perspective regarding what constitute a variation in construction. However,
based on the cases analysed, the most common issue is whether the extra over of the
changes fall under reasonable scope and nature of the original work; but what is
reasonable under the circumstances will be a matter for the courts to establish on the
facts of the particular case.
104
CHAPTER 5
CONCLUSION AND RECOMMENDATIONS
5.1
Introduction
This chapter is the final chapter that summarises the findings of the research
according to the research objective. It also contains the problems encountered during
the research as well as the recommendations for future researches.
5.2
Summary of Research Findings
Generally, the objective of this research, i.e. to determine “what constitute a
variation in construction from legal perspective” had been achieved through the
documentary analysis of law journals. The various principles have identified from the
9 cases analysed. The findings are shown in Table 5.1 as follows:-
105
Perspectives
1
Cases
Issues
Decision of the Courts
Principles Applied
Sharpe v San Paulo
Whether the
Although the amount
- If work is original contract work, the contractor must
Railway Company
contractors are to be
of the works to be
carry it out & cannot recover extra payment, though he
(1873) LR 8 Ch App
paid for the extra
executed might have
may not have thought at the time entering into the
597
works, when the
been under-stated in
contract that it would be necessary for the completion of
quantities and
the engineer’s
the contract.
drawings supplied to
specification, the
- Where the contractor must complete a whole work, it
the contractors for
contractors could not
infers a promise on his part to provide everything
tender were wrong.
under the
indispensably necessary to complete the whole work.
circumstances
- Works not taken out on the quantities supplied to the
maintain any claim
contractor for tender are not extras.
against the company
- Agent does not possess the required authority to waive
on that ground.
a term of the contract.
- If a contractor alleged that work he was ordered to do
was an extra and refused to continue without a promise
to pay for it, and the owner on that account promised to
pay extra for it, he would not be liable on such a
promise for it is ‘lack of consideration’.
Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’
106
Perspectives
Cases
2
Blue Circle Industries
Whether the “island
The construction of
- A VO is not valid if the effect is to change the scope
PLC v Holland
agreement” was in
the island was work
of the contract so that the works as varied attains a
Dredging Company
truth and effect a
wholly outside the
character which is fundamentally different from that
(UK) Ltd (1987) 37
variation of the
scope of the original
contemplated by the parties at time when the contract
B.L.R. 40.
“dredging
dredging contract,
was made
agreement”, or was it
therefore it was not a
- If the variation work is wholly outside the scope of
a separate contract
variation of the
the original contract, the contractor would not, been
entered into
dredging contract but
unwilling, is obliged to accept the work as a variation.
collaterally with the
was the subject of a
dredging contract?
separate agreement.
3
Issues
Decision of the Courts
Principles Applied
Tharsis Sulphur and Whether the
The engineer’s
- Mere references in progress payment certificates to
Copper Company v contractors entitled to
certificates were not
some extra work, in the absence of Variation Order
written orders, and the
Instructions, did not constitute as valid variation orders.
claim was therefore
- There is authority for the proposition that when a
addition weight of
excluded by the terms
contractor undertakes to execute a contract for a lump
girders was reflected
of the contract.
sum price, he basically warrants that the works as
McElroy
&
Sons extra payment relying
(1878) 3 App Cas on the fact that the
1040
in the interim
described in the drawings and specifications could be
certificates.
constructed.
Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)
107
Perspectives
Cases
Issues
Decision of the Courts
Principles Applied
4
McAlpine Humberoak
Whether the
Allowing the appeal.
- If a change makes fundamental alterations to the
Ltd v McDermott
considerable numbers
The trial judge’s
contractor’s obligations, and it could not have been
International Inc.
of drawings issued
decision on frustration
foreseen at the time the contract was entered into, it is
(No. 1) (1992)
effected cardinal
could not be
beyond the scope of a variation order.
58B.L.R. 1.
changes to the
supported in fact or in
- A long series of design changes to a contract does not
contract thus they
law.
necessary frustrate the original contract if the scope of
the work has not been transformed.
were not valid
variation orders.
5
Wegan Construction
Whether the
In the circumstances
- The essence of an invalid variation order is the
Pty Ltd v Wodonga
extensively altered
the amended plan did
magnitude and quality of the changes.
Sewerage Authority
and increased works
not constitute a
- What is reasonable under the circumstances will be a
[1978] VR 67
merely variations to
variation permitted by
matter for the courts to establish on the facts of the
original contract or
the original contract.
particular case.
repudiation of the
contract.
Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)
108
Perspectives
6
Cases
Mitsui
Issues
Construction Whether the
Co. Ltd v Attorney contractor should be
General
Kong
of
Hong paid contract rates or
Government new rates when the
[1987] 1 HKC 31.
Decision of the
Courts
Principles Applied
Allowing the appeal, - Where the actual quantities of work as executed by the
the contractors should contractor exceed the quantities shown against the
be paid new rates.
particular item in the contract bills of quantities, this
may constitute a ‘variation’
actual quantities of
- If such extra over is not within a reasonable limit, the
work executed exceed
contract rates may have to be adjusted.
the quantities shown
in the contract bills,
whereby it is obvious
that the extra over is
not within a
reasonable limit.
Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)
109
Perspectives
Cases
Issues
Decision of the
Principles Applied
Courts
7
AE Farr Ltd v
Whether the
Whatever working
- When certain parts of the contract bills have not been
Ministry of Transport
contractors were
space required should
prepared in accordance with the SMM, then the non-
(1965) 5 BLR 94.
entitled to be paid for
be paid by the
compliance are to be treated as “departures or errors”
additional excavation
Ministry of Transport.
for working space,
there being no
separate item in the
bill of quantities that
expressly entitled
which should be corrected by mean of a variation
- The SMM, has the effect of overriding any specific
words in the contract documents which evince a clear
intention to depart from the practice assumed by these
standard documents.
them to make a
charge.
Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)
110
Perspectives
8
Cases
Issues
Decision of the
Principles Applied
Courts
Thorn v London
Whether the
The contractor for the
- A contractor put to unexpected expense because of
Corporation (1876) 1
contractor can sustain
work cannot sustain
inaccurate plans and specification by the employer,
App Cas 120 (HL).
an action for the loss
an action for
cannot usually recover the expense by action for breach
he had suffered, as
damages, as upon a
of an Implied Warranty that the plans and specification
upon a warranty,
implied warranty that
are accurate/practicable.
when the loss was not
the plans and
- The employer in a construction contract does not
resulted by his own
specification are
warrant that the works can be constructed according to
fault but by the
accurate.
the plans and specification prepared by his professional
mistakes of the person
consultants.
whose directions he
was bound to obey.
Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)
111
Perspectives
9
Cases
Issues
Decision of the
Courts
Principles Applied
Commissioner for
Whether the
Clause 18 clearly did
- The power to vary the works in a construction
Main Roads v Reed &
Commissioner’s
not permit the taking
contract are exercised within the bounds of the
Stuart Pty Ltd &
engineer had the right
away of portion of the
expectations of the parties at the time when they
Anor. [1974] ALJR
under clause 18 of the
contract work from
entered into the contract.
461.
contract to omit
Reed in order that the
- Omissions of work can only be validly exercised in
portion of the contract
Commissioner might
respect of genuine omissions. It is now settled law that
work in order to
have that portion
work cannot be omitted where the overriding purpose
enable the omitted
performed by some
of the omission is to enable the omitted work to be
work to be executed
other contractor.
executed by some other party.
by a third party.
Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)
112
Out of the 9 cases analysed, it is found that majority of 4 cases are with the
perspective referring to the ‘scope of changes’ of the works; 2 cases with ‘mistake in
information provided by the employer’s consultant’; the other 3 cases with ‘the
engineer’s progress payment certificates are not written orders’, ‘contract bills not
prepared in accordance with SMM should be corrected by means of variation orders’
and ‘omissions must be genuine’ respectively.
5.3
Problem Encountered During Research
The main and only problem in writing up this project report is the
insufficiency of time. There is only 14 weeks’ time provided for this research
for the writer is a part time student of the master course. Everything has to be
done in a very fast manner, especially during the data collection process. This
results in less cases being found to support the findings. Meanwhile, there is
also difficulty in finding cases which are related to variation claims especially
cases in Malaysia.
5.4
Future Research
It is suggested that future research can be done by suing survey method using
interview or questionnaire instead of mere documentary analysis of law journals as
what is being done for this project report. The objective of the proposed research
shall be to identify more practical interpretation of what constitute a variation in
construction and the logical methods of valuation of variations by the experienced
professionals in the construction industry.
113
5.5
Conclusion
As a conclusion for all, construction contracts usually provide for expressed
terms for definition of variation and also rules for valuation of variations. However,
there remains a great deal of uncertainty as to what constitute a variation thus result in
dispute between the contracting parties. Thus the research is done to determine what
constitute a variation in construction from legal prospective. The discussion, though
may not be comprehensive, may be a guidelines for construction contracting parties as
well as contract administrator pertaining the principles judges normally based on in
deciding the judgments for construction disputes.
114
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