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Variations: A question of liability

Michael Sergeant, Partner, Holman Fenwick Willan

ARIATIONS are one of the most common causes of

dispute on a construction project. Sometimes the issue
between the parties relates to the valuation of the
variation, but the disagreement can often be much more
fundamental than that, with the parties in dispute as to whether
anything at all should be paid. In other words, the dispute does
not relate to quantum but to liability.
Such disputes in principle can be broken down into two
types. The first is whether or not the work that the contractor is
claiming as extra was in fact within its contract scope. This often
leads to questions relating to how contradictory provisions in the
contract documents should be interpreted and how to ascertain
what the full extent of the contract scope is. The second key
liability issue relates to instructions. In order for there to be a
variation under a construction contract then the change normally
has to be instructed by the employer. This second key area
involves questions concerning the form an instruction has to take
and entitlement if no formal order has been issued.

Is the work within scope?

Michael Sergeant on
varying variations

The question of whether work claimed as a variation was actually

within the contractors scope of works is obviously a core one. If
the work was in the scope, it is not a variation, and the
employers liability ends there. But answering this question is very
often not as simple as it sounds, because all too often the contract
does not clearly identify exactly what work the contractor was
going to do for the contract price. This could be as a result of a
lack of any written contract, or more likely due to an abundance
of documents making up a complex contract which contain
inconsistencies and ambiguities as to the exact scope of work.
If the parties cannot resolve this, which is often the case
when large sums of money are involved, then it will be down to
a court or an adjudicator to decide. In doing so, a tribunal will
need to consider the legal principles of contract interpretation,
as well as any rules set out in the contract designed to assist
in interpretation.

Principles of interpretation
The overriding principle is for the courts to objectively ascertain
the common intention of the parties by looking at the natural
meaning of the words in the contract. In the event of a
contradiction between two or more documents, they will consider
whether any of those documents were prepared specifically for
the project, the assumption being that this document would carry
more weight than, say, a standard printed specification. The same
principle applies if the parties have specifically negotiated and
agreed a particular element of the specification.
The documents respective functions will also be relevant. If
works are described differently on both a specification and a
programme, then the specification will probably be assumed to
reflect the parties intentions as its purpose is to describe the
works, as opposed to describing the sequence of the works.

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What if the documents are silent on a

detail, effectively leaving a gap in the
scope? It might be possible to imply that
the missing work was part of the scope on
the basis that it was necessary to complete
the works. This will depend heavily on the
circumstances and on the particular
omitted detail. For example, suppose the
scope of work shows that certain
equipment will be installed, but drawings
and specification do not refer to the details
of the fixings that need to be used to hold
the equipment in place. It is likely that a
tribunal will interpret the description so as
to imply the need for the contractor to
supply the fixings on the basis that this
work was implicitly necessary in order for
the equipment to be installed.

contracts contain variation mechanisms to cater for the fact that

there will inevitably be changes to the agreed scope of works.
These mechanisms almost always stipulate that the contractor will
not be paid or awarded extra time for any changed or additional
work unless it has been formally instructed in accordance with the
contract mechanism.
But what about circumstances where the contractor has to
change the works simply in order to proceed (for example, certain
specified equipment might not be available any longer), or where
it does not have an opportunity to obtain an instruction before
carrying out the works? In those cases the lack of entitlement to
time and money because of the absence of a formal instruction
can appear very unfair.
There are various arguments that contractors have been able to
successfully employ to establish an entitlement in such situations.
It may be that the employer has waived the requirement for an
instruction through its particular conduct, or that the contractor
and the employer might have reached an informal or implied
agreement that the contractor will be paid regardless. There have
been cases where the contractor has established that because the
additional work is so far from the original nature of the scope,
that it should be treated as having been
undertaken under a new informal contract,
separate from the original. Or there may
even be circumstances where the
employer can be said to be under a duty
to give an instruction for the variation, and
its failure to do so means that the
contractor is entitled to compensation.
This could be an express contractual duty,
such exists under the International
Just because one document is
Chamber of Commerce Measurement
said to have a higher priority
Contract 2011. Clause 51(1) of that
contract obliges the engineer to order any
does not automatically render
variation to any part of the works that are
anything in the lower priority
necessary for completion.
The courts have found that an implied
document redundant.
duty for an employer to instruct a variation
can arise. The courts have found that the
implied duty of co-operation that arises
under a construction contract can create an
obligation on the employer to instruct a
change where otherwise the contractor
cannot proceed with the works.

Rules in the contract

These sorts of contracts, with multiple

layers of documents, commonly contain
what is known as a priority clause. A
priority clause sets out the relative
importance of the whole suite of contract
documents. Whilst such a clause is
intended to help the process of contract
interpretation, it is important not to fall
into the trap of applying such a clause in a
narrow, black and white way. Just because
one document is said to have a higher
priority does not automatically render
anything in the lower priority document
redundant. The documents still have to be
read together as far as possible. The aim is
to give meaning to all the documents in
the contract and so a tribunal will try to
make sense of them together.
It is only in cases where there is a clear
and direct contradiction between two
contract documents that the priority clause
can be invoked to disregard provisions in
the lower document. For example, if the
drawing shows yellow bricks but the
higher priority specification calls for red
bricks, then red bricks it is. But in most
cases two different descriptions of the works can be read together
to give both meaning, and a tribunal will try to give effect to this.
Rights conferred on an architect or engineer in the contract to
resolve inconsistencies should be approached with care. They do
not give the architect an absolute power to determine what should
be built. The rules of contract interpretation still have to be
applied to determine the actual work scope, and if the architect
instructs something else, then there will be a variation.
There may also be other obligations on the contractor, not
obviously linked to the scope of the works, that affect whether or
not there has been a variation. For example, a design and build
contractor with a fitness for purpose obligation may have to alter
parts of its design to ensure it meets the requirements, and those
alterations wont amount to a variation. On the other hand, the
contract might provide that those design alterations still need to
be approved by the employer and instructed as a variation the
employer should take care as it could find itself paying for
variations instructed as a result of a defective contractors design!

Lack of instruction
The other main area of dispute when it comes to liability for
varied work, is whether or not it has been instructed. Construction

Conclusion
It goes without saying that the parties to a
contract should make sure the scope is as
clear as possible before starting work, so
as to avoid the type of problem identified
in this article. Equally, a contractor should
ensure that an instruction is issued every
time a change is necessary. Nevertheless,
such liability disputes concerning
variations are common. It is therefore
necessary to be aware of how a contract is
interpreted when there is apparent
ambiguity. And also the possibility of
recovering payment where no formal
instruction has been issued.
Michael Sergeant, Partner,
Holman Fenwick Willan
Michael.Sergeant@hfw.com
www.hfw.com
Michael Sergeant is the author of Construction Contract
Variations. ICES members are entitled to a 15%
discount on the publication. See p44 for details.