Variation Claims Under Contract 

Construction Variation Claims

Construction variation claims refer to disputes that arise when changes are made to the original scope of work agreed upon in a construction contract. These changes can include alterations to the design, materials, or schedule of the project, and can be initiated by either the client or the contractor.

Here are some key considerations regarding construction variation claims:

1. Contractual obligations: The first step in resolving a construction variation claim is to review the terms of the contract to determine the parties’ respective obligations. The contract should outline the scope of work, the specifications for materials and finishes, and the deadlines for completion. If a proposed variation is not covered in the contract, the parties may need to negotiate additional terms.
2. Documentation: To support a variation claim, both parties must provide documentation of the proposed changes, including any cost estimates and timelines. This documentation can include change orders, site instructions, and correspondence between the parties.
3. Impact on the project: The parties should assess the impact of the proposed variation on the overall project, including any delays or cost increases. This can involve conducting a risk assessment to determine the potential impact of the change on the project timeline and budget.
4. Negotiation and mediation: If the parties cannot agree on the proposed variation, they may need to engage in negotiation or mediation to resolve the dispute. This can involve the use of a third-party mediator or dispute resolution expert to help the parties find a mutually agreeable solution.
5. Legal action: If negotiation and mediation are unsuccessful, either party may choose to pursue legal action. This can involve filing a claim with a court or arbitration body, and can result in an award of damages or other legal remedies.

The reason most often given by the Contractor for making a claim against the owner for remuneration over and above the original contract price is that “ there was a variation”.

Variation Claims

If the contractor wants to succeed in a claim against the owner, the contractor must make the claim fit one of the recognized legal categories.

If the contractor includes a “ variation clause” and the variation is one covered by the variation caluse then the contractor’s claim would be under the contract. It may be a claim for debt or a claim for damages.

What is variation?

The term “variation” is used in many different ways. They include:

1. A change which the superintendent gives the contractor to make to the work described in the contract.
2. A direction which the superintendent gives the contractor with respect to the order of work.
3. A change to the contract between the owner and the contractor as distinct to a change to the work under the contract.
4. A change to the contract price.
5. A quantity which exceeds the estimated quantity in a bill of quantities or a schedule of rates.

The change may be the omission or addition of work. Logically, any change to the work described in the contract involves an omission or an addition or both.

Most standard forms of contract empower the owner to direct the contractor to omit a portion of work, or to do additional work.

Differences between variations and claims

The two provisions operate in different ways because they are incorporated in a contract for different reasons. The variations clause gives the employer the right to order alterations to the scope of works as originally defined. The employer may of course activate its right to vary for many reasons, not least because it simply changes its mind as to what it requires. On the other hand, a claims clause is there to compensate the contractor for unexpected events or discoveries that are agreed under the contract as being the employer’s risk.

Ground conditions under FIDIC Red Book

You would normally expect all changes to the permanent works to be sanctioned and paid for via a contract’s variations mechanism. However, it is often the case that ground conditions clauses under civil engineering contracts can provide a wide scope for compensating contractors where the conditions encountered are different from those contemplated. Such clauses will often seek to put the onus on the contractor to proceed with the works once “bad ground” is discovered with an entitlement to be paid for increased costs.

Clause 4.12 of the FIDIC 1999 Red Book provides that where a contractor encounters “Unforeseeable Physical Conditions” it must issue a notice. The contractor is then required to proceed by employing “proper and reasonable measures as are appropriate for the physical conditions”. It is entitled to the additional costs it may expend in doing so.

Suppose a pipe laying contractor was constructing a trench and unexpectedly hit rock. The most appropriate method of proceeding may be to change the line and level of the trench. It would seem as if such a change would amount to a “proper and reasonable measures”, as required under clause 4.12. This would therefore entitle the contractor to be paid for changes to the permanent works under a claims clause, as opposed to the contract’s variations regime. Again, the contractor’s choice of clause may depend on rates under the contract and whether recovery of its costs under clause 4.12 is preferable.

How to claim a variation under a construction contract

Claiming a variation under a construction contract can be a complex process that requires a thorough understanding of the contract terms, documentation, and negotiation skills. Here are some key steps to consider when claiming a variation:

1. Review the contract: The first step in claiming a variation is to review the construction contract to determine the terms of the agreement. This includes the scope of work, specifications, timelines, and the process for claiming a variation. Understanding the contract terms will help to identify the requirements for a valid variation claim.
2. Identify the variation: Once the contract has been reviewed, the variation must be identified and documented. This includes a description of the proposed change, the reason for the change, the estimated cost and timeline, and any potential impact on the project.
3. Notify the other party: The party requesting the variation must notify the other party of the proposed change in writing. This should include a description of the proposed variation and the documentation to support the claim. The other party must respond within a specified timeframe, typically within a week or two.
4. Negotiation and agreement: If the other party agrees to the variation, the parties must negotiate the terms of the variation, including the cost, timeline, and any impact on the project. The parties must then document the agreed terms in writing.
5. Formalize the variation: The agreed variation must be formalized in writing and signed by both parties. This will become part of the contract and should include a description of the variation, the agreed cost and timeline, and any other relevant details.

Construction contracts usually contain specific procedures for claiming a variation – which, if not followed, can result in your entitlement to claim being lost.

1. Characterise the nature of your entitlement
2. Check the contract
3. Notify the client
4. Prepare your detailed costings and other substantiating information
5. Wait for a direction to proceed before starting work
6. Perform the work and claim payment (and an EOT if needed)

Formula:

Claim for Variation = Identify Variation + Provide Notice + Obtain Agreement + Record Variation

Example:

Let’s say that a construction contract was signed for the construction of a residential building for a total cost of $500,000. During the construction process, the owner requested that an additional room be added to the building. This would be considered a variation to the original contract.

To claim this variation, the contractor would first need to identify the variation – in this case, the addition of an extra room. The contractor would then need to provide notice to the owner, outlining the details of the variation and any additional costs or time required.

If the owner agrees to the variation, the contractor would then need to obtain agreement in writing, either in the form of a signed variation instruction or a change order. The contractor would then record the details of the variation, including the variation instruction or change order, any correspondence related to the variation, and any other relevant documentation.

Table:

In summary, construction variation claims can be complex and require careful consideration of the contractual obligations of the parties, documentation of proposed changes, assessment of the impact on the project, and negotiation or mediation to resolve disputes. By understanding these key considerations, parties can more effectively manage variation claims and avoid costly legal disputes.

E-basel, a legal tech platform, can assist parties in claiming a variation under a construction contract by providing tools to manage the process efficiently and transparently. E-basel can help parties to draft and manage variation requests, track the status of requests, and facilitate negotiation and agreement between the parties. By using e-basel, parties can streamline the variation claim process, reduce the risk of disputes, and improve project outcomes.