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Last edited 01 Oct 2020
Variations in construction contracts
A variation (sometimes referred to as a variation instruction, variation order (VO) or change order), is an alteration to the scope of works in a construction contract in the form of an addition, substitution or omission from the original scope of works.
Almost all construction projects vary from the original design, scope and definition. Whether small or large, construction projects will inevitably depart from the original tender design, specifications and drawings prepared by the design team.
This can be because of technological advancement, statutory changes or enforcement, change in conditions, geological anomalies, non-availability of specified materials, or simply because of the continued development of the design after the contract has been awarded. In large civil engineering projects variations can be very significant, whereas on small building contracts they may be relatively minor.
Variations may include:
- Alterations to the design.
- Alterations to quantities.
- Alterations to quality.
- Alterations to working conditions.
- Alterations to the sequence of work.
- Change the fundamental nature of the works.
- Omit work so that it can be carried out by another contractor.
- Be instructed after practical completion.
- Require the contractor to carry out work that was the subject of a prime cost sum.
In legal terms, a variation is an agreement supported by consideration to alter some terms of the contract. No power to order variation is implied, and so there must be express terms in contracts which give the power instruct variations. In the absence of such express terms the contractor may reject instructions for variations without any legal consequences.
Standard forms of contract generally make express provisions for the contract administrator (generally the architect or engineer) to instruct variations (for example, FIDIC Clause 51.1). Such provisions enable the continued, smooth administration of the works without the need for another contract.
 Valuation of variations
Variations may give rise to additions or deductions from the contract sum. The valuation of variations may include not just the work which the variation instruction describes, but other expenses that may result from the variation, such as the impact on other aspects of the works. Variations may also (but not necessarily) require adjustment of the completion date.
Variations may be valued by:
- Agreement between the contractor and the client.
- The cost consultant.
- A variation quotation prepared by the contractor and accepted by the client.
- By some other method agreed by the contractor and the client.
Valuations of variations are often based on the rates and prices provided by the contractor in their tender, provided the work is of a similar nature and carried out in similar conditions. This is true, even if it becomes apparent that the rates provided by the contractor were higher or lower than otherwise available commercial rates.
If similar types of works to those instructed by a variation cannot be found in the drawings, specification or bills of quantities, then fair valuation of the contractor's direct costs, overheads and profit is necessary.
'Assessment of compensation events as they affect Prices is based on their effect on Defined Cost plus the Fee. This is different from some standard forms of contract where variations are valued using the rates and prices in the contract as a basis. The reason for this policy is that no compensation event for which a quotation is required is due to the fault of the Contractor or relates to a matter which is at his risk under the contract. It is therefore appropriate to reimburse the Contractor his forecast additional costs (or actual costs if the work has already been done) arising from the compensation event.'
In other words, the contractor can ignore their tender pricing and claim cost plus on variations. However, there may be disagreements about items such as factory overheads and management which are very hard to evaluate. In addition, given the complexity and length of the supply chain in major building works, getting forecast pricing from all the parties affected takes time, often beyond the date by which the contract administrator has to make the decision as to whether or not to instruct the variation.
They may then have to decide whether or not to proceed with a variation based on estimates from the cost consultant which in due course get replaced by the actual cost. It has been argued that this practicality defeats the some of the rationale of the NEC contracts in relation to cost control and decision making.
 Source of conflict
Conflict can arise when work is not mentioned in the bills of quantities, drawings or specifications. In common law this silence does not mean the contractor has an automatic right to claim for extra payment. The client is not bound to pay for things that a reasonable contractor must have understood were to be done but which happen to be omitted from the bills of quantities.
Where there are items that, whilst they are not expressly mentioned, are nonetheless required in order to complete the works, then the contractor should have included them in their price. The bills of quantities and specification do not necessarily have to include 'every nail to be punched in'. For example, in fixing GRC façades it is necessary to have steel supports, and a reasonably experienced contractor must make provision for this in the contract price. Unless expressly excluded, such supports are not paid for as a variation.
Conflict can also arise when a sub-contractor qualifies that, for example, 'Supply & Fixing of Door is included' but 'Supply & Fixing of Ironmongery is excluded'. A reasonable sub-contractor should foresee that a door cannot be fixed without hinges – which is a part of the ironmongery. So even if ironmongery is excluded, the sub-contractor cannot expect a variation for any of the items required to fix the doors.
Also, under the pretext of variation, the contract administrator cannot change the nature of works. For example, if the contract provides for secant pile shoring, they cannot ask for diaphragm wall shoring as it will entirely change the nature of the work.
Further, if the contract administrator omits work from contractor’s scope, such an omission must be genuine: that is, the work omitted must be omitted from the contract entirely, it cannot be used to take work away from the contractor to give it to another (for example, see FIDIC Clause 51.1). Similarly, the contract administrator is not empowered to order variations to help the contractor if the contract works are proving too difficult or expensive for them.
Variations are often sources of dispute, either in valuing the variation, or agreeing whether part of the works constitute a variation at all, and can cost a lot of time and money during the course of a contract. Whilst some variations are unavoidable, it is wise to minimise potential variations and subsequent claims by ensuring that uncertainties are eliminated before awarding the contract.
This can be done by:
- Undertaking thorough site investigations and condition surveys.
- Ensuring that the project brief is comprehensive and is supported by stakeholders.
- Ensuring that legislative requirements are properly integrated into the project.
- Ensuring that risks are properly identified.
- Ensuring that designs are properly coordinated before tender.
- Ensuring the contract is unambiguous and explicit.
- Ensuring the contractor's rates are clear.
- Preparing concise drawings, bills of quantities and specifications, providing for all situations which are reasonably foreseeable.
 Related articles on Designing Buildings Wiki
- Extension of time EOT in construction contracts
- Architect's instruction
- Campaign for cash retentions reform.
- Change order for construction contracts
- Alterations to existing buildings
- Prime cost sum
- Liquidated damages in construction contracts
- Construction contract
- Change control procedure for building design and construction
- Compensation event
- Abortive work in building design and construction
- Payment for extra work
- Bill of quantities BOQ
- Confirmation of verbal instruction
- Scope of work
- Dayworks in construction
- How to prepare a claim for an extension of time
- Contract sum
- Loss and expense
- Contract documents for construction
- Relevant event
- Fluctuations in construction contracts
- Valuation of interim payments
 External references
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