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Pricing variation

Pricing variation

Variation In Writing

Because of the many different categories of legal claim made under the heading of variation claims, there are many ways in which the so-called variations are priced.

Pricing variation

Variation of A/C Units

The most straight forward variation claim is that based on debt. For example a contract may provide that if the owner directs the contractor to provide new A/C units in lieu of second hand A/C units the price will be AED 100,000 in lieu of AED 50,000. If the owner does direct the contractor to provide new A/C units and the contractor does so then the contractor can sue in debt for AED 100,000.

More often, the contract does not have a specific rate or price for variation. Then the price may be based on rates in the contract or a reasonable rate.

The term “ Variation Claim “ is often used to describe a claim for additional recompense based not on a price for the additional work but on the extension of time for practical completion granted by the superintendent to reflect the time taken by the contractor to do the extra work.

What is a Variation Claim in Construction Contracts?

If you’re in the construction industry, you may have heard the term “Variation Claim” being thrown around. But what does it actually mean? In this article, we’ll dive into the definition and implications of a variation claim in construction contracts.

Understanding Variation Claims

A variation claim is a request for additional compensation in a construction project. It arises when there is a change in the scope of work or design, resulting in the contractor having to do extra work. However, a variation claim is not just about asking for more money. It can also include an extension of time for practical completion granted by the superintendent to reflect the additional work’s time taken by the contractor.

The Purpose of Variation Claims

The purpose of variation claims is to ensure that the contractor is adequately compensated for any additional work required on the project. It’s essential to note that variation claims only apply when there is a change in the original scope of work. It’s also important to note that variation claims should be made in accordance with the contract’s provisions to avoid any disputes or delays in payment.

Types of Variation Claims

There are different types of variation claims, including:

  1. Directed Variation – this occurs when the superintendent directs the contractor to carry out additional work that is outside the contract’s original scope.
  2. Constructive Variation – this occurs when the contractor has to do additional work due to an event or circumstance that was not foreseeable at the time the contract was signed.
  3. Unilateral Variation – this occurs when the contractor carries out additional work without the superintendent’s approval but believes that it was necessary.

Implications of Variation Claims

Variation claims can have significant implications for both the contractor and the client. From the contractor’s perspective, variation claims can affect the project’s profitability, especially if there are delays in payment. From the client’s perspective, variation claims can increase the project’s cost and extend the project’s completion time.

For example

Building Roads: Understanding Contract Variation and Prolongation Costs

Building a road is a complex and expensive undertaking, requiring careful planning and execution. When a contract is awarded for a road construction project, the contract usually specifies the scope of work, the price, and the completion date. However, unforeseen circumstances and changes in the project may require additional work, leading to variations in the contract. In this article, we will discuss how variations affect the cost and time of road construction contracts, and how prolongation costs may arise from such variations.

Introduction

Building a road involves a lot of planning, design, and construction work. It is common for road construction contracts to have provisions for variations, which are changes to the scope of work or other contract terms. Variations may be necessary due to unforeseen circumstances, changes in the project design, or other reasons. When a variation is made to the contract, it can affect the price and time of completion of the project.

Understanding Contract Variation

A contract variation is a change to the scope of work, price, or other terms of the contract. When a variation is made, the contractor may be entitled to an adjustment in the contract price and time for completion. For example, if the contract price for building a 12-kilometer road is AED 1 Million per kilometer, and the super-intended directs the contractor to construct an extra 1 kilometer, the price for the additional kilometer would be AED 1 Million.

Contract Variation and Extension of Time

When a variation is made to the contract, it may also require an extension of time for practical completion. In the example above, if the original time for practical completion was 12 months, the contractor would be entitled to an extension of time for practical completion of one month. This is because the contractor needs more time to complete the additional work required by the variation.

Prolongation Costs

Some contractors may claim additional costs for alleged off-site overheads and loss of profit caused by the variation. These costs are known as prolongation costs, and they are based on the argument that the contract period has been extended by one month, and therefore, the contractor should be paid additional overheads and loss of profit in proportion to the extension of time for the variation.

Contract Contemplation of Variations

When a contractor bids for a road construction project, the contractor agrees to perform not only the originally specified work but also any additional work that the owner may direct. The contract contemplates that on account of variations, the work may take longer than the original contract period. Hence the contract period is not a fixed period but an adjustable period.

Calculating Prolongation Costs

Calculating prolongation costs can be complex, and it depends on the circumstances of each case. Generally, the contractor must prove that the variation has caused additional costs and that those costs are reasonable and directly related to the extension of time caused by the variation.

Conclusion

Road construction contracts often involve variations, which can affect the cost and time of completion of the project. Prolongation costs may arise from variations, and contractors may claim additional costs for alleged off-site overheads and loss of profit caused by the variation. It is important for both the owner and the contractor to understand the implications of variations and prolongation costs in road construction contracts.

FAQs

  1. What are prolongation costs in road construction contracts? Prolongation costs are additional costs claimed by contractors for alleged off-site overheads and loss of profit caused by variations in the contract.
  2. When is a contractor entitled to an adjustment in the contract price and time for completion? A contractor is entitled to an adjustment in the contract price and time for

Understanding the Generality of Variation Clauses that Exists under FIDIC Based Contract Modalities in UAE.

Although it is advised by FIDIC not to alter the General Conditions, but use the particular conditions, clients articulate their own requirements using the General Conditions. It is therefore important to understand the salient features of such changes made in the contracts.  This paper is an attempt to understand the term of the variation clauses and their application.

It is fundamental that the parties are only bound to perform what is stipulated in the contract document they sign. Unless there is an express provision allowing alterations to be made during the course of the contract, the Contractor cannot be compelled.

It could be claimable if the Employer himself or another Contractor carries out any omitted work whilst a contract exists without consent of the Contractor or unless it can be proved that the Contractor is technically or financially incapable of carrying out such omitted work. However in contracts, we find the Employer has the right to omit a part of the scope and get it done by another Contractor under a separate contract. However the Employer is entitled to entertain the benefit a valid omission, despite of the appointment of another Contractor. If the nature and scope of omission renders the existing rates no longer appropriate, the Engineer has the power to adjust it to an appropriate extent in such a way that the Contractor obtains a reasonable compensation. The Employer generally has the absolute immunity against any claim for loss and profit due to omitted work. 

Variations has long been recognized as a major source of conflict in construction projects. 

Q1: Why is it important to understand the salient features of changes made in contracts using the General Conditions under FIDIC based contract modalities in UAE? A1: It is important to understand the salient features of changes made in contracts using the General Conditions under FIDIC based contract modalities in UAE because clients often articulate their own requirements using the General Conditions, and parties are only bound to perform what is stipulated in the contract document they sign.

Q2: Can the Contractor be compelled to perform alterations to a contract during its course if there is no express provision allowing alterations? A2: No, the Contractor cannot be compelled to perform alterations to a contract during its course if there is no express provision allowing alterations.

Q3: Under what circumstances can omitted work be claimable by the Contractor in a FIDIC based contract modality in UAE? A3: Omitted work can be claimable by the Contractor in a FIDIC based contract modality in UAE if the Employer himself or another Contractor carries out any omitted work whilst a contract exists without consent of the Contractor or unless it can be proved that the Contractor is technically or financially incapable of carrying out such omitted work.

Q4: Does the Employer have the right to omit a part of the scope and get it done by another Contractor under a separate contract in a FIDIC based contract modality in UAE? A4: Yes, the Employer has the right to omit a part of the scope and get it done by another Contractor under a separate contract in a FIDIC based contract modality in UAE.

Q5: Can the Employer be immune against any claim for loss and profit due to omitted work in a FIDIC based contract modality in UAE? A5: Yes, the Employer generally has the absolute immunity against any claim for loss and profit due to omitted work in a FIDIC based contract modality in UAE. However, if the nature and scope of omission renders the existing rates no longer appropriate, the Engineer has the power to adjust it to an appropriate extent in such a way that the Contractor obtains a reasonable compensation.

Conclusion

In conclusion, the variation clause is a vital aspect of FIDIC contracts in UAE. It allows the employer to instruct changes to the original scope of work, subject to the contract’s provisions. It’s crucial to ensure that the variation instructions are given in writing, and the contractor provides a detailed cost and time impact assessment. The claims procedure provides a mechanism to manage any disputes that may arise from variation claims.

 

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1 comment

  1. In many cases, consultants do not formally issue instructions for variations to the contract and often give instructions which are not acknowledged as being variations. Examples ( Issue of revised drawings; Comments on shop drawings which require changes to the contract drawings).

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