construction contract variations .pptx

7/22/2019 Construction Contract Variations .Pptx

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CONSTRUCTION CONTRACT VARIATIONS

19 FEBRUARY 2014

MICHAEL SERGEANT, PARTNER

T: +44 20 7264 8034

[email protected]


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Qatar Civil Code

Article 709

Under a lump sum contract to undertake works to an agreed plan,

the contractor may not seek any additional monies because of

some alteration or addition to the plan, unless it can be attributed to

an act of the employer or the employer has authorised the change

and has agreed with the contractor its entitlement.


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Basic Principles (1)

A contractor must construct the Scope of Works described in the

contract An employer has no automatic right to insist on a change to the

Scope of Works

Variations clauses are included in contracts to give the employer the

right to insist on changes

In order for a variation to be validly instructed it must be:

Instructed in accordance with the rules & procedure within the contract

A change that the employer is entitled to order (type of work, value,

timing)


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If an employer instructs a valid variation in accordance with the

contract provisions then: The contractor must undertake the changed work

The contractor will get extra money & time in accordance with the

contract provisions

If there is no a valid change instruction then:

The contractor may not build something different to the contract Scope of

Works

The contractual rights to money & time for variations that arise under the

contract are not triggered


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The process of instructing variations is normally undertaken by the

Engineer The Engineer acts as the agent of the employer when ordering

variations

As with any agent, the Engineer only has power to act within the

scope of the powers he has been given (Qatar Civil Code, Articles

81

90)

The construction contract sets out the scope of the Engineer's

powers to instruct change

It will typically be the case that the Engineer can only validly instruct

changes that are ordered by a formal Variation Order


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Common problems

What is within/ outside the Scope of Works?

If the contractor carries out extra work without an instruction can itstill claim payment?

Changes that are only needed because of the contractor's failure/

default: Are these variations?

Particular issues that arise when varying under Design & Buildcontracts


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What is within/outside the Scope of Works? (1)

The contractor is typically required to undertake the Scope of Works

as described in a large number of documents The Scope documents will often contain inconsistencies,

ambiguities, gaps and contradictions

The process of establishing what the Scope is will involve

considering

The relevant law on the interpretation of contracts, such as Qatar Civil

Code Articles 169 & 170

Priority of documents clause listing the order of importance of

documents; e.g. FIDIC Red Book clause 1.5

Clauses requiring the contractor to identify errors in the employer'sdocuments within a time-scale or take the risk; e.g. FIDIC Yellow Book

clause 5.1.


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What is within/outside the Scope of Works (2)

Having analysed the relevant rules/ law on interpretation the position can

be either:

1. There is a gap/ contradiction in the Scope so the contractor has no obligation

to do extra work unless instructed as a variation

2. The contract requires the contractor to undertake all work that is necessary to

complete the project even though it is not specifically referred to


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One of the benefits of a Design & Build contract is that it limits the

risk of "gaps" in the Scope. A Design & Build contractor should be required to build the works

according to a 2-stage test:

1. The contractor must follow the specification, drawings etc. (i.e. the

contractor's technical design)

2. But the contractor must also ensure that this achieves the stipulated

performance/ design standard (the Employer's Requirements)

Gaps in the contractor's technical design do not mean variations

because the contractor must resolve such problems in order to

achieve the Employer's Requirements


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Under a build-only contract there is a much greater risk of gaps in

the description of the works The contractor will just be required to build in accordance with the

technical description: the specification and the drawings

There will not normally be overarching "project aims &

requirements" that must be achieved

Risk of a deadlock arising:

The contractor says that it will not build certain work unless a variation

instruction is issued

The employer says that it will not issue the instruction because the work

is within the Scope


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No variation instruction: Contractor still claims extra (2)

Typical problem situations

1. The contractor makes a change to the Scope because it thinks

that it is an improvement. The employer is happy with the

improvement but refuses to pay extra because there was no

Variation Order.

2. The employer refuses to issue a Variation Order because it thinks

that the item of work is within the Scope. The contractor later

establishes that the item of work is extra. The employer says it

has no obligation to pay because no Variation Order was issued.


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Typical problem situations

3. The employer asks the contractor to do extra work but does not

issue a formal Variation Order. The employer tells the contractor

that this does not matter and will not affect his right to money. It

later refuses to pay on the basis that there is no Variation Order.

4. The contractor is undertaking excavation and hits unexpectedly

bad ground and so cannot undertake the defined Scope. The

employer refuses to give a Variation Order.


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The common arguments raised by contractors:

The contract itself has been varied:

Distinction between a variation instructed under the contract and a

variation to the contract terms

The parties to a contract may agree to vary its terms, including the

description of the product being sold

The parties themselves must vary the contract The Engineer will not

normally have authority to vary the contract itself

The contract itself may stipulate that variations to the contract terms will

only be valid if recorded in a stipulated format


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No variation instruction : Contractor still claims extra (6)


The employer/ Engineer refuses to issue a Variation Order on thebasis that the work in question is within the Scope and therefore is

not a change:

In English law this is treated as an implied promise to pay; i.e. because

the VO is refused on a false assumption

Breach of a party's duty of good faith (Qatar Civil Code, Article 172)


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The contractor cannot continue with/ complete the project unless itmakes a change to the Scope

The employer & contractor have agreed that the defined Scope will be

built

The employer is not obliged to receive something that is different

What is the Scope? e.g. under a D&B contract the contractor may be

obliged to depart from the specification/ drawings in order to achieve the

Employer's Requirements

A contract will often give the contractor other rights to claim for the costs

of necessary changes to the way the works are undertaken; e.g. Ground

Conditions clauses (FIDIC Red Book clause 4.12) or loss & expenseclauses


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Variation required because of contractor's failure/risk (1)

Examples of situations where this arises:

The contractor delays in ordering the specified materials which have a

long lead-in time. The contractor wants to order different (more

expensive) materials instead to avoid delay.

It becomes clear that the design & build contractor's foundations design

is inadequate and therefore it needs to be changed.

The employer may issue a Variation Order but may not expect to

pay for the change


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Variation required because of contractor's failure/risk (2)

The employer needs to be very careful in these situations

Construction contracts often make no distinction concerning thereasons a variation is instructed - Normally a VO = money & time

There can be a number of reasons why a VO was issued

An employer should give the contractor permission to make the

change rather than issue a VO If the contractor thinks that the change is not its fault then it may

insist on a VO before doing the work


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Particular issues relating to design liability (1)

Under a design & build contract the contractor has agreed to take

design responsibility for the defined Scope of Works The employer can vary the Scope of Works:

Is the contractor still responsible for the design integrity even though it is

not the Scope as contained in the original contract?

If not, then the employer no longer has a full design warranty


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Particular issues relating to design liability (3)

Since the employer changes the Employer's Requirements (the

output criteria) then it has limited control over the design solution This may mean that the employer has limited control over the cost

of the change

Potential for dispute as to whether the design solution is over

engineered

Provisions allowing for the employer to make requests for design

change proposals and to agree on the change (plus cost & time) in

advance


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Questions


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