Contract Administration 341

opic 5

Variations

Topic 05 (Variations).doc

Table of Contents
TABLE OF CONTENTS............................................................................................................ 2
LECTURE OBJECTIVES ......................................................................................................... 3
INTRODUCTION....................................................................................................................... 3
DEFINITION .............................................................................................................................. 3
VARIATIONS (AS 4000 CLAUSE 36) ..................................................................................... 4
EXTENT OF VARIATIONS .......................................................................................................... 4
ISSUE OF VARIATIONS .............................................................................................................. 5
VALUATION & MEASUREMENT .............................................................................................. 6
METHODS OF VALUATION & MEASUREMENT ....................................................................... 7
USE OF ERRONEOUS RATES WHEN PRICING VARIATIONS .................................................... 9
COMMONLY OCCURRING VARIATIONS .................................................................................. 9
MINIMISING VARIATIONS...................................................................................................... 10
SELF ASSESSMENT QUESTIONS ....................................................................................... 12
BIBLIOGRAPHY ..................................................................................................................... 13

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Lecture Objectives

Define Contract Variations and provide examples;

Understand the application of standard contract variation clauses;

Understand authorisation, measurement and payment of variations;

Identify strategies to minimise variations; and,

Value a variation.

Introduction
It is a necessary provision of all standard forms of contract to include an expressed
term permitting the ordering of additional or the omission of work previously
included.

If such an authority were not in existence the ability to request such

additions or omissions would severely restrict the work to be done to hat specified at
time of acceptance of the tender. Contractors would be under no obligation to do any
of the work so ordered and may lead to termination of the contract by the Contractor
for requiring items outside the scope of the work and contract.

Effectively the Contractor would be in a position to be able to negotiate a new price for
the whole contract every time the Principal or Principal attempted to make a change.

Clause 36.1 of AS 4000 is such an expressed term that is further discussed in the next
paragraph.

Definition
From the Introduction words such as change, addition and omission have already
been used, suggesting that a variation is one of these. It can be any or all and often is.
A variation has been defined as:

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Any agreed change which adds to or subtracts from the terms and
conditions or intent of the original contract. It is usual that a
contract contains either an express or implied term that a variation
does not vitiate the contract.

Vitiate means to make to make invalid or ineffectual.

As far as AS 4000 is concerned a variation is defined under clause 36.1 in which it

describes what can be varied. It says:

The Contractor shall not vary .except as directed in writing.

and,

The Superintendent mayby any one or more of the following

which is nevertheless of a character and extent contemplated by, and
capable of being carried out under, the provisions of the contract:
a)

Increase, decrease or omit any part;

b)

Change the character or quality;

c)

Changes the levels, lines, positions or dimensions;

d)

Carry out additional work;

e)

Demolish or remove material or work no longer required by

the Principal.

VARIATIONS (AS 4000 Clause 36)

Extent of Variations
Clause 36.1 of AS 4000 explains in its wording the extent of what constitutes a
variation. It is deliberately wide ranging and somewhat, vague. This is because it is
difficult to know what might arise by way of a variation and generally, if the parties
can agree that it is a variation and agree the cost it can be left to them to resolve.
Clause 36.1 says:

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by any one or more of the following which is nevertheless of a

character and extent contemplated by, and capable of being carried
out under, the provisions of the contract:

Therefore the contract must be similar in character to the work being done under the
original contract and is limited to what the parties might reasonably have
contemplated would be a variation. Perhaps the best determination that can be made
is done by revisiting the main contract and going to the core of the original contract for
comparison.

The purpose of variations is for unforeseen work and changes that were not
contemplated at the time the parties decided to contract together although it must meet
the character and extent provisions.

Issue of Variations
Certain procedures are detailed under Clause 36 of AS 4000 regarding the issue and
processing of variations. In essence they are:

1. Variations should be confirmed in writing before the work being executed. There
are exceptions however and clause 36.2 uses the words maygive written notice.
There are invariably occasions, such as safety matters, where the issue must be
addressed and the paperwork completed after the event. This should always s be
the exception not the rule. Variations that are not settled at the time of the event
invariably drag out, issues become cloudy or uncertain, memories fade and
disputes arise.

2. As soon as practicable after receiving the notice the Contractor should let the
Principal know that they can do the work and the effect it will have on the time and
cost of the original contract.

Inevitably there is a fair amount of negotiation

involved in the effect s on the original contract before settlement is reached and
substantiation can and usually is required by the Contractor to the Principal. Once
agreed a Variation or Change Order to reflect the new cost and time period as a
result of the variation amends the Contract.

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3. Finally, the Contractor can request variations for their own convenience, perhaps to
simplify a construction technique or sequence. In such circumstances the Principal
may agree to the variation but at no cost to the Principal.

It is imperative that the Contractor establishes at the outset who has the power to order
a variation both the contractual identity and the actual person. Once established the
Contractor should not take any direction form any other person for a variation.
Equally the Principal should ensure that no person under their authority eg Clerk of
Works, issues variations or orders extra work.

Clause 36.4 of AS 4000 states how all variations shall be valued in accordance with the
contract and the value is to be added or deducted from the contract sum. The parties
should endeavour to agree of the valuation of the variation complete with the delay
costs before the commencement of the work or very soon after.

Valuation & Measurement

When the cost or time implications of the variation cannot be agreed the Principal can
make a determination using reasonable methods of comparison first and if they are not
available then by calculating the cost for themselves. AS 4000 requires them to use a
set of precedent documents to make this determination. The determination should
include for profit and overheads. They are:

Applicable (comparable) rates in the contract;

Rates from the Bill or Schedule of Rates;

Reasonable rates or prices

Measurement of the cost and time value of variations is combined operation between
the Contractor and the Principals quantity surveyor to determine the net extra cost or
the net extra saving associated with the variation. The extra works described in the
instruction that are required will have to be measured and valued and offset against
the saving of any work originally designed but not required. This measurement and
valuation may be completed by reference to the drawings or may be measured as work

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proceeds on site works but either way the precedents described above will determine
the valuation.

Methods of Valuation & Measurement

Bill of Quantities/Schedule of Rates
To better determine the addition or deduction for works with a BQ, it should be
possible to refer back to the QSs original dimension sheets which will form the basis of
the BQ. It is a relatively simple operation to identify the appropriate sections for
amendment. In the same example where there is no BQ the work omitted will also
have to be measured in detail to accurately assess the deduction. When measuring on
site as work proceeds it should be remembered that the measurement should be
carried out in accordance with the ASMM and any allowances regardless of whether
they are actually carried out should be made.

In the case of a BQ, the rates contained within the BQ should be used but certain
conditions should exist. The work should be of a similar nature to the previously
measured item and carried out under similar conditions. Slight differences may be
accommodated with the use of pro-rated rates, the pricing is based on the BQ.

For example should a 200mm thick slab cost twice that of 100mm thick slab?

In the case where there is no similar item or the work is far removed in scope from that
previously measured a new unit rate will have to be built up. A fair valuation will
have to be made and it will have to be reasonable to do so. The prime cost of materials
and labour may be used to achieve this star rate (new rate), appropriate allowances
for overheads and profit should be added. Alternatively, the Principal may request the
Contractor to provide a quotation.

Contractors Quotation
It is common, particularly where there is no BQ or Schedule of Rates is used, that the
Principal will ask the Contractor to provide a quotation for a variation prior to issuing

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an instruction to vary the work. Such circumstances however create a negotiating

position of strength for the Contractor because:
the Contractor has no competition
pressure of time
the Principal wants to avoid any delay in completing the works.

The Principal should determine that the quotation provides an estimate which is as
accurate as possible and is a determination of the net extra cost. In other words make
sure that the deduction costs are included as well. The Principal should also have
made an assessment of the value and provided that this is similar to that issued by the
Contractor, then it may be accepted. It should also be noted that if it becomes obvious
from the Contractors quotation that a mistake has been made the Principal should
advise the Contractor. The quotation should include for all overheads and profit and
this should be made clear prior to acceptance.

Dayworks
The generally acknowledged characteristic for the use of Daywork is in situations
where the work cannot properly be valued by measurement. In a large number of
cases the work should be measured by using the pricing method described above. The
situation occurs where the Principal is unable to determine an item and ends up asking
the Contractor how long has been spent on the work, what materials and how much of
them has been used, and what plant is necessary-This is Dayworks. The Principal
should recognise and accept that the Contractor has the right to be paid on a Dayworks
basis where appropriate. Similarly, the Employer has the right to pay on a measured
basis where that can reasonably be done. Dayworks are normally presented in the
form of vouchers detailing;
the labour hours,
material and
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plant used.

To ensure validity they should refer to a specific instruction and be submitted within a
short period of time of the work being carried out (normally a week). The Architect
would need to sign them to verify the materials used and the labour time expended. It
would be for the PQS to check and confirm the prices used. The normal procedure
would be for the completed, but unpriced, Dayworks voucher to be issued to the
Architect for signing. The signed sheet would then be returned to the Contractor, who
prices the sheet and passes it on to the PQS for price checking, verification of the
instruction and including within the next progress claim. Dayworks are excluded from
inflationary (rise and fall) calculations if applicable because they are priced in values at
the time they occur. The exception is if it is a significant ongoing variation in a longterm project.

Use of Erroneous Rates When Pricing Variations

It is always possible that despite checking the BQ at the outset of the contract an
incorrect rate, either under priced or overpriced, may escape and remains unaltered in
the document. If this item then becomes the subject of a variation it may become
difficult to resolve. If the item were omitted either in part or in total there would be no
problem. However the general rule is that the rate stands.

Commonly Occurring Variations

Commonly occurring variations include:
under-measurement of provisional or prime cost sums
unavailability of specified materials
lack of coordination of trades and consultants
change in user requirements from those briefed or documented
design changes by the Architect.

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changes in site conditions not shown in test data.

mistakes by the contractor
latent defects
lack of research into local conditions
changes by authorities
errors in documentation.

Minimising Variations
The following is a list of strategies that should be undertaken by the construction team
as a whole with a view to minimising variations to a contract:
take care in establishing the contract documentation.
read and respond to the brief.
examine precedence
prepare check lists on all phases of the works
make adequate provision for the unknown (see contingency)
ensure that there is adequate site testing
consult with authorities
coordinate consultants and listen to them.
work as a team, obtain building advice when unsure.
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examine climatic and local conditions

resist the temptation to be too innovative.
test specified materials before use.

construct prototypes and samples.

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SELF ASSESSMENT QUESTIONS

1. Indicate which of the following variations would be admissible under a standard
form of contract and provide your reasons:
a) A change in the size of a window.
b) The increase in the floor area of a proposed warehouse from 200 sq. m. to 2000
sq. m.

2. Are the following examples a variation? Give your reasons for your decision.
a) 8 houses are to be built and a variation amending this to 12 is issued.
b) 1008 houses are to be built and then a variation amending this to 1012 is issued.
c) A variation order is issued amending the contract from the construction of a
house to the construction n of a swimming pool.

3. List ways in which you think variations could be minimised.

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Bibliography
Bailey, I. H. Construction law in Australia 2nd edition, North Ryde, N.S.W. LBC
Information Services, 1998.

Cremean, D. J.,Brooking on Building Contracts: the law and practice relating to

building and engineering agreements, 3rd edition, Sydney: Butterworths, 1995.

James, J. F. 1998, Contract Management in Australia, Longman, Melbourne.

Standen, D,. Construction Industry Terminology 3rd edition Melbourne RAIA Practice
Services. 1993.

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