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CONSTRUCTION CONTRACT VARIATIONS
19 FEBRUARY 2014
MICHAEL SERGEANT, PARTNER
T: +44 20 7264 8034
michael.sergeant@hfw.com
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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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Basic Principles (2)
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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Basic Principles (3)
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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What is within/outside the Scope of Works? (3)
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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What is within/outside the Scope of Works? (4)
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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No variation instruction: Contractor still claims extra (3)
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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No variation instruction: Contractor still claims extra (4)
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 common arguments raised by contractors:
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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No variation instruction: Contractor still claims extra (7)
The common arguments raised by contractors:
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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