Acknowledgements We, the group member of this assignment, strongly agree that realization of this term paper

will be impossible without the support of others. So it is with deep gratitude that we express

our appreciation to the following, for their contributions:

To Ato Zewdu Tefera, our adorable instructor and the provider of the assignment.

Once again we would like to pass our deep appreciation to Ato zewdu for giving us

this opportunity to work to together and to know more about the course matter.

To Addis Ababa University Civil Engineering Department, for providing the

necessary support letters for concerned offices that makes our work a lot easier.

To the staff of the Ethiopia Road Authority, Contract Administration Division, for

providing the data for this assignment. This work might have not been full without

their help.

Abstract Construction projects because of their special characteristics are susceptible and they are

subjected to the influence of many external and internal factors. A large number of project

participants because of their actions cause variations to the scope and design of the

projects. The need to make changes in a construction project is a matter of practical reality.

Even the most thoughtfully planned project may necessitate changes due to various factors.

In some cases natural causes also contribute to variation requests to construction projects.

Identification of causes of variation, effects of variation and control for variation are the

important concepts for managing variation in the construction projects. This assignment will

focus extensively on literature review to point out these causes and effects of variation in

the construction projects. The paper also specifies different measures that should be taken

to control the adverse impacts of variation on the construction industry. This literature

review also introduces the concepts of value engineering, contractual variation and

variation in works.

The regulation of variation under the MDB-FIDIC and PPA condition of contracts and the

applicable law of Ethiopia are another area that this term paper will focus in detail.

Reviewing each condition of contract and the applicable law the paper will explain clauses

or articles that are related to the concept of variation. In the meantime the similarity and

the difference of variation concepts in each condition of contract and the applicable law will

be presented.

Finally this term paper will presents a case study of three finalized road projects. The

projects are selected randomly from completion report. Based on the review of the

literature and the case studies, the paper concludes that lack of coordination among the

parties and changes in specifications by the employer are the important factors leading to

variations. The assignment also concludes that time overruns and cost escalations are the

major impact of variations in construction projects.

Key worlds: variation, construction projects, Condition of contracts, Value Engineering,

Causes, Effects, Types, Civil code, court

ABBREVIATIONS

PPA Public Procurement Agency

MDB-FIDIC Multilateral Development Bank- International Federation of

Consulting Engineer

ETB Ethiopian Birr

ERA Ethiopian Road Authority

ADB African Development Bank

FDRE Federal Democratic Republic of Ethiopia

ICB International Competitive Biddings

1. Introduction

1.1. Rationale and Purpose of the Assignment

The purpose of this assignment is to explore the concepts of variations and their

regulation under the MDB-FIDIC and PPA conditions of contract and the

applicable law of Ethiopia. Additionally the concept of variation under these laws

will be compared to show their similarity and difference in tabular form.

It is the known fact that construction projects involve different variations in their

due courses. These variations arise mainly due to the dynamic nature of the

projects and different factors that cannot be prevented from the construction

industry. Thus nature of the construction projects generates variations to the

scope and design of the projects.

Engineer has the power to make any variation orders of the form, quality or

quantity of the Works or part thereof subject to the approval of the Employer.

Such order would result in increase or decrease the quantity of any work

included in the contract. There are instances of omissions of work from the

scope. Furthermore the Engineer is empowered to change the character or

quality or kind of any such work. This may result in change the levels, lines

position and dimensions of any part of the works. At times it becomes

compulsory, on the part of the Engineer to order for additional work of any kind

necessary for the completion of the work. Further the faulty designs although the

Engineer fails to accept causes more concern, conflicts, cost and time over run.

There are cases of interferences by the Employer results in variations. This state

of affairs makes the Engineer and Contractor at tacit unease. Because of the

misunderstanding created on account of variation orders, disputes and claims

become a constant affair in the construction industry. In order to settle these

disputes and claims clauses that are related to variation are included in

construction contracts. Therefore this paper will focus on the variation concepts

that are included on construction contract (international or local) and other

applicable laws of Ethiopia. In this context, this paper attempts to find out

different causes of variations by all the project stakeholders such as Employers,

Engineers, Contractors and subcontractors, the impact of variation orders, the

problems encountered because of the variation orders and the possible

resolution to the problems and issues resulting from variation orders in the

construction contract.

Moreover this paper will focus on the comparison of variations concepts and

their regulation under the international construction contract (MDB-FIDIC), local

construction contract (PPA) and any applicable laws of the country.

1.2. Objectives

The main objectives of the paper can be summarized as follows:

1. To overview the concepts of variation in the construction industry.

2. To identify Potential Causes and Effects of Variations in the industry.

3. To identify the concepts of variations and their regulation under

different construction contracts.

4. To examine the variation concepts in the construction industry of

Ethiopia

5. To give conclusion and recommendation based on finding of the

paper

1.3. Methodology followed

To develop this paper the following procedure are conducted:

Literature review concerning the concepts of variation in the

construction projects is conducted;

Construction contracts such as MDB-FIDIC and ICB of PPA are genuinely

reviewed to find out clauses related to the subject matter, addition to

these construction contracts applicable laws of Ethiopia are viewed.

Analysis of case studies related to the subject matter are conducted to

support our discussion of the paper

1.4. Limitation of the assignment

As this assignment is meant for semester term paper, the work conducted to

develop it is not as such enough as a normal scientific research paper required.

Especially the selection of case studies are not based on the concepts of sampling

techniques and also the number construction projects that are selected for case

study are only three, that are not represent the true nature of construction

projects in the country

2. Variation in construction industry

2.1. Definition of variation

Variation in construction contracts can imply changes to the terms of the contract, changes

to the scope or character of the works. There is no single definition of what constitutes a

variation; usually most of construction contracts will contain a definition of variation by

including a “changes” clause. Such a "Changes" clause is beneficial to both the contractor

and employer as it increases the flexibility of construction contracts by providing for the

variations without the necessity for a new contract for incorporating any addition, deletion

or modification of a project requirement. Beside contractual meaning and definition of

variation there are different scholars that give the meaning and definition of variation in the

construction industry. Some of these definitions are given below

"Written authorization provided to a contractor approving a change from the original plans,

specifications, or other contract documents, as well as a change in the cost" (Means, 1991).

"It is (1) additional or modified scope of work; (2) errors and omissions in plans and

specifications; (3) changes required by governmental entities; (4) design changes; (5)

overruns or underruns in quantities; and (6) conditions impacting on schedule, the time of

completion or the method or manner of performance of the work," (Libor, n.d).

Other important issues to note on variations:-

The contractor may not make any variation without an order from the Engineer,

Such order must be in writing;

The contractor must carry out an oral order,

The contractor may confirm an oral order, and if he does so, the Engineer must

contradict it forthwith if he does not agree with it; and

Contractor should always as a matter of routine confirm any oral instruction given by

the Engineer or his staff ( Abebe Dinku, Prof.Dr.Ing)

An effective analysis of variation requires a compressive understanding of the root cause of

variation and their potential downstream effects. To manage a variation mean being able to

anticipate its effects and to control, or at least monitor the associated cost and schedule

impact. Hence identification of causes of variation, effects of variation and control for

variation are the important concepts for managing variation in the construction industry.

The detail description of these concepts are given in subsequent subtopics

2.2. Potential Causes of Variations

2.2.1. Employer related variation

The employer as the project initiator plays a major role in the construction project from

the inception to the completion phases. As a result, employers influence the likelihood

of the occurrence of variation. Employers anticipate the needs and objectives of

projects, establish the scope of works and the required quality standards. During the

construction stage, employers initiate variation due to various reasons. Some of these

are;

Change of plans or scope by Employer: Change of plan or scope of project is one of the

most significant causes of variation in construction projects and is usually the result of

insufficient planning at the project definition stage, or because of lack of involvement of

the employer in the design phase. This cause of variations affects the project severely

during the later phases.

Change of schedule by Employer: A change of schedule during the project construction

phase may result in major resource reallocation. Time has an equivalent money value. A

change in schedule means that the contractor will either provide additional resources, or

keep some resources idle. In both cases additional cost is incurred.

Employer’s financial problems: The employer of the facility may run into difficult

financial situations that force him to make changes in an attempt to reduce cost.

Employer’s financial problems affect project progress and quality.

Inadequate project objectives: Inadequate project objectives are important causes of

variation in construction projects. Due to inadequate project objectives, the engineer

would not be able to develop a comprehensive design which leads to numerous

variations during the project construction phase.

Replacement of materials or procedures: Replacement of materials or procedures may

cause major variations during the construction phase. The substitution of procedures

includes variations in application methods. Therefore, an adjustment to the original

contract value is required if there is a change in procedures.

Change in specifications by owner: Changes in specifications are frequent in

construction projects with inadequate project objectives. In a multi-player environment

like any construction project, change in specifications by the employer during the

construction phase may require major variations and adjustments in project planning

and procurement activities

Impediment in prompt decision making process: Prompt decision making is an important factor for

project success. A delay in decision making may hinder subsequent construction activities that may

eventually delay the project progress.

2.2.2. Engineer related variation

This section discusses the causes of variations that were initiated by the engineer. In

some cases, the consultant directly initiates variations or the variations are required

because the engineer fails to fulfill certain requirements for carrying out the project.

These are:

Change in design by Engineer: Change in design for improvement by the engineer is a

norm in contemporary professional practice. The changes in design are frequent in

projects where construction starts before the design is finalized. Design changes can

affect a project adversely depending on the timing of the occurrence of the changes.

Errors and omissions in design: Errors and omissions in design are an important cause of

project delays. Design errors and omissions may lead to loss of productivity and delay in

project schedule. Hence, errors and omissions in design can affect a project adversely

depending on the timing of the occurrence of the errors.

Conflicts between contract documents: Conflict between contract documents can result

in misinterpretation of the actual requirement of a project. To convey complete project

scope for participants, the contract documents must be clear and concise. Insufficient

details in contract documents may adversely affect the project, leading to delay in

project completion.

Inadequate scope of work for contractor: In a multi-player environment like

construction, the scope of work for all the players must be clear and unambiguous for

successful project completion. Inadequate scope of work for the contractor can cause

major variations that may adversely affect the project, leading to changes in

construction planning.

Technology change: Technology change is a potential cause of variations in a project.

Project planning should be flexible for accommodating new beneficial variations. This is

because the new technology can be beneficial in the project life cycle, for instance,

reducing maintenance cost of the project.

Value engineering: Value engineering should ideally be carried out during the design

phase. During the construction phase, value engineering can be a costly exercise, as

variation in any design element would initiate downstream variations to other relevant

design components.

Design complexity: Complex designs require unique skills and construction methods.

Complexity affects the flow of construction activities, whereas simple and linear

construction works are relatively easy to handle. Hence, complexity may cause major

variations in construction projects.

Inadequate working drawing details: To convey a complete concept of the project

design, the working drawings must be clear and concise. Insufficient working drawing

details can result in misinterpretation of the actual requirement of a project. Thorough

reviewing of design details would assist in minimizing variations.

Ambiguous design details: A clearer design tends to be comprehended more readily.

Ambiguity in design is a potential cause of variations in a project. This is because

ambiguity in design can be misinterpreted by project participants, leading to rework and

delay in the project completion. Eventually, this may affect the project adversely.

Noncompliance of design with government regulations: Noncompliance of design with

government regulations would render the project difficult to execute. Noncompliance

with government regulations may affect the project safety and progress adversely,

leading to serious accidents and delays in the project completion.

2.2.3. Contractor Related Variations

In some cases, the contractor may suggest variations to the project, or the variations may be

required because the contractor fails to fulfill certain requirements for carrying out the

project. These variations may be categorized into different forms, some of these are:

Lack of contractor’s involvement in design: Involvement of the contractor in the design

may assist in developing better designs by accommodating his creative and practical ideas.

Lack of contractor’s involvement in design may eventually cause variations. Practical ideas

which are not accommodated during the design phase will eventually affect the project

adversely.

Unavailability of equipment: Occasionally, the lack of equipment may cause major design

variations or adjustments to project scheduling to accommodate the replacement.

Unavailability of skills (shortage of skilled manpower): This lack can be a cause for

variations that may delay the project completion.

Contractor’s financial difficulties: Contractor’s financial difficulties may cause major

variations during a project, affecting its quality and progress.

Contractor’s desired profitability: The contractor may eventually strive to convince the

project owner to allow certain variations, leading to additional financial benefits for him.

Differing site conditions: Differing site condition can be an important cause of delays in

large building projects. The contractor may face different soil conditions than those

indicated in the tender documents. Eventually this may affect his cost estimates and

schedule adversely.

Lack of communication: Detrimental variations, which affect the projects adversely, can

usually be managed at an early stage with strong and incessant communication. A lack of

coordination and communication between parties may cause major variations that could

eventually impact the project adversely.

Lack of strategic planning: Proper strategic planning is an important factor for successful

completion of a building project. The lack of strategic planning is a common cause of

variations in projects where construction starts before the design is finalized, for instance, in

concurrent design and construction contracts.

Contractor’s lack of required data: A lack of required data may affect the contractor’s

strategic planning for successful project completion, leading to frequent disruptions during

the construction process. This is because a lack of data can result in misinterpretation of the

actual requirements of a project.

2.2.4. Other causes Variations

This section discusses the causes of variations that were not directly related to the participants.Weather conditions: Adverse weather conditions can affect outside activities in

construction projects. When weather conditions vary, the contractor needs to adjust the

construction schedule accordingly. Occasionally, this may affect the project progress

adversely, leading to delays in construction.

Safety considerations: Safety is an important factor for the successful completion of a

building project. Noncompliance with safety requirements may cause major variations in

design. Lack of safety considerations may affect the project progress adversely, leading

to serious accidents and delays in the project completion.

Change in government regulations: Local authorities may have specific codes and

regulations that need to be accommodated in the design. Change in government

regulations during the project construction phase may cause major variations in design

and construction. This can affect a project adversely depending on the timing of the

occurrence of the changes.

Change in economic conditions: Economic conditions are one of the influential factors

that may affect a construction project. The economic situation of a country can affect

the whole construction industry and its participants. Eventually, this may affect the

project adversely, depending on the timing of the occurrence of the variations.

Socio-cultural factors: Professionals with different socio-cultural backgrounds may

encounter problems due to different perceptions, and this may affect the working

environment of the construction project. Lack of coordination is common between

professionals with different socio-cultural backgrounds. Eventually, project delays may

occur that end up with vital changes in the entire project team.

Unforeseen problems: Unforeseen conditions are usually faced by professionals in the

construction industry. If these conditions are not solved spontaneously, they may cause

major variations in the construction projects. Eventually, this may affect the project

adversely, leading to reworks and delays in the project completion.

Table 2.1 below summarizes the different causes of variations and their origins

No

Causes of variation orders

Empl

oyer

Engi

neer

cont

ract

or

othe

rs

1 Change of plans or scope x

2 Change schedule x

3 Financial problems x x

4 Inadequate project objectives x

5 Replacement of materials or procedures x

6 Obstinate nature of the parties x x x

7 Change in specification x x

8 Change in design by the Engineer x

9 Errors and omission by design x

10 Conflict b/n contract document x

11 Inadequate scope of work for the contractor x

12 Technology change x

13 Value engineering x

14 Lack of coordination x

15 Design complexity x x

16 Inadequate working drawings details x

17 Inadequate shop drawings details x

18 Consultant’s lack of judgment and experience x x

19 Lack of consultant’s knowledge about available

materials and equipments

x

20 Honest wrong beliefs of consultant x

21 Consultant’s lack of required data x

22 Ambiguous design detail x

23 Design discrepancies x

24 Non- compliant design with government regulations x

25 Non- compliant design with owner’s requirement x

26 Lack of contractors’ involvement in design x

27 Unavailability of equipment x

28 Unavailability of skills x

29 Contractor’s desired profitability x

30 Differing site conditions x

31 Defective workmanship x

32 Unfamiliarity with local conditions x

33 Lack of specialized construction manager x

34 Fast track construction x

35 Poor procurement process x

36 Lack of communication x

37 Long lead procurement x

38 Honest wrong beliefs of contractor x

39 Lack of strategic planning x

40 Contractor’s lack of required data x

41 Weather conditions x

42 Health and safety considerations x

43 Change in government regulations x

44 Change in economic conditions x

45 Socio-cultural factors x

46 Unforeseen problems x

Source: Adapted from Arain and Pheng (2006)

2.3 Potential Effects of Variations

The most common effects of variation in any construction industries are identified as follow.

Delay in progress of work

Cost overrun

Need of additional professionals

Increase in overhead expenses

Delay in progress payment

Low quality of work

Low productivity

Completion schedule delay

Delay in Procurement

Rework and demolition

Logistic delay

Tarnish firm’s reputation

Poor communication between professional

Additional payment for contractor

Dispute among professionals

Now let as see each effects of vibration in depth how they affect the project.

Delay in Progress of works

Change orders by Employer during construction significantly affect the construction

progress. These changes may be changes in scope are typically requested by the employer to

modify the facility to better use or any other reasons. Sometimes the change may be at the

early stage the construction, these types of changes do not affect the construction process and

they are not as such costly. But a change made during the actual construction period highly

affects the progress of work and are expensive to the contractor.

Unforeseen conditions also initiate change order during construction period. Examples of

these unforeseen conditions would be unexpected soil conditions, the discovery of buried

material like archeological centers, treasures, precious stones, and weather conditions and

weather damage.

Errors and omissions are situations where the original plans and specifications have been

incorrectly drawn or represented. The result of this situation can be extremely costly, if not

caught soon. The contractor should be looking at the plans from the start to ensure that design

errors and omissions are minimized.

The frequency and magnitude of the change orders can be greatly reduced if a great attention

is given in areas of pre-planning, risk management and change order management.

Cost overrun

The most common effect of variations during the construction is cost overrun, change in

scope by the employer or some alteration of the design contribute a lot for cost overrun of the

project. This is because of high inflation/increased material price; additional cost incurred

during the interruption of work and so forth. Therefore, in any construction it is necessary to

allocate a contingency sum of money to overcome cost overrun because of variation.

Need of additional professionals

If there is a variation or change order in the construction process, the contractor require to

work over time or need to have additional human power to compensate the delay in the

construction process cased by the variation order or if there is a variation in a complex

projects there is a need to have additional professionals or additional human power.

Otherwise variation in a complex project affects the project significantly because there is a

time overrun in search of ne professionals.

Increase in overhead expenses

Variations require processing procedures, paper work and reviews before they can even be

implemented (O’Brien, 1998). The process and implementation of variations in construction

projects would increase the overhead expenses for all the participants concerned. Normally

these overhead charges are provided for from the contingency fund allocated for the

construction project.

Delay in payment

The Contractor will be compensated for damages incurred due to variation order for which

the employer is responsible. Actual costs will be determined by the Engineer. Actually the

employer will not be liable for damages which the Contractor could have avoided by

reasonable means, such as judicious handling of forces, equipment, or plant. The

determination of what damages the Contractor could have avoided will be made by the

Engineer.

Unless contractor has been aware of the following equation, delay in payment is a common

effect of variation order.

i. What is a Progress Payment Request?

A progress payment request is the process of asking your lender to pay your builder for part

of the work that has been completed.

The contractor and the client may have already agreed to how many payments will be made,

the gap between those payments, their amount and when they are due. The lender simply

makes sure that these payments are made when stipulated.

ii. Prior to Commencement

Before the contractors begin construction, there is a need to be provided the following

documents:

Signed building contract.

Council approved plans.

Construction certificate or Building permit or Decision notice

Builders Insurance (certificate of currency).

Builders Indemnity

You can either send these to the owner, prior to the first progress payment request or with the

first progress payment request.

With regard to the progress payment, the main cause is that the contractor will not submit or

send the progress payment requisite ahead of the commencement of the work, and this will

not give sufficient time to the owner to do so or to facilitate the payment.

iii. The First Progress Payment Request

There are often delays with the first progress payment request because in many cases, the

above documents have not been provided or have been lost by the lender.

These documents may have been supplied during loan approval; however the construction

department may not have a copy of the file from the credit department that approved your

loan.

iv. How to Request a Progress Payment

Simply fax the bank the following documents:

A signed progress payment request form (available from your lender) or a signed

letter from you authorizing payment.

A copy of the invoice from the builder.

(First progress payment only) A copy of the receipt from the builder showing that you

have paid them the funds you are required to contribute.

(Final progress payment only) Call the lender to discuss their additional requirements

prior to sending them the request.

v. Your Final Progress Payment Request

For your final progress payment request, the lender will usually send a valuer to the property

to confirm that work has been completed as per the contract & plans provided.

If there is any unfinished work then the lender will withhold payment until the work is

completed.

You may need to provide additional documents such as:

A certificate of occupancy from the council,

A copy of your building insurance with enough cover to replace the building. This

copy must also include the name of the lender, on the policy, and

Other documents as per normal, such as a progress payment request, as well as an

invoice from your builder.

Discuss these requirements with your lender prior to requesting the progress payment. You

can avoid variation order by providing all of the documents up front.

Low quality of works

If there is repeated variation order is there during the construction process, it has an adverse

effect on the quality of the work. This is because of the fact that if variation is frequent,

contractors tended to compensate for the losses by cutting corners.

Low productivity

Interruption, delays and redirection of work that are associated with variation orders have a

negative impact on labor productivity. Construction labor productivity is typically measured

as labor hours per amount of work done. Labor productivity rates and other related data are

often not tracked on construction projects with any degree of precision. As a result, it

substantiates a cause of construction delay. Labor productivity losses and establishing

entitlement to recovery for lost labor productivity often requires analysis by a qualified

construction labor productivity expert.

Labor productivity loss is some time experienced when a contractor is not accomplishing the

planned production rates because of variation order. In other words, a loss of productivity due

to variation order takes more labor and equipment to do the same amount of work for

prolonged periods to compensate for schedule delays, thereby increasing project costs. There

are many common causes for labor productivity impacts on a construction project, stemming

from owners, contractors, and construction managers.

Procurement delay

Variations which are imposed when construction is underway may require revised

procurement requests (O’Brien, 1998). Procurement delays can be frequent due to variations

that require new materials and specialized equipment. Hester et al. (1991) observed that

procurement delays were common effects of variations related to new resources for

construction projects.

Rework and demolition

As it is known error may be commuted during the construction process by the contractors or

sub contractors as a result demolition and rework are the common phenomena in construction

projects. Rework and demolition are potential effects of variations in construction, depending

on the timing of the occurrence of the variations. When the error commuted is because of the

fault of the contractor or sub contractor they are forced to re do it once again without any

compensation. This type of variation order is a potential effect for a construction delay.

Logistics delays

Because of the employer interest or unavailability of the specified materials in the market, it

forces the contractor to change the material in the contract document and to have a new

material. But material change requires variation order and certification by the Engineer.

Therefore, delays caused by material or equipment are significant effects of variation in the

construction project and the process take time for the contractor to execute the work as

scheduled.

Tarnish firm’s reputation

Variations are referred to as a major source of construction claims and disputes (Fisk, 1997;

Kumaraswamy et al., 1998). The claims and disputes may affect the firm’s reputation

adversely, leading to insolvency in severe cases. Variations also increase the possibility of

professional disputes. Conventionally, variations present problems to all the parties involved

in the construction process.

Poor safety conditions

During the construction process there is a variation in construction method, materials and

equipments, and these variations contribute a lot for poor safety conditions.

Poor communication between professionals

Variation or change order is the major cause of disputes, and the disputes are in turn affects

proper communication between professionals.

At the same time poor communication and coordination by the parties or Lack of

communication in construction business may leads to misunderstandings, conflicts and

disputes. If the owner of the project is poor in communication with parties it is a great cause

for construction delay. Hence it necessitates the owners to have effective communication

skills which are one of the significant skills with the project parties involving in construction

projects.

Additional payments for contractor

Additional payments for the contractor can be a potential effect of variations in construction

projects. Variations are considered to be a common source of additional works for the

contractor (O’Brien, 1998). Due to additional payments, the contractor looks forward to

variations in the construction project.

Disputes among professionals

Disputes among professionals are effects of frequent variations in construction projects and it

is the major causes of delays in construction projects. Frequent variation order may also leads

to misunderstandings, conflicts and disputes among professionals. Variation order by the

employer and discrepancies in contract documents will give rise to disputes between the

various parties. Furthermore, if the disputes cannot be solved smoothly or easily it can lead to

arbitration or litigation. But frequent communication and strong coordination can assist in

eliminating the disputes between professionals.

2.4 Types of variation

Variation can be broadly classified in to two:

Textual or Contractual variation and

Variation of works

Even though variation is classified as contractual or variation of works, problems concerning

variations arise in the following three areas:

1. Scope (was it a variation or was the contractor bound to do it anyway?);

2. Non-compliance with procedural requirements; and

3. Valuing the variations.

2.4.1 Contract variation

Let as first start from the definition of a contract.

As per Article 1675 of civil code “Contract is an agreement whereby two or more persons as

between themselves create, vary or extinguish obligation of a proprietary nature.”

Once again a contract of employment is a contract of service and comes into picture, when

the contractor agrees to work for and employer in return for pay.

Therefore, the employer and the contractor have to bind themselves according to the

definition or conditions of contract with some terms or contract clauses.

These terms of a contract are:

The rights and obligations which bind the parties to the contract.

Express terms of a contract (those which are explicitly agreed between the

parties, either in writing or orally) or implied terms of a contract (those which

have not been spelled out but which would be taken by the parties to form part

of the contract).

Terms are implied, for instance, because they are:

Too obvious to mention or because the parties assumed they would be incorporated at the

time the contract was entered into.

Necessary to make the contract workable. For example, that an employee employed as a

driver will hold a valid current driving license)

The custom and practice of the business or industry, i.e.: where a custom or practice has been

adopted over a period of time.

Express terms may be established by referring to various sources, particularly the written

statement of terms and conditions, the letter of appointment and written or oral statements

made by the employer and accepted by the contractor. Express terms may also be

incorporated into individual contracts by reference to other documents.

Statutory terms are those implied or imposed by an act of Parliament or Statutory

Instrument, Example: the imposition of an equality clause into an employee’s contract and

the entitlement to be paid the national minimum wage or given a minimum period of notice.

Why would employers or contractors want to vary a contract?

If a change in economic circumstances or due to a reorganization of the

business. Possible areas of change could include pay rates, hours or days

worked duties, supervisory relationships or place of work. This is mostly done

by the employer.

To bring about improvements in pay or working conditions, for instance by

requesting additional holidays, or to change the conditions so that they suit

him or her better, for example, by requesting a change from full-time to part-

time working because of domestic responsibilities.

How can contracts be varied?

An existing contract of employment can be varied only with the agreement of

both parties. Changes may be agreed on an individual basis or through a

collective agreement (i.e.: agreement between employer and contractor or their

representatives).

An employer who is proposing to change an employee’s contract of

employment should fully consult with that employee or his or her

representative(s) and explain and discuss any reasons for change.

Variations of contract can be agreed verbally or in writing. It is preferable for

any agreed changes to be recorded in writing.

Where a variation in the contract has been agreed and the changes concern

particulars which must be included in the written statement of terms and

conditions, the employer should give written notification of the change to the

employee, within a month of the change taking effect.

Notice: any change made by either the employer or contractor without out the considerations

as to how a contract is varied as discussed above and without the consent of the other party,

by deferring the terms of a contract, it is a breach of a contractual agreement between the

parties.

On the other hand a contract terms may be changed by the common agreement of the parties.

For what so ever the cases the change med by varying the contract terms or clauses is referred

to as a contractual variation.

2.4.2 Variation in works

Shortage of material in a market or unavailability of the specified construction materials at

the time of construction may initiate a change of work or variation in works. That means the

contractor is forced to replace the material which is specified on the contract document a new

material.

Design change by the consultant or by the employer may also lead to a variation in works

done by the contractor.

Whether the variation of work is within the scope of the contract will depend, firstly, on the

terms of the contract. In many cases, the documents forming the contract for variation order

are defined. Therefore, the contractual relationship between the parties is constituted by:

(a) The Formal Agreement to which these Conditions of Contract are attached;

(b) These Conditions of Contract;

(c) The Contract Particulars;

(d) The Works Description; and

(e) The other documents (if any) referred to in the Contract Particulars.

Even without such explicit provisions, it is probably true to say that the court will not confine

itself to the written agreement alone in determining the variation of work within the scope of

the contract: specifications, drawings, correspondence, etc, all form part and parcel of the

contract.

Notice: Any type of works done by the contractor with the enforcement of the employer or

the consultant or with the common consent of all the parties, but which are different type of

work form the one stated on the contractual document as a work description of the project

and the one which do not compliant with the specification and the corresponding drawings is

referred to as variation due to works.

2.5 Controls for Variation Orders

2.5.1 Design Stage Controls for Variation Orders

Review of contract documents: Since Contract documents are the main source of

information for any project reviewing of variation clauses in the contractual document is the

first to thing to do to control variation order properly. Failing to do so may cause conflicts

between contract documents which is a series problem in the project execution.

Detail design revision: Changing the design of the project highly affects the progress of the

work and it is a cause for cost overrun depending on the time of the change. That means

design variation at the initial stage it is not as such costly but design change made in the mean

time of the construction work significantly affect the project. Therefore, freezing the design is

a strong control method to avoid the problems related to variation in design.

Value engineering at conceptual phase: During the design phase, value engineering can be

a cost saving exercise, as at this stage, variation in any design element would not require

rework or demolition at the construction site. Therefore, Value engineering at the conceptual

stage is good mean of controlling variation order in the construction projects, especially after

the project is on the process.

Involvement of professionals at initial stages of project: Involvement of experienced

professionals during the design phase may assist in developing better designs. This is because

of the fact that experienced professionals contribute their creative idea form their past

experience.

Practical ideas that are not accommodated during the design phase may affect the project

adversely. Variation during the construction phase is a costly activity as it may initiate

numerous changes to construction activities.

Employer’s involvement at planning and design phase: In the planning and design phase

the employer of the project has to be consulted properly in order to avoid any design change

in the mean time of the construction process. This is done to clearly know the project

objectives by the employer from the beginning. Hence, this may help in eliminating

variations during the construction stage where the impact of the variations can be severe.

Involvement of contractor at planning and scheduling process: In the planning and

scheduling process if the contractor is involved it is better to develop better plan and

schedule. This is done to substantiate the plan and schedule prepared by the consultant.

Clearly know the project objectives by the owner from the beginning. Eventually, this may

eliminate the major variations in the later stages of the construction project where the impact

of the variations can be severe.

Thorough detailing of design: A detail design including detail drawings is more easer to

control variation order. This would also assist in identifying the errors and omissions in

design at an early stage. Eventually, thorough detailing of design can eliminate variations

arising from ambiguities and errors in design.

Clear and thorough project brief: A clear and thorough project brief is an important control

for variations in construction projects (O’Brien, 1998) as it helps in clarifying the project

objectives to all the participants. Eventually, this may reduce the design errors and non

compliance with the owner’s requirements.

Reducing contingency sum: The provision of a large contingency sum may affect the

participants’ working approaches. This is because the designer may not develop a

comprehensive design and would consequently carry out the rectifications in design as

variation orders during the later stages of the construction project. Therefore, reducing the

contingency sum would be helpful in ensuring that the professionals carry out their jobs with

diligence.

2.5.2 Construction Stage Controls for Variation Orders

Clarity of variation order procedures: knowing the procedure of variation order at the

construction phase is an important control mechanism of variation order. At the Early stage

of the project life, the procedures should be identified and made clear to all parties.

Written approvals: verbal variation order may lead the contractor at risk because there is no

way to have a legal proof to get compensation of cost for the varied work. So a good way of

controlling this type of problem is for every variation in the original price must be approved

in writing by the owner before the actual variation order is made.

Variation order scope: From the very beginning, the scope of the work has to be defined

clearly. This will help to identify variation of scope form vibration due to design

development and help to minimize the adverse effect of variation on the construction due to

change in scope of the work made after the commencement of the construction. Thus, the

effective definition of the scope of work is of paramount importance to identify and manage

variations.

Variation logic and justification: Good knowledge of a logical approach to settle vibration

order and giving appropriate justification for a given vibration helps professionals in

promoting beneficial variation and eliminating detrimental variations.

Project manager from an independent firm to manage the project: If the project manager

is from independent firm, process of decision making is not yet affected by external factors

and design discrepancies are reduced by early reviewing of the contract documents and

drawings. Thus, this helps to eliminate variations that arise due to lack of coordination among

professionals.

Restricted pre-qualification system for awarding projects: during the biding process to

select the capable/qualified contractors using a competitive selection method and a restricted

pre-qualification system for awarding projects is very crucial to control a variation order in

construction. Failing to do so may allow incapable parties to bid. This may eventually lead to

numerous problems in the later stages of a construction project.

Employer’s involvement during construction phase: Involvement of the employer during

the

Construction phase keep him aware of the ongoing activities. This also keeps the employer in

position to make prompt decision and promptly approve the variation order.

Avoid use of open tendering: Competitive open tendering usually encourages the main

contractor to price very low to win the contract, especially in bad times when they are in need

of jobs. This practice would give rise to the contractor trying to claim more to compensate for

the low price (Chan and Yeong, 1995). Avoiding the use of open tender would assist in

eliminating the risks of unfair bids. This may eventually help in eliminating variations that

may arise due to the contractor’s bidding strategy.

Use of project scheduling/management techniques: knowing the very possible effect of

variation and applying a good controlling mechanism of variation in a construction industry

is a good management skill. At the same time using the most known scheduling techniques in

construction management just like CPM, PERT and so forth will alleviate the associated cost

and schedule impact due to variation order.

Comprehensive documentation of variation order: To have the right and to keep the

options to pursue a subsequent claim or to defend against the claim, a comprehensive

documentation of variation order is very important. This will assists in tracking the effects of

the variation and claim events on time and cost. A documented source of knowledge about

previous variation orders would be helpful in making decisions concerning the appropriate

handling of variation orders.

2.5.3 Design-Construction Interface Stage Controls for Variation Orders

Prompt approval procedures: The most series problem in process of variation order is the

time elapsed between the time when the first variation order is announced and the time when

the matter is finally rejected or approved. If the decision is not implemented soon there is a

high cost overrun. To control this adverse effect of variations in the construction project a

prompt approval procedure is required.

Ability to negotiate variation: Ability to negotiate variation is the most cheaper and

effective control mechanisms of handling a variation order. Effective negotiation can

minimize the negative impacts of the variation. There are certain skills required for effective

negotiation of variation orders, i.e., the knowledge of contract terms, project details,

technology, labor rates, equipment, methods and communication skills.

Valuation of indirect effects: Consequential effects can occur later in the downstream

phases of a project. Therefore, it is essential to acknowledge this possibility and establish the

mechanism to evaluate its consequences. Indirect effects of variations can be substantial in

the downstream phases of a complex project (Fisk, 1997).Professionals should thus evaluate

the total overall effects a change may have on the downstream phases of a project, to manage

the variation order effectively.

Team effort by employer, engineer and contractor to control variation orders:

The team effort of the most comm. construction parties is very important in controlling

variation order which after the project adversely. If there is well coordination among the

parties the adverse effect due to variation order is easily managed at the early stage.

Utilize work breakdown structure: Adverse effects of variation order in construction

especially in a complex project can be easily controlled using a work breakdown structure

(WBS) and it is a power full controlling mechanisms to solve the problem related to variation

of works/activities. If a variation involves work not previously included in the WBS, it can be

logically added to the WBS and its relationship with the other WBS element can be easily

checked.

Continuous coordination and direct communication: Poor communication and

coordination by the contractor with the other parties or Lack of communication in

construction business may initiate variation because of misunderstandings, conflicts or

disputes. If the project manager develop a poor communication skill, he /she cannot manage

variation even at the early stages of construction but it can be done with due diligence in

coordination and frequent communication.

Comprehensive site investigation: site investigation during the briefing stage of

construction is very important to develop proper plan for construction activities. Therefore, a

comprehensive site investigation would help in reducing potential variations in a project.

Use of collected and organized project data compiled by employer, engineer and

contractor: Good documentation of a variation orders by the employer, consultant and

contractor a means to control a variation order because they can be used as a reference.

Knowledge-base of previous similar projects: If professionals have a knowledge-base

established on past similar projects, it would assist the professional team to plan effectively

before starting a project, both during the design phase as well as during the construction

phase, minimize and control variations and their effects.

Comprehensive analysis and prompt decision making through computerized

knowledge-based decision support system: The knowledge-based system would be helpful

in presenting a comprehensive scenario of the causes of variations, their relevant effects and

potential controls that would assist in decision making at the early stage of the variations

occurring.

2.5.3 Valuation of variations and Value engineering

Valuation of variation

All extra or additional work done or work omitted by order of the engineer shall be valued at

the rates and prices set out in the contract if, in the opinion of the Engineer, the same shall be

applicable. If the contract does not contain any rates or prices applicable to the extra or

additional work then suitable rates or prices shall be agreed upon between the engineer and

the contractor. In the event of disagreement the Engineer shall fix such rates or prices as

shall, in his opinion. Be reasonable and proper. Therefore, fix such rates or prices by the

engineer or by the client approval for price fixation for a varied work is a valuation of

variation.

Value engineering

Value Engineering is a systematic effort for analyzing the functional balance between cost,

reliability and performance of a product, project, process or service. It is conducted by the

team of multidisciplinary professionals.

The value engineering team is independent of the design team, but its members must have

experience in the particular field of the project in question. Working as an extension of the

design team, the VE team analyses the project from a function/cost standpoint, providing

alternative design suggestions that may improve performance, construction and life-cycle

costs. They may also improve construction methods or schedules, and may introduce

flexibility into operating or maintaining the project.

Benefits of value engineering

The main benefit obtained from effective value engineering is saving of the capital cost of the

project and achieving a good return from the investment.

Approach of value engineering

A value engineering study combines a technical capability with a systematic and intensive

approach to achieve creativity in identifying the lowest life cycle cost for the function

required by the owner. The focus on total life of the project is critical, making due allowance

for the impacts of the time cost of money on the one hand, and the escalating costs of labor,

fuels, power and materials on the other. As mentioned, the original design process is

(unavoidably) complex, involving many issues to be considered and reconsidered during

planning, design, value engineering and construction. The composition of the value

engineering team is therefore crucial to its success. Leadership of the team by an experienced

Certified Value Specialist is essential, and professionals with appropriate backgrounds and

experience are necessary to cover the various facets of the project.

Value engineering it conducted in three phases:

1. Pre study preparation phase

2. The project study work shop phase

3. The post work shop phase

The Pre-study Preparation phase

In this phase the owner, the designer and the value engineering team meet together to create

a common level of understanding on the project objectives, schedule of activities and so

forth. At this time there is also a review of data provided by the owner and the designer is

done by the value engineering team. During pre study phase models of appropriate capital

costs, energy costs and life cycle costs are prepared by the team leader.

The project study work shop phase

At this phase there is:

Briefing on Value Engineering

Presentation of project design by project designer

Outline of project constraints

Questions by value engineering team members for the designer

After this it is desirable for the owner and designer to invite the value engineering team on a

brief site visit. The team then proceeds with the following basic job plan, common to all

value engineering studies:

Information Phase: Further familiarization of the project by the team.

Creative Phase: The team lists creative ideas generated from its review of the project with

the aim of obtaining a large number of ideas through brainstorming and association of

creative proposals.

Judgment Phase: Creative ideas are analyzed, and the team selects the best ideas for further

development.

Development Phase: The team prepares alternative designs with capital and/or life cycle cost

comparisons of original designs and proposed alternatives. All recommendations are

supplemented with written descriptions, sketches, basic design concepts, technical

information and cost summaries.

Presentation Phase: The team presents an oral summary of its findings to the owner and the

designer, explaining the basic ideas recommended their cost-saving implications and their

attendant rationales.

The post work shop phase

On the last phase the team prepares a report for the owner, completed and submitted in a

timely manner, such that the design process may continue. The owner and designer consider

the value engineering recommendations, and jointly decide which items have merit for

implementation in a revised design.

In order to achieve a best result from the value engineering on has to consider the following

important points.

Top level commitment and support from the owner

A qualified VE team leader and experienced members

A well managed value engineering program

An appropriate project approach based on function analysis and proven methodology

Cooperation between the owner, the value engineering team and the designer, along

with empathy for the designer’s position

3. VARIATIONS AND THEIR REGULATION UNDER THE MDB-FIDIC

AND PPA CONDITIONS OF CONTRACT AND THE APPLICABLE LAW

3.1 Variations under FIDIC

The MDB-FIDIC specifies variations of contract from clause 13.1 to 13.8. According to

MDB-FIDIC variations may be initiated either by engineer or by request proposal of the

contractor at any time. The contractor is bounded by the decision of the engineer. The

engineer shall cancel, confirm or vary the instructions.

3.1.1 Right to Vary

Under MDB FIDIC clause 13.1, the engineer has the right to initiate variations by requesting

or instructing the contractor to submit a proposal for variation, also has the right to decide on

the request for variation proposed and submitted by the contractor.

The contractor shall execute any of the variations unless he/she is promptly noticed to the

engineer by stating that either the materials or goods which are required for the variation are

unavailable or such a variation causes a great difference on the progress of the work. The

engineer has the right to cancel the variation order, confirm and vary the instruction as well.

The contractor has no right to make any kind of changes, addition or omission to the progress

of the work unless told by the engineer to do so. [Sub-Clause 13.1]

3.1.2 Value Engineering

The variation request can be proposed by the contractor, if the proposal or draft by contractor

has an advantage for the client in case of:

I. If the contractor assume that it accelerate completion of construction works by

using different methods or changing sequence in construction, which provides an

advantage for the employer to be productive in short period of time.

II. Reduce the cost to the Employer of executing, maintaining or operating the

Works,

III. Improve the efficiency or value to the Employer of the completed Works, or

IV. Otherwise be of the benefit to the Employer.

For this case the contractor’s proposal can be approved by the engineer.

If the proposal is approved by the engineer, the contractor shall design it unless it agreed by

both parties. [Sub-Clause 13.2]

3.1.3 Variation Procedure

Variation works instructed by engineer’s approval for the necessary work or for the proposal

draft by contractor, the variation work will be assigned to contractor must be with formal

description. If the Engineer requests a proposal, prior to instructing a Variation, the

Contractor shall respond in writing as soon as practicable, either by giving reasons why he

cannot comply (if this is the case) or by submitting a description of the proposed work to be

performed and a program for its execution.

A variation is usually effected through an instruction from the engineer. Such instructions are

usually required to be in writing. Whether this is a pre-requisite to the contractor's right to

recover payment will depend on whether the requirement is a condition precedent. This is a

matter of interpretation of the contract. It is common enough to have provisions, as these are

here, more or less stringent, saying that no extra work shall be paid for unless it is ordered in

writing by the engineer, and if such conditions are properly made, and there is nothing

fraudulent or iniquitous in the way they are carried out, these conditions would be quite

sufficient and effectual. [Sub-Clause 13.3]

3.1.4 Payment in Applicable Currencies

There are different types of payment applicable for the construction industry, this issue is

mandatory especially for the international construction projects, because the contractor may

not be interested to participate in tender with local currency. Under MDB FIDIC Sub-Clause

13.4 applicability of payment with different types of currencies the amount payable in each of

the applicable currencies shall be specified. In order to clarify the applicability of payment

the proportions of the contract prices of the various currencies should specified , that means

the variation should be paid on the percentage proportion of the currency stated on the

contract document.[Sub-Clause 13.4]

3.1.5 Provisional Sums

Under sub-clause 13.5 of the MDB-FIDIC, it is stated that the provisional sum only are used

in whole or in part, in accordance with the engineer’s instruction. The provisional sum

includes the amount for the work done by the contractor or the sub contracting one, supplies

or the services given .whenever the contractor hires a sub contracting, the provisional sums

shall include the sum of the over head charges and profits of the contractor. The contractor

should present any relevant data like produce quotations, invoices, vouchers and accounts or

receipts when requested by the engineer. [Sub-Clause 13.5]

3.1.6 Daywork

In case of minor works, the contractor may be instructed by engineer to do day work. MDB

FIDIC clause 13.6 specify the payment to be done by the engineer by considering evidences

from vouchers, accounts & receipts for any goods buy by the contractor. This clause pressed

the contractor to give day to day accurate information to the engineer. But day work basis

should be conducted as per schedule of contract agreement. The contractor should submit an

accurate and detailed statement which includes the names, occupations and time of

Contractor’s Personnel, the identification, type and time of Contractor’s Equipment and

Temporary Works, and the quantities and types of Plant and Materials used, every day to the

engineer in order to specify the payment. The engineer should sign on the copies and return

them to the contractor. [Sub-Clause 13.6]

3.1.7 Adjustments for Changes in Legislation

According to Sub-Clause 13.7 the Contract Price shall be adjusted to take account of any

increase or decrease in Cost resulting from a change in the Laws of the Country, the judicial

or official governments will interpret such laws.

If the contractor is suffering from delays or additional cost as a result of these changes, the

Contractor shall give notice to the Engineer and shall be entitled to claim for an extension of

time for any such delay or payment of any such Cost. Notwithstanding the foregoing, the

Contractor shall not be entitled to an extension of time if the relevant delay has already been

taken into account in the determination of a previous extension of time and such Cost shall

not be separately paid if the same shall already have been taken into account in the indexing

of any inputs to the table of adjustment data. [Sub-Clause 13.7]

3.1.8 Adjustments for Changes in Cost

In the Sub-Clause of 13.8, there should be adjustment data for local and foreign currencies

included in the Schedules. If there is no such of adjustment data, the Sub-Clause shall not be

applied. But if there is such of adjustment data, the Sub-Clause applies, the amounts payable

to the Contractor shall be adjusted for rises or falls in the cost of labour, Goods and other

inputs to the Works, by the addition or deduction of the amounts determined by the formulae

prescribed in the Sub-Clause. The accepted Contract Amount shall be deemed to have

included amounts to cover the contingency of other rises and falls in costs. No adjustment is

to be applied to work valued on the basis of Cost or current prices.

The cost indices or reference prices stated in the table of adjustment data shall be used. If

their source is in doubt, it shall be determined by the Engineer. For this purpose, reference

shall be made to the values of the indices at stated dates for the purposes of clarification of

the source; although these dates (and thus these values) may not correspond to the base cost

indices.

In cases where the “currency of index” is not the relevant currency of payment, each index

shall be converted into the relevant currency of payment at the selling rate, established by the

central bank of the Country, of this relevant currency on the above date for which the index is

required to be applicable.[Sub-Clause 13.8]

3.2 Variation under PPA

The SDB for ICB of PPA specifies variation of works under section 7 in clauses 39 and 40 as

follows.

Variations

Sub Clause 39.1 of the PPA specifies that whenever the variation is produced is should

include all relevant data included and in case of lump sum contracts, it should include the

activities schedule as well, and the variation has to be prepared by the contractor. [Clause

39.1]

Payment for Variations

According to Clause 40 of PPA, The Engineer has the right to make Variation, specified

under the following sub clauses.

Sub Clause 40.1 states, both for Admeasurements and lump sum contracts, the contractor

should provide the variation request when ordered or instructed by the engineer and the

engineer shall asses the variation request within seven days period from request is done or

whenever of time duration stated before the variation is ordered.

But for the admeasurements’ contracts, if the work in the variation corresponds with an item

description in the bill of quantities and if, in the opinion of the engineer, the quantity of work

above the limit stated in sub-clause 38.1 or the timing of its execution. [Clause 40.2]

For both Admeasurements and lump sum contracts, if an engineer sees that the contractor’s

estimate is unreasonable, he/she can make a change to a contract price, based on his or her

experienced forecast. All extra or additional work done or work omitted by order of the

engineer shall be valued at the rates and prices set out in the contract if, in the opinion of the

Engineer, the same shall be applicable. If the contract does not contain any rates or prices

applicable to the extra or additional work then suitable rates or prices shall be agreed upon

between the engineer and the contractor. In the event of disagreement the Engineer shall fix

such rates or prices as shall, in his opinion. Be reasonable and proper. [Clause 40.3, Clause

40.4, Clause 40.5]

3.3 Variation under Applicable Law (civil code)

In the applicable law of Ethiopia (civil code), Variation of Contract is described in section 3

as follows:

According to the applicable law, Variation of Contract could be done:-

By the contracting parties, contractual variation, the contracting parties, in principle, are

free to create & vary their contractual agreement[Art. 1764,2]; or

By the Court, judicial variation, (as an exception Contracts may get their effect through

judicial variation, by way of exception, however. Judicial variation of Contracts, as

opposed to variation of Contract by the parties, is regulated by the applicable law. Under

the applicable law, the court may vary the terms of the contract under the following

circumstances.

Where it is expressly provided by law

Where a special relationship between the contracting parties exists

[Art. 1663, Art. 1764, 1 and Art. 1766]

By arbitration a third party, the parties may prefer to get a decision by the arbitrator

relating to the variations, especially on the economic basis of their contract. [Art. 1765]

Where one of the contracting parties is a state or of public institutions:

Power of the court to vary contracts, in case of Administrative Contract due to official

decision, Bringing the performance of the contract by the Contractor more onerous or

Impossible

This concept is important in relation to construction contract of public works nature.

Judicial variation may apply, for ex., in case of Administrative Contracts. Therefore,

the provisions of the Title of this Code relating to "Administrative contracts" (Art.

3191-3193).shall be applied [Art. 1767. and Art.3131.]

Where it is partially impossible to perform the contract

The court may reduce the obligations of the parties, either the employer or the contractor,

whenever the performance of the other one is partially impossible and the contract has no any

legal background to terminate it. [Art. 1768.]

Table similarity and differences of the MDB-FIDIC & the PPA Conditions of Contract with respect to variation

No

Considerations Similarity Differences

1 Definition of variation According to MDB-FIDIC ‘ “Variation” means any change to the Works, which is instructed or approved as a variation under Clause 13 [Variations and Adjustments]”.( Sub-Clause 1.1.6.9) According to PPA” A “Variation” is an instruction given by the Engineer, which varies the Works.” (Sub-clause 1.1) Both of condition of contracts defined variation as varied work.

In the case of PPA condition of contracts variation is defined as only instructed by the Engineer, but in the case of MDB-FIDIC variation may be instructed or approved according to the conditions specified clause 13 of MDB-FIDIC.

2 Constance of variation According to MDB-FIDIC sub-clause 13.1 (a) up to(f) contents of are described as follow

Changes to quantities and quality of item of works Changes to levels, positions and/or

dimensions omission of any work any additional work, Plant, Materials or

services changes to the sequence or timing of the

execution of the WorksBut in PPA there is no such clauses that defined the each variation may include

3 Right and obligation

to vary

By Engineer

Under MDB-FIDIC condition of contract the engineer has right to initiate, order, confirm and cancel the variation(sub-clause 13.1)Under PPA condition of contract the engineer has right request and asses the variations (sub-clause 40.1)

35

By Contractor

Under MDB-FIDIC condition of contract the right and the obligation of the contractor is stated (sub –clause 13.1), but in PPA anything is sated about right and obligation of the contractor

By Employer

Under MDB-FIDIC the Employer has to approve the variation order by the Engineer(Sub-Clause 3.1)Under PPA there is no any clauses that state this case

4 Value Engineering The concepts of value engineering are given in detail under MDB-FIDIC condition of contract (sub-clause 13.2), but nothing is stated under PPA

4 Procedure of variation According to MDB-FIDIC the procedure of variation begins with proposal request by the Engineer to the contractor, and then the contractor will respond this request in written form as soon as practicable. The response may be negative (if this is the case) or positive. It includes

a description of the proposed work to be performed and a programme for its execution,

modified programme of the contractor due to this variation (according to sub-clause 8.3)

the Contractor’s proposal for evaluation of the Variation

Finally the Engineer shall, as soon as practicable after receiving such proposal (under Sub- Clause 13.2 [Value Engineering] or otherwise), respond with approval, disapproval or comments. (Sub-Clause 13.3)In the case of PPA condition of contract there is no clause that state the procedure of variation

4 Currency that is applicable in variation payment, if the

MDB-FIDIC stated that the payment currency for the varied works should be based on the proportions of various currencies specified for payment of the Contract Price. (Sub-Clause 13.4)

36

contract involve various currencies

PPA also stated that “Unless otherwise stated, all payments and deductions will be paid or charged in the proportions of currencies comprising the Contract Price.” (Sub-Clause 43.3)

5 The provisional sum

6 Variation of works on Daywork basis

For minor or incidental nature of varied works both MDB-FIDIC and PPA allows execution of these works based on daywork basis. The rate of price shall be paid based on the rate valued in the contract document in both cases. (MDB-FIDIC Sub-Clause 13.6 and PPA Sub-Clause 53.1 )

7 Adjustments forChanges in Legislation

In MDB-FIDIC the contractor has the right to ask any adjustments regarding to cost and time whenever he feels that he suffers from additional cost as result of changes in the laws of the country, including introduction of new laws and modification of the existing one. But in PPA there is no clause that state this case

8 Adjustments forChanges in Cost

Sub-clause 13.8 of MDB-FIDIC and Sub-Clause 47.1 of PPA gives us the following adjustment factor

Definition of each terms are specified in the condition of the contract

37

4. Case Study of Three ERA Road Projects

4.1. General

This chapter tries to cover a case study of three finalized road projects. The projects are selected

randomly from completion report. One by one analysis of the three projects is presented as

follows.

4.2. Project 1

4.2.1. Project information

Road condition and scope of the work.

The existing road had a variable width of 6m to 7.5m and has now been rehabilitated to a 7m

width carriageway with 1.5m wide shoulders in flat and rolling terrain whilst in the hilly and

mountainous terrain the carriageway width is 6.5m with either 1m or 0.5m shoulders.

The rehabilitated pavement sections comprise of the following

35mm asphalt wearing course

40mm asphalt base or binder course

100mm crushed aggregate base course

50mm minimum depth of crushed aggregate stone base mixed with old milled existing asphalt

surfacing for leveling course.

The new pavement consists of the following

50mm asphalt wearing course

175mm to 200mm crushed aggregate base course

250mm granular sub base material

130mm to 265mm selected sub grade material

38

4.2.2. Basic contract data

a. Contract data for Construction contract

Contract Name Project 1

Type of project Road rehabilitation project

Employer ERA

Length 187Km

Notification of Contract 26 Nov 1999

Date of contract signature 28 Nov 2000

Commencement date 15 Mar 2001

Original time for completion 36 month

Original completion date 14 Mar 2004

Extension time 30.9 month

Revised completion Date 11 Jan 2007

Actual final completion date 18 Feb 2007

Type of contract Ad measurement according to

FIDIC

Original Contract Price ETB 289,838,439.05

Revised total contract amount ETB 482,117,075.20

Total Value of variations ETB 192,908,804.00

Revision of price cost ETB 59,963,756.22

Final contract price ETB 618,637,579.59

Escalation ETB 59,963,756.22

Currencies/Proportion of payments ETB 30%, Euro 70%

Contractual exchange rate 1Euro=8.46425 ETB

Funding European Development Fund

Table 3.1 contract data for project 1

b. Contract data for Consultancy service

Contract Name Project 1

39

Employer ERA

Supervisor Gauff Ingeneure GMBH & Co

KG-JBG Consulting Engineers

Date of contract signature 15 Mar 2001

Commencement date 27 Mar 2001

Original Contract Price ETB 13, 706, 739.75

Revised total contract amount ETB 28, 441, 376.42

Original time for completion 57 months

Original completion date 1 July 2005

Revised completion date 15 Oct 2005

Currencies/Proportion of payments ETB 18%, Euro 82%

Table 3.2 consultancy service contact data for project 1

4.2.3. Contract Changes and variations

Reference Description Extension of

time

Amount (ETB)

Vo 1 Additional costs for the provision and

maintenance of 4 long wheel base vehicles

and 4 double cabin pickups.

Nil 182,232.00

Vo 2 Rock core drilling at bridges b51 (Km

315) sampling and testing cores

Nil 75,944.53

Vo 3 Cleaning and de-silting of culverts Nil 184,050.00

Vo 4 Provision of gabions, steel flanges, geo

textile membrane and perforated pipes for

river training works at Km 335

Nil 1,302,231.83

Vo 5 Provision of additional Vehicles and

surveying equipment for the use of the

supervisor’s representative

Nil 933,958.96

Vo 6 Provision of additional radio equipments

for the use of the supervisor’s

Nil 120,000.00

40

representative

Vo 7 Provision of additional facilities and

equipments for the use of the supervisor’s

representative

Nil 367,328.70

Vo 8 Excavation of discharge ditches to culverts Nil 628,650.00

Vo 9 Design update and additional quantities 24.42 month 92,093,703.19

Vo 10 Omission of pavement works between km

368+872 and Km 369+187

Nil -167,465.78

Vo 11 Omission of works between Km368+872

and Km 369+187

Nil -1,320,578.80

Vo 12 Provision of four wheel drive petrol engine

air conditioned station wagons instead of

diesel engine vehicles

Nil -316,168.24

Vo 13 Revised type d1 pavement construction for

rock sub grade

Nil -547,635.75

Vo 14 Omission of pavement works between

Km314+660 and Km315+020

Nil -152,902.83

Vo 15 Additional quantities, extended period of

performance and associated costs

2.98 month 74,907,218.54

Vo 16 Omission of works between Km203+580

to Km 203+720

Nil -146,974.63

Vo 17 Omission of pavement works through

tunnel No, 1 Km 182+975 to Km 183+585

Nil -162,741.34

Vo 18 Additional quantities as a result of

unforeseen, unsuitable materials

encountered between Km 182 and Km 215

Extending period of performance and

additional associated costs

3.5 month 24,927,953.70

Total 30.9 month 192,908,804.00

Table 4.1. Variation orders at project 1

From this project we can relate and analysis the MDB-FIDIC clauses that are applicable for the

above variations. The detail is given below in the table

41

Table 4.2 Summery of

Relevant MDB-FIDIC Clauses Contract changes and variations in project-1

Sub-clause 13.1 Right

to vary, according to

this sub-clause each

variation has to

categorized under the

following units:

Sub-clause 13.1(a) Vo 4, Vo 9. Vo 15, Vo 18,

Sub-clause 13.1(b) Vo 9,Vo 13

Sub-clause 13.1(c) Vo 3

Sub-clause 13.1(d) Vo 10, Vo 11, Vo 14 and Vo 16

Sub-clause 13.1(e) Vo 1, Vo 2, Vo 4, Vo 5, Vo 6, Vo 7 and

Vo 12

Sub-clause 13.1(f)

Sub-clause 13.2 Value Engineering

In this project there is no any variations that

proposed by the contractor. All design

change are made by the Engineer

Sub-clause 13.3 variation procedure From the information we get all variations

are carried according to this sub-clause 13.3

of MDB-FIDIC

Sub-clause 13.4 Payment in Applicable

Currencies

Even if the currencies of the contract is

ETB(18%) and Euro(82%), the payment for

all variation is taken place by ETB.

4.3. Project 2

4.3.1 Project information

Road condition and scope of the work

Rehabilitation of the existing road to a standard 2 lane bitumen double bituminous

surface dressed road having 7m wide carriage way with 1.5m wide shoulders and

42

0.5m rounding on either side in flat and rolling sections and 2.5m paved shoulder and

0.5m rounding on either side in villages and small towns.

Improvement to the road side drainage system and other protective works.

Improvements, repairs and widening to the existing bridges wherever required and

also other cross drainage structures besides providing new ones.

Reconstruction of superstructure of bridges to 2 lane standards with foot paths and

modifying their substructures to the required extent.

Ancillary works such as housing and accommodation, vehicles, communication,

laboratory etc, for the use of engineer during execution.

Soil conservation and other protective measures along the road.

Road side furniture

4.3.2 Basic contract data

a. Contract data for Construction contract

Contract Name Project 2

Type of project Road upgrading project

Employer ERA

Length 120Km

Notification of Contract 12 Sept 2000

Date of contract signature 25 Oct 2000

Commencement date 7 Nov 2000

Original time for completion 912 days

Original completion date 6 May 2003

Extension time 6 May 2003 to 5 April 2004

Revised completion Date 5 April 2004

Type of contract Ad measurement

Original Contract Price ETB 223,651,990.00

Revised total contract amount ETB 227,975,527.52

Total Value of variations ETB 4,323,537.57

43

Escalation ETB 57,332,209.35

Currency and proportion of payment ETB 20%, USD 80%

Funding African Development Bank and

Federal Government of Ethiopia

Table 3.4 contract data for project 2

b. Contract data for Consultancy service

Contract Name Project 2

Employer ERA

Commencement date 14 Nov 2000

Original Contract Price USD 812,775.00 + ETB

4,219,813.00

Revised total contract amount USD 961,827.26 + ETB

5,001,102.96

Final cost of completion USD 941,582.83 + ETB

4,999,935.66

Original time for completion 13 May 2004+12 month (Defect

Liability period)

Revised completion date 30 April 2004+12 month (Defect

Liability period)

Table 3.5 contract data for consultancy for project 2

4.3.3 Contract Changes and variations

Reference Description Extension of

time

Amount (ETB)

Vo 1 Office and laboratory floor area Nil 785,145.15

44

Vo 2 Office furniture Nil 24,497.80

Vo 3 Survey Instruments Nil 209,836.68

Vo 4 Common Kitchen and wash area for

janitor staff

Nil 113,861.10

Vo 5 Office/ laboratory fittings Nil 111,712.01

Vo 6 Miscellaneous account for Engineers

office

Nil 115,000.00

Vo 7 Housing for junior staff and guest

houses

Nil 1,297,559.13

Vo 8 Office and laboratory furniture Nil 39,690.80

Vo 9 Cost of services for additional

prefabricated houses

Nil 139,087.53

Vo 10 Additional mobile radio sets Nil 28,570.00

Vo 11 Lean Concrete (M 10), stone masonry

using already stock piled stones, stone

masonry with cement mortar raito 1:3

and stone masonry with cement

maortar ratio 1:4 for which items did

not appear in BOQ

Nil 473,900.00

Vo 12 Jacking to gain access and examine

bearing of none bridge 1

Nil 40,394.55

Vo 13 Jacking to gain access and examine

bearing of none bridge 2

Nil 40,394.55

Vo 14 Clearing and refurbishing of bearing of

Bridge 3, apply epoxy paint, replace

missing nuts and applying approved

grease between sliding plates.

Nil 15,131.76

Vo 15 Clearing and refurbishing of bearing of

Bridge 4, apply epoxy paint, replace

missing nuts and applying approved

Nil 10,087.84

45

grease between sliding plates.

Vo 16 Modification work of superstructure of

bridge 5

Nil 249,976.07

Vo 17 Providing and fixing of Km sign posts Nil 57,567.60

Vo 18 Providing and fixing of guide posts Nil 553,665.00

Vo 19 Numbering of culverts Nil 20,460.00

Total Nil 4,323,537.57

Table 3.6 variation order at project 2

4.4 Project 3

4.4.1 Project Information

Road condition and scope of work

This road section has been completely rehabilitated during the execution of the project. The

existing pavement was scarified/ milled and incorporated in the new road. The level of the road

was raised over almost the full length to improve drainage conditions. The pavement

construction consists of sub-base and base course of variable thickness. Asphalt concrete is laid

in two separate layers to total thickness of 10cm. the road width is 7m carriage way with 1.5m

shoulder width each side the shoulders are sealed with a single surface treatment. Corrugated

metal pipe culverts have replaced existing culverts and additional pipe culverts were constructed.

Unpaved ditches have been constructed in rural areas where required. Existing bridges were

repaired, in one town of a by-pass was constructed, approximately 5km in length including two

new culverts the same town through road is rehabilitated to sub-base level.

3.3.2 Basic contract data

Contract Name Project 3

Employer ERA

Original Length 264.9Km

Revised Length 263.4 Km

Notification of award 25 July 1997

Date of contract signature 12 Sept 1997

46

Commencement date 15 Oct 1997

Original time for completion 36 month

Original completion date 14 Oct 2000

Extension time 12.9 month

Type of contract Ad measurement

Original Contract Price ETB 310,979,872.92

Revised total contract amount ETB 386,197,700.31

Total Value of variations ETB 75,217,827.39

Escalation ETB 17,914,749.44

Currency and proportion of payment ETB 30.29%, Euro 69.71%

Contractual exchange rate 1 Euro=8.10198 ETB

Funding African Development Bank and

Federal Government of Ethiopia

Table 3.7 contract data for project 3

3.3.3 Contract Changes and variations

Referenc

e

Description Amount (ETB)

Vo 1 Change of Vertical alignment at the Bridge approaches 1,015,763.14

Vo 2 Change of base coarse thickness town section from Km 110 1,438,656.00

Vo 3 Check points Km 23+800 and 70+700 1,119,060.27

Vo 4 Provisional of additional vehicles 1,890,519.47

Vo 5 Provision of transport stickers 30,328.20

Vo 6 Provision of thermoplastic lane markings and reflective

road studs

1,728,270.00

Vo 7 Road traffic signs 472,654.93

Vo 8 Full width sealing shoulders 296,800.00

Vo 9 Additional quantity of base course layer Km 110-Km275 5,815,584.00

Vo 10 Improvements to vertical alignment of a one town by pass 1,375,663.60

47

Vo 11 Traffic control at a river bridge 142,485.00

Vo 12 Improvement to the ring road 2,273,567.24

Vo 13 Painting of kerbed median and traffic islands 202,260.60

Vo 14 Provision of temporary additional vehicles for the

supervisor

85,500.00

Vo 15 HIV/ AIDS education campaign 324,786.00

Vo 16 Additional as –built drawings 16,583.78

Vo 17 Temporary repair of rail way crossing (Km 31+500) 13,225.10

Vo 18 Provision of road furniture materials to ERA stores 215,459.96

Vo 19 Deletion of road section from Km 10+500 to 12+160 -2,092,773.99

Vo 20 Change of vertical design Km 261+360 to Km262+790 1,633,944.80

Vo 21 Optimizing and detailing of vertical alignment of a town

section

9,148,815.17

Vo 22 Quantity changes de to finalized geometric design 3,743,905.70

Vo 23 Change of layout of town sections -620,977.85

Vo 24 Additional bus parking lay-bys for schools outside town 165,373.61

Vo 25 Provision of foot ways widening of parking lanes in town

sections

6,250,719.32

Vo 26 Additional drainage works at a town junction 927,319.52

Vo 27 Additional major and minor junctions 3,675,492.93

Vo 28 Additional minor junctions and other works 3,256,403.48

Vo 29 Provision of heavy duty parapet railing on a bridge 281,763.18

Vo 30 Partial rehabilitation of the existing one town road 684,373.41

Total 75,217,827.39

Table 3.8 variations order at project 3

48

49