CONTINUING PROFESSIONAL DEVELOPMENT
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VARIATIONS AND ADDITIONAL WORK
NOT PLAIN SAILING
By
Roger Knowles
VARIATIONS AND ADDITIONAL WORK
NOT PLAIN SAILING
Variation Clauses
The variations clause which appears in most standard forms of contract is
extremely important from the employer’s point of view where the contract
provides for the contractor to construct the works described in the contract for
a lump sum. In the absence of a variations clause the contractor’s obligation
will be limited to completing the work described in the contract and there will
be no obligation to undertake any variations or additional work. It has been
argued that if the work is necessary to complete what is described in the
contract then the contractor in relation to a lump sum contract will be obliged
to undertake the work even though it may not have been referred to in the
specifications or shown on the drawings. For example door furniture may not
have been specifically referred to in the contract documents but where a
contractor enters into a lump sum contract for the construction of say a house
it would be implied that the price includes for door furniture. In the case of
Williams v Fitzmaurice (1858) it was held that the contractor had an obligation
to provide the flooring even though it was not mentioned in the specification.
Power to order variations is usually bestowed on the employer by way of a
variations clause.
Standard Contract Variations Clauses
Most of the commonly used standard forms of contract include an extensive
variations clause. The normal variations clause will provide power for the
employer to call for varied or additional work including additions, omissions,
substitutions, alterations, changes in the quality, form, character, kind,
position, dimension, level or line. Some of the contracts go even further. In the
JCT 1998 contracts provision is made for the addition, alteration or omission
of any restriction imposed in the contract such as access to the works,
limitation of working space, limitation of working hours and the execution of
work in any order. The powers of the employer are usually exercised by
somebody on his behalf. Under JCT contacts where the employer is
responsible for the design of the works it is the Architect or Contract
Administrator whose duty it is to issue instructions regarding variations. Under
the ICE conditions it is the Engineer who undertakes the task. Where the
contact provides for the contractor to undertake the design it is usually the
Employers Agent of Representative who will issue the instructions.
Instructions given to the contactor to vary the works should be in writing but
some contacts provide for the giving of oral instruction. The clauses which
specifically allow for oral instructions to be given need to be fully understood
to avoid disputes from arising. It is a requirement of the JCT 1998 contracts
that if an instruction to vary the works is given otherwise than in writing, which
seems another way of saying if given orally, then the contractor will be obliged
to confirm the instruction within 7 days. Hopefully the wording in the
confirmation is in keeping with that given orally otherwise the Architect has a
further 7 days to dissent. If no dissent is forthcoming the variations as
confirmed will take effect. If no confirmation is made by the contractor the
Architect can issue his own confirmation at any time up to the issue of the
final certificate.
Evaluation of Variations and Additional Work
To ensure that the contract leaves little to be the subject of negotiations nearly
all of the standard forms of contract provide a mechanism for evaluating
variations and changes. Wherever possible rates are included in the contract
documents which are used for the evaluation of variations and additional
works. They are sometimes included in a Bill of Quantities as per JCT 1998
With Quantities and ICE 6th and 7th Editions. Where there is no Bill of
Quantities for example JCT 1998 Without Quantities there is often a schedule
of rates provided as one of the contract documents which is used for the
evaluation of variations and extra works. Difficulties can often occur with
contracts where the contractor is required to undertake the design of the
works. There is usually no Bill of Quantities or schedule of rates, merely a
contract sum analysis which is usually insufficiently detailed to proved specific
rates for use in the evaluation of variations and additional work. It is therefore
advisable for employers who use contracts of this nature to avoid where
possible the giving of instructions for variations and extra works.
It is usually the duty of the Architect, Contract Administrator or Engineer to
undertake the task of evaluating variations and additional works. The contract
rates however will only apply where specifically required by the contract. For
example the contract rates only apply where a JCT 1998 or ICE contract is
used if the varied or additional work is of a similar character and executed
under similar conditions to that described in the contract. If work is of a similar
character but is not executed under similar conditions then it will be a matter
of applying a PR to the contract rate. Where the character of the work carried
out differs from that described in the contract them a fair valuation will be
applied.
There may be circumstances where work which has not been varied but has
been affected by work which has been the subject of a variation. For example
additional work may have been instructed which needs to be urgently
completed and involves transferring operatives from other parts of the works.
This could well affect the productivity or the work from which operatives were
transferred. Both the JCT and ICE conditions allow for new rates to be applied
to the work so affected in order to compensate the contractor for the
additional cost which has resulted from the transfer of the operatives.
Daywork
Most standard forms of contract provide for the payment of contractors and
subcontractors on a daywork basis under certain specified circumstances.
Examples are varied work which involves altering work already completed.
This usually involves the contractor or subcontractor keeping accurate records
of the time spent by the on site labour in carrying out a section of the works
together with the materials and plant employed. The contract usually requires
the contractor to submit these records to the Architect/Contract Administrator
or Engineer at specified times. In the case of JCT contracts the records must
be submitted at the end of the week following the week in which the work has
been carried out. By way of contrast the ICE conditions require the contractor
to submit records on a daily basis.
The JCT contracts indicate that it is appropriate for contractors to be paid on a
daywork basis if it is not possible to properly measure and value the work.
This differs from the ICE conditions which provide for payment on a daywork
basis where the Engineer considers it appropriate.
Pricing Errors
It is not uncommon for contractors to make pricing errors in putting together
their tenders. On a lump sum contract the result may be that the price which is
submitted is less than would have been the case if the error had not been
present. This may be due to say an error in extending a unit price into the total
price column. If the error is discovered before the contract is entered into the
contractor will normally be given the option of standing by the tender amount
which includes the error or withdrawing the tender. It is not usual to allow the
contractor to correct the error even if the net result would still leave the
contractor with the lowest price. If all the work is subject to remeasure as in
the case of ICE 6th and 7th Editions then the extending error whilst affecting
the tender sum will due to the work all being remeasured and priced at the
unit rates not affect the final account sum. In other words the contractor will
not suffer from the extending error.
Pricing Errors Affected by Variations
The contractor may include in his tender an incorrect unit rate which may
have been priced too high or too low. If the error is not identified during the
tender vetting stage and the contractor’s tender price included in the contract
along with the error then the contractor will either suffer the loss or derive a
benefit. The contractor’s loss or gain can be further affected if the item of work
is subject to a variation in quantity. Contractors often argue where the contract
includes a pricing error which fixes the rate at too low a level that the low rate
only applies to the quantity of work included in the contract and that any
excess quantity should be priced at a fair rate. This argument was proved to
be unsound by the decision in the case of Dudley Corporation v Parsons and
Morrin Ltd (1959). The contract terms were RIBA 1939 form where the
evaluation of variations was dealt with in a manner similar to JCT 1998. In this
case the contractor priced an item for excavating 750 cubic yards of rock for a
lump sum of £75 i.e. two shillings per cubic yard. Unfortunately this was a
gross undervaluation. More rock was encountered during the excavation
process than was anticipated and the final total came to 2230 cubic yards.
The architect valued 750 cubic yards at the two shillings rate in the contract
and the balance at £2 per cubic yard. It was held by the Court of Appeal that
this was incorrect and that the contract rate of two shillings per cubic yard
should apply to the full 2230 cubic yards. A similar situation occurred in the
case of Henry Boot Construction v Alstom Combined Cycle (2000) but in this
case the rate included in the contract due to an error in the pricing of sheet
piling was too high. Alstom was the employer for the construction of a
combined cycle gas turbine power station at Connahs Quay. Boot carried out
the civils work employing the ICE 5th edition conditions. In post tender
negotiations Boot submitted a price of £250,880 for additional and different
temporary work in connection with the lowering of cold water pipework. This
extra work formed part of the contract. In calculating this figure Boot had
made an error when pricing the sheet piling, the result of which produced a
sum much higher than it should have been. This error remained undetected
during post tender negotiations pre-contract negotiation. A variation was
issued during the course of the work which involved more sheet piling. Boot
extrapolated the rate from the £250,880 lump sum for the sheet piling work at
the inflated rate. This would if accepted provide a windfall for Boot. The Court
of Appeal found in favour of Boot. Its reasoning was that the parties had
agreed the rate and were as a result stuck with it; the mistake was irrelevant.
A third case Aldi Stores v Galliford (2000) involved an argument concerning
varied quantities but was unconnected with a pricing error but more related to
tactical pricing
The price for the work included disposing of contaminated material to a
licensed tip at a rate of £44.50 and the disposal of clean material at a rate of
£8.50. During negotiations Galliford agreed to absorb the rates for the
disposal of both clean and contaminated material in the overall price for the
work. The rate for the disposal of both clean and contaminate material was
thus nil. When the work got underway it transpired that all the excavated
materials were contaminated and had to be disposed at the licensed tip. The
contractor claimed that there had been a variation and with it an entitlement to
revisit the rates for the disposal of the excavated material. It was held by the
court that as there was no change in the conditions under which the work had
been carried out the contractor was held to the price in the contract for
disposing of the contaminated material which was nil.
Loss of Profit on Work Omitted
Contractors often argue that where work is omitted from the contract they lose
an opportunity of earning the profit element which was built into the value of
work omitted. This being the case they claim from the employer the loss they
allege they have suffered. Whether they are entitled to this loss of profit will to
a large extent depend upon the wording of the contract and whether the work
has truly been omitted or merely omitted from the contract with arrangements
made for it to be undertaken by others. Many years ago when JCT 63 was
extensively used it was a relatively simple task to recover loss of profit when
work was omitted. Clause 11(6) includes an entitlement for the contractor to
be paid any direct loss and or expense which results from the issue of a
variation. Loss of profit would certainly fall within the ambit of direct loss and
expense. JCT 1998 however does not include this clause or anything like it.
The wording of the variations clause indicates that where work is omitted the
omission will be valued at contract rates where work is of a similar character
executed under similar conditions and does not significantly change the
quantities. If as a result of the omission there is a significant change in
quantities then the contractor is entitled to be paid a fair allowance for the
change in quantities. It may therefore be successfully argued that the
omission of work significantly changes the quantities and as a result the loss
of profit on the omitted work would form part of the fair allowance. A similar
case can be made out where ICE 5th and 6th editions are employed. In these
contracts the engineer has power to change rates or prices for any items of
work in the contract which are rendered inapplicable due to the varied work.
The argument would run that the rates may be rendered inapplicable for the
remainder of the work due to the omission and therefore a re-rating would be
appropriate which would include loss of profit on omitted work. This is
probably the best argument which contractors could use albeit somewhat
tenuous, in the absence of a JCT 63 type clause.
The situation however is very different when work is omitted and given to
other to undertake. This often occurs where the employer is looking to save
cost and takes bite size chunks out of the contract to enable others to carry
out the work at cheaper prices. The matter came before the courts in
Australia, where the construction industry is run on similar lines to the UK, in
the case of Carr v J A Berriman (1953). In this case the court held that if work
is omitted from the contract and given to others to carry out the contractor is
entitled to be paid loss of profit. The reasoning being that the contractor is
entitled to undertake all the work in the contract unless the terms state
otherwise. In transferring work to others the employer is in breach of contract
and loss of profit would form part of the damages which would become
payable. In Amec Building Ltd v Cadmus Investments Co Ltd (1996) the
contractor claimed for loss of profit in relation to a provisional sum which was
omitted from the contract and the work given to others to undertake. Amec
claimed for loss of profit and referred the matter to arbitration. The arbitrator
found in favour of Amec and the matter was then referred to the court by
Cadmus. In finding in favour of Amec the judge stated:
It seems to me that the arbitrator was perfectly correct in deciding that such
an arbitrary withdrawal of work from the provisional sums and the giving of it
to the third party was something for which Amec were entitled to be
compensated and the compensation that he arrived at namely the loss of the
profit having accepted figures put forward to him in evidence is one which is
not open to be impugned on appeal as a matter of law.
When Does a Variation Become a Separate Contract?
Contractors who find themselves with contracts which have been the subject
of extensive change and where they are consistently losing money often look
for a quick way out of the dilemma. One route which has found limited
success is to argue that due to extensive extra work or all of the work carried
out being so fundamentally different from what the contractor contracted to
undertake then either the extra work or all of the work represents a new
contract. This being the situation the contactor, if the argument succeeds, will
be entitled to payment on a quantum meruit basis and not be tied to the rates
referred to in the variation clause.
Standard Forms of Contract
The standard forms of contract try to circumvent this argument before it is
raised. The ICE conditions state that no variation shall vitiate or invalidate the
contract. Similar wording exists in the JCT Forms which state that no variation
required by or subsequently sanctioned by the Architect shall vitiate the
contract. The intention behind the wording is that no variation will have the
effect of creating a separate contract. Whilst this may be the intention, in the
final analysis it will be the court or tribunal who decides whether or not a
separate contract arises out of the varied work
Legal Precedence
There have been a number of cases where this matter has been placed
before the court for a decision.
Thorn v London Corporation (1876)
In this case the judge said “if the additional or varied work is so peculiar so
unexpected and so different from what any person reckoned or calculated on,
it may not be within the contract at all” A mere increase in the quantities of the
work will not invalidate the original contract even though substantial. The work
ordered must be totally different from that contracted for and this being the
case the contractor will be entitled to payment on a quantum meruit basis and
not the contract rates.
Bush v Whitehaven Trustees (1888)
In this case a contractor undertook to lay a water main and divert certain
streams on the understanding that the work would be carried out in the month
of June, Due to delays on the part of the employer the contractor was unable
to proceed before the winter when wages were higher and the works more
difficult due to the weather conditions. The court held that these changed
circumstances were such that the contractor became entitled to payment on a
quantum meruit basis.
Blue Circle v Holland Dredging (1987)
A contract was let under the ICE 5th Edition for dredging work in Lough Larne.
The dumping of the dredged material was to be in areas agreed with the local
authority. A variation was issued to facilitate the dumping of the dredged
material to form a bird island. It was held that as the island construction was
completely outside the original dredging Holland was not obliged to accept the
work as a variation. Hence the island became the subject of a separate
agreement.
McAlpine Humberoak v McDermott International (1996)
In this case a contract was let for the construction of four huge pallets in
connection with the construction of an oil rig. The number of drawings used
increased from 22 which were available at tender stage to 161 for the
construction of the work. In addition the contractor raised many TQs (technical
queries) in relation to the drawings. The lower court held that the changes
were so extensive that the old contract had been replaced. When the dispute
was referred to the Court of Appeal a different view was taken when it was
decided that the changes fell within the variations clause.
Costain Civil Engineering Ltd v Zanen Dredging and Contracting Co Ltd
(1996).
This case arose out of a subcontract in connection with the construction of a
tunnel under the River Conway. The subcontract employed was the ICE Blue
Form of Subcontract and the work comprised site preparation and dredging
operations. A part of the work was the backfilling of a casting bay which had
been used for the construction of the concrete units which formed the tunnel.
It was decided that rather than backfilling the casting bays the void would be
used to construct a marina. It was argued that the work relating to the marina
should be valued at contract rates with an uplift of around 10%. The judged
ruled that the marina was not a variation but a separate contract and that this
method of valuing the works was not appropriate.
Cautious Approach
It would appear that it is only in the most exceptional circumstances that an
argument that the work as carried out represents a separate contract will
succeed. In any event if a contractor is to be successful with this type of claim
it is essential that he takes some form of stand at the earliest moment. The
continued execution of the work, without protest, on the terms of the contract,
for example the payment provisions and applications for extensions of time,
may render it difficult for the contractor to subsequently argue that the
contract has no application.
Quantum Meruit
Where it is decided that work does not fall within the original contract or where
all of the work is so radically different that none of the work is covered by the
original contract then payment will be due on a quantum meruit basis. Where
this occurs it would not be appropriate to regard the work as though it had
been performed to any extent under the contract. Keating on Building
Contracts 7th Edition as at 4-26 makes it clear that payment should be made
at fair commercial rates.
Standard Questions and Model Answers
Standard Questions
1. How does a variations clause benefit an employer where the contract is
a lump sum contract?
2. Give examples of some of the undertakings required by variation
clauses which appear in standard forms of contract.
3. How do the JCT contracts deal with variations where the instruction is
given other than in writing?
4. What are the basic rules for valuing variations on a JCT contract?
5. How do standard forms of contract usually deal with the matter of
payment of the contractor on a daywork basis?
6. What is the effect on the contractors financial position if the contractor
when preparing his tender makes an arithmetical error and as a result
the tender is lower than otherwise would be the case
7. A contractor includes in a tender where a Bill of Quantities is uses a
rate which due to an error is either much higher or lower than it should
be. If the quantities of the item substantially increase should the
incorrect rate still be used?
8. Where work is omitted from the contract will the contractor be entitled
to recover loss of profit?
9. Under what circumstance may a variation be dealt with as a separate
contract
Model Answers
1. Where a contract is let which has no variations clause to carry out work
for a lump sum, the contractor will be obliged to construct the work
described in the contract for the lump sum and will be under no
obligation to carry out variations to the works as instructed by the
employer or agent acting on his behalf. If the contractor agrees to carry
out additional work he will be able to successfully argue that the work
constitutes a separate contract and therefore will not be held to the rates
and prices in the original contract. Where the contract contains a
variations clause the employer has a right to have instructions issued
whereby the contractor is obliged to undertake extra or varied work at
the rates referred to in the variations clause.
2. Examples of obligations conferred on the contractor in some of the
variation clauses which appear in standard forms of contract:

Varied or additional work including additions, omissions,
substitutions and alterations

Changes in the form, quality, character, kind, position,
dimension, line or level

Alteration, addition or omission of any restriction imposed
in the contract, such as access to the works, limitation of
working space and hours and the execution of work in
any order.
3. If an instruction is given otherwise than in writing such as a verbal
instruction then the contractor must confirm the instruction in writing
within 7 days. Once the instruction has been confirmed then the
Architect/Contract Administrator has a further 7 days to dissent from
what has been confirmed. If no dissent is forthcoming the variation as
confirmed will take effect.
4. Where ever possible rates included in contract documents are intended
for use when evaluating variations. The contract rates may be set out in
a Bill of Quantities or a schedule of rates. These rates are used for
evaluating variations where the work is of a similar character and
executed under similar conditions as those described in the contract. If
work is of a similar character but is not executed under similar
conditions then it will be a matter of applying a PR to the contract rate.
Where the character of the work carried out differs from that described
in the contract them a fair valuation will be applied.
5. Most standard forms of contract provide for the payment of contractors
and subcontractors on a daywork basis. This usually involves the
contractor or subcontractor keeping accurate records of the time spent
by the on site labour in carrying out a section of the works together with
the materials and plant employed. The contract usually requires the
contractor to submit these records to the Architect/Contract Administrator
or Engineer at specified times. In the case of JCT contracts the records
must be submitted at the end of the week following the week in which the
work has been carried out. By way of contrast the ICE conditions require
the contractor to submit records on a daily basis.
The JCT contract indicates that it is appropriate for contractors to be paid
on a daywork basis if it is not possible to properly measure and value the
work. This differs from the ICE conditions which provide for payment on
a daywork basis where the Engineer considers it appropriate.
6. It is not uncommon for contractors to make pricing errors in putting
together their tenders. On a lump sum contract the result may be that the
price which is submitted is less than would have been the case if the error
had not been present. This may be due to say an error in extending a unit
price into the total price column. If the error is discovered before the
contract is entered into the contractor will normally be given the option of
standing by the tender amount which includes the error or withdrawing the
tender. It is not usual to allow the contractor to correct the error even if the
net result would still leave the contractor with the lowest price. If all the work
is subject to remeasure as in the case of ICE 6th and 7th Editions then the
extending error whilst affecting the tender sum will, due to the work all
being remeasured and priced at the unit rates, not affect the final account
sum. In other words the contractor will not suffer from the extending error.
7 There have been two high profile cases which involve a situation where
the contractor includes in his tender a pricing error. In the case of Dudley
Corporation v Parsons and Morrin Ltd (1959) the rate for excavating in rock
was too low whilst in the case of Henry Boot Construction v Alstom
Combined Cycle (2000) the rate for sheet piling was too high. In both cases
tenders had been prepared using a Bill of Quantities. When the final
quantities were measured due to variations they showed a substantial
increase compared with the quantities in the Bill of Quantities. As a result
Parsons and Morrin sustained a substantial loss whilst Henry Boot enjoyed
a windfall profit. It was argued that all quantities in excess of those in the
Bill of Quantities should be priced on a fair valuation. The court held in both
cases that the wording of the contracts were such that the parties had
agreed that variations would be valued at rates in the Bill of Quantities and
this would remain the case even if the rates contained substantial errors.
This principal will apply if the contract used is one of those commonly
employed on construction contracts such as JCT and ICE.
8. Where work is omitted from the contract it is not uncommon for
contractors to claim for loss of profit. For contractors to show an
entitlement it is necessary for them to identify a clause in the contract
under which they are entitled to be paid. Many years ago when JCT 63
was extensively used it was a relatively simple matter to recover loss of
profit when work was omitted. Clause 11(6) includes an entitlement for
the contractor to be paid any direct loss or expense which results from
the issue of a variation. Loss of profit would certainly fall within the
ambit of direct loss and expense. JCT 98 and 05 do not include this
clause or anything like it and the same applies to the ICE conditions. It
would therefore be difficult where these conditions apply for contractors
to successfully claim for loss of profit. A case on a tenuous basis can
however be made out under JCT 98 and 05 and the ICE conditions for
loss of profit. These contracts allow for the rates for work to be altered
if there is a significant change in quantities (JCT) or the rates rendered
inapplicable (ICE) due to omissions. The argument would run that
omissions should trigger off the use of these entitlements and lend
weight to a case for loss of profit.
It has been decided by the courts, that where work is omitted from the
contract and arrangements made to have it carried out by others, then
the contractor is entitled to be paid for loss of profit. This applies even if
the work omitted is the subject of a provisional sum. The decisions in
Carr v JA Berriman (1953) and Amec Building v Cadmus (1996) dealt
with the point of legal principal that to take out work which is included in
the contract and give it to others to carry out amounts to a breach of
contract.
9. Contractors who find themselves with contracts which have been the
subject of extensive change and where they are consistently losing
money often look for a quick way out of the dilemma. One route which
has found limited success is to argue that due to extensive extra work,
or all of the work which has been carried out being so fundamentally
different from what the contractor contracted to undertake, then either
the extra work or all of the work represents a new contract. This being
the situation the contactor, if the argument succeeds, will be entitled to
payment on a quantum meruit basis and not be tied to the rates
referred to in the variation clause. Examples of variations which the
courts have held to be separate contracts include:

A contract was let on the basis that the laying of a water main
and diverting streams would be carried out in June. Due to
delays on the part of the employer the work could not be carried
out until later in the year. As a result of the delay the contractor
experienced losses due to higher wages and more difficult
working conditions. It was held by the court that the changes
rendered the work to be the subject of a new contract. Bush v
Whitehaven Trustees (1888).

In the case of Blue Circle v Holland Dredging (1987) a contract
was let for dredging work in Lough Larne. The dumping of the
dredged material was to be in areas agreed with the local
authority. A variation was issued to facilitate the dumping of the
dredged material to form a bird island. It was held that as the
island construction was completely outside the original dredging
Holland was not obliged to accept the work as a variation.
Hence the island became the subject of a separate agreement.

The case of Costain Civil Engineering Ltd v Zanen Dredging and
Contracting Co Ltd (1996) arose out of a subcontract in
connection with the construction of a tunnel under the River
Conway. The subcontract employed was the ICE Blue Form of
Subcontract and the work comprised site preparation and
dredging operations. A part of the work was the backfilling of a
casting bay which had been used for the construction of the
concrete units forming the tunnel. It was decided that rather than
backfilling the casting bays the void would be used to construct
a marina. It was argued that the work relating to the marina
should be valued at contract rates with an uplift of around 10%.
The judged ruled that the marina was not a variation but a
separate contract and that this method of valuing the works was
not appropriate.