Demystifying Grey Areas in the Application of Variation Clauses
Under FIDIC Based Standard Form of Contracts in the Gulf Region
by
Dr. Chandana Jayalath
'Most of the employment given to the
legal profession by Engineering work
is to do with disputes about variations’
(Engineering Law and ICE Contract,
Abrahamson, 1979).
1. Background
Although the majority of contracts in
the Gulf region maintain the principle
features of the FIDIC forms of
contract, there are many subtle changes
from the FIDIC forms of contract, that
imbalance the even risk allocation
between the parties. Many contracts
we come across have been drafted with
one sided language biased towards the
clients after a cut and paste exercise.
The message to Contractors entering
into contracts on the basis of these
forms is to review them very carefully
before signing without being fooled
into thinking they are simply the
FIDIC versions.
Although it is advised by FIDIC not to
alter the General Conditions, but use
the particular conditions, it is found
that the clients do use their own
‘standards’. This paper is not however
to address each and every customized
clause but to describe salient features,
the purposes, limitations, and the role
expected by the parties, as far as
variations are concerned1. The reader
is advised not to depend on the
numbers assigned to clauses, such as
51.2, 51.4 etc but understand the
principles behind the clauses.
1
It is clause 51 allocated for variations in
almost all contracts amended on the footings
of the FIDIC.
i
‘Variations’ has become a subject of daily
negotiation in any typical construction
contracts. Usually, the clause 51 defines a
variation as any change in form, character,
kind, quality, quantity, line, level, position,
alignment, or dimension of existing work
or any additional work that the Engineer
finds necessary, appropriate or desirable to
complete works. Since any ‘standard’ form
of contract provides only a basis for
administering variations, it is important
that the parties fully understand the
generality of variation clauses and the
variety of broad interpretation that exists.
2. Validity of Variations
It is fundamental that the parties are only
bound to perform what is stipulated in the
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, for
example, to perform additional works and
the Employer cannot, without being in
breach of the contract, omit any works that
have been agreed. Variation clauses
introduce much needed flexibility into the
somewhat rigid rules that otherwise govern
the parties’ obligations arising under
building contracts. One of intents in the
clause 51 is to enable the Engineer to vary
the works, under the contract and not in
the contract.
A valid Engineer’s variation instruction
however must meet the following
requirements;
• It must be in writing or orally and
subsequently confirmed in writing;
• Be in respect of the form, quality or
quantity of the works or any part of the
works; and
• In the Engineer’s opinion, be
necessary or be otherwise appropriate;
A variation instruction does not
automatically entitle the Contractor to
additional payment, but once it is
validly given, the Contractor is under
an obligation to perform it. The
circumstances where the Contractor
may reasonably object a variation
order is addressed later in this paper.
3. Mistakes in Bill of Quantities
(B/Q) and Apportionment of
Liability
The use of a B/Q in a contract requires
the responsibility for the consequence
of the following risks to be defined,
independently of the effect of
variations to the Contract.
(a). The preparation of the B/Q may be
incorrect, with items omitted which
should have been included in the
tendered Bill for the original work
described in Drawings and
Specification;
(b). The final quantities of work for an
item may be different to the estimate in
the tendered documents (theoretical vs
actual).
The change in the final quantities of
work for an item may so upset the
balance of resources and method of
working resulting in the unit price
inaccurate. The actual quantity of work
for an item may differ from the
estimate at tender for a number of
reasons. In the case of excavation for
instance the removal of unsuitable
material or the extent of rock or the
extent of tunneling in particular
classifications of ground, may only be
estimated from ground investigation
2
information and not known until work is
carried out. Similarly the length of piles
driven to a specified depth may not be
known precisely at each pile location.
The most glaring anomaly in lump sum
contracts is related to quantities. The risk
of errors may be either fallen into the
Contractor or the Employer. The chances
to alter quantities are remote even in a
substantial variance. A clause is that
requires the Contractor to consider b/q
quantities as actual and correct and any
error or omission from the b/q provides no
grounds to adjust the contract price
(penalizing for someone else’s mistakes).
In contrary, another clause is that vests
powers to the Engineer allows room for re-
measurement where the Engineer can
order increase, decrease or even omit
works, thereby determining the amount to
be adjusted in the contract price.
Mistakes in the bill descriptions or
quantities are unlikely to be remedied as a
legal rectification of the terms of the
contract to reflect the true intention of the
parties. The more likely practice is that the
tender price prevails rather than a price
revised to account of the error.
Although quantities are so-called ‘actual
and correct’, Contractors claim new rates
when quantities substantially vary when
the B/Q quantities are wrong. Contracts
based on firm quantities are in essence
lump sum contracts, where the quantity
risk is transferred from the Employer to
the Contractor. Although the burden of
quantity risk lies entirely with the
Contractor in typical lump sum contracts,
a question is why the Contractor is held
liable for missing items and errors in
quantities prepared by an outsider. Many
contracts are silent in this issue.
The Consultant shall be held liable for
quantity errors in case the Employer
becomes vicariously liable. A specific
remedy would be to cover up this scenario
in the insurance policy. There should
be a B/Q provision for the tenderer to
adjust the quantities when he finds any
missing, under measured or over
measured item so that he takes the
burden before the contract is entered
into.
As a matter of business efficacy, a
term will be implied (in the absence of
express terms) that the cost of the work
for a Bill item which has not been
priced by the Contractor is included in
the prices entered elsewhere in the Bill.
4. Power of Engineer to Fix Rates
We often find a clause vesting some
powers on the Engineer to form an
opinion as to suitability and
applicability of a new rate and the limit
of enhancement of an existing bill rate.
The Engineer shall determine the
suitability of the new rates based on
the nature and amount of the subject
omission or addition against the nature
and amount of whole of works.
Broadly speaking, the varied work
shall be priced in accordance with the
rates and prices in the contract, but if
those are not applicable, the Engineer
has the power to agree rates and prices
with the Contractor. If no agreement is
reached, the Engineer has the power to
fix what he considers suitable.
Because the valuation of varied work
can be fertile ground for argument, if a
Contractor disagrees with the
Engineer’s determination on rates or
prices, he can still refer the issue to the
Engineer once again prior to invoke
the dispute resolution procedure. This
can be considered as an extra
contractual opportunity available for
the parties to avoid disputes.
3
5. Methods of Valuation
The clause 51 has two tiered approach to
the valuation of variations;
1. B/Q rates
2. fair rates
Which of the above "Rules" will apply
depends largely upon the timing of the
variation order, the location of the work,
the quantity involved and the
circumstances in which the work is
executed. If it can be established that these
factors preclude the valuation on the basis
of bill rates then the valuation will usually
be based on fair rates. If the varied work is
of a similar character and executed under
similar conditions to work priced in the
B/Q, such rates and prices shall be used to
value the varied work. The factor of profit
or otherwise of the rate is immaterial.
If the varied work is of a dissimilar
character or is executed under dissimilar
conditions to work priced in the B/Q, then
the rates and prices shall be used as the
basis of valuation so far as may be
reasonable. This rule applies where the
work covered by the variation order is of a
different character from the work priced in
the B/Q, or is executed under different
conditions. If the differences are relatively
small, the Engineer is generally obliged to
use the rates set out in the B/Q as the basis
for his valuation, making such adjustment
in proportion to take account of the
differences. If the differences are very
great, such as where excavation is to be in
rock instead of clay, the Engineer may
take the view that it would not be
"reasonable" to base his valuation on the
rates contained in the B/Q. The sole
function of the words "as shall in his
opinion be reasonable and proper” calls
for a comparison between the work
covered by the variation order and the
work priced in the Bill of Quantities.
The words do not enable the Engineer
to open up or disregard the rates on the
ground that they were inserted by
mistake. “It was the use of the rates in
the changed circumstances brought
about by the variation order that must
be reasonable, not the rates
themselves”2.
A fair valuation generally means a
valuation which does give the
Contractor more than his actual costs
reasonably and necessarily incurred
plus similar allowances for overheads
and profit3. The Engineer should
decide the suitability of rates giving
due regard to all the circumstances
involved.
On the matter of overheads, a
distinction had to be made between
different elements of overheads. Some
overheads such as home overheads
were constant and not related to basic
costs, unless brought into an
assessment of the cost of prolongation
by reference to the basic costs. Other
overheads are directly related to value
of the work. Some overheads will only
be recovered if there was proof that
they were in fact incurred or increased,
as they will have been recovered from
valuations of the work executed. A fair
valuation has a contribution towards
fixed or running overheads. Unlike
time-related overheads, it was not
necessary to prove that they were
actually incurred for the purpose of a
fair valuation. Hence, it is advisable
that a uniform mark up component is
always determined on the tender price
breakup4.
2
Lovell White Durrent (1999) How to Value
Variations, Judicial Guidance, CSM, February
2001, RICS
3
Roges Button and Richard Mills (2001) The
Fair Valuation of Variations, CSM, March 2001,
RICS.
4
Be noted there are exceptions to this ruling.
4
Absence of contemporary records amounts
to a situation where the Engineer shall
make his own assessment based on
information available to him and as he
feels reasonable. Items covered by pricing
preamble notes or descriptions in the bill
item provide no entitlement.
Considerations arising out of
specifications, pre-contract addendums,
manufacturing instructions and any minor
details necessary for completion of work
though not specified in specification or not
shown in drawings are deemed to be
included within the price.
Any item duplicated in re-measure and
superseded or rescinded by a subsequent
instruction shall be ignored. Any work,
which exceeded the scope required by the
variation order, is considered as overwork.
Unless otherwise stated, any discount or
correction factor will be applied for the
original works as set out in the bill of
quantities. Variations valued as per bill
rates will also be subject to discount. This
factor is proportionately applicable for the
measured items under appropriate bills
unless any specific mention as to contrary
has been made at the tender.
6. Economic Duress
The parties are the masters of their own
contractual fate. Indeed, the courts are
normally slow to interfere in agreements
reached between two parties, but they will
interfere in agreements procured by the
exertion of economic duress by one party
on the other. Variations for instance issued
from time to time in connection with
variations to the contract are the subject
matter that the Engineer should take a
middle position in interpreting them.
The ingredients of actionable economic
duress are as follows;
a) There must be pressure whose
practical effect is that there is compulsion
on, or a lack of practical choice for, the
“victim”; and

b) The pressure must be
illegitimate and a significant cause
which induces the “victim” to agree to
enter into the agreement.
So what behaviour will amount to
“illegitimate pressure” in the context of
a construction contract? Examples
might include a threat by a sub-
Contractor to withhold the delivery of
a crucial piece of plant or equipment
until an extension of time is granted or
the sub-contract price is increased.
Conversely, it might include a threat
by a main Contractor to refuse to grant
the sub-Contractor an extension of
time (and to apply LDs for delay),
unless the sub-Contractor agrees to
carry out a substantial variation at
minimal cost. Another classic case is
when the Engineer unilaterally fixed a
rate for a new work without giving the
Contractor a chance to negotiate.
7. Henry Boot Vs Alstom (2000)
Henry Boot was the civil Engineering
Contractor for a combined cycle gas
turbine power station being built by
Alstom at Connah's Quay in Clwyd.
The contract dated 21st March 1994,
incorporated the ICE Standard
Conditions of Contract, 6th Edition (let
us understand the principles). The
power station consisted of four gas
turbines each with its own heat
recovery steam generator. The gas
turbines were situated in the Turbine
Hall and the steam generators in a
separate area known as HGSR. The
cooling towers were separated from the
HGSR by a road, and cooling water
pipes were used to condense the steam.
The condensed water came back to the
HGSR where it was turned back into
steam by the exhaust gases from the
gas turbines.. The system was therefore
a combined cycle power plant.
5
After receiving a tender from Henry Boot
and before execution of the contract,
Alstom decided to lower the cold water
pipework. Henry Boot wrote advising of
its change in price for additional and
different temporary works. The change in
price was £250,880. Alstom sought
confirmation of the extent of the price and
Henry Boot stated that
"The sum of £250,880 was to allow for
additional and different temporary works
only, required in the Turbine Hall due to
the lowering of Bonna pipe-work in this
area."
The tender was accepted including the sum
of £250,880. In the subsequent arbitration
it was found that the sum of £250,880
covered the cost of additional temporary
works in the Turbine Hall, but not in the
HGSR area and still less in the cooling
towers. The former was to be corrected as
an omission from the Bill of Quantities
under Clause 55(2) and the latter the
subject of a variation order under Clause
51(1). The issue therefore was whether the
sum of £250,880 was to be used to value
the variation for the temporary works in
the cooling towers.
The Arbitrator found that Henry Boot had
calculated the sum of £250,880 by
reference to the estimated quantity of steel
sheet piling required in the HRSG area as
well as the Turbine Hall. By mistake henry
boot’s fax referred only to the Turbine
Hall and the mistake was not picked up by
Alstom. If the sum of £250,880 was
divided by the amount of sheet piling
required in the Turbine Hall it gave a rate
of £89 per square metre. When the rate
was applied to the sheet piling in the
HGSR it gave a sum of £231,226 and
when applied to the area of the cooling
towers it gave a sum of £2,284,128. These
were the sums claimed by Henry Boot,
whereas Alstom argued that the sum of
£250,880 should not be extrapolated in this
way since it produced a "windfall gain".
The second rule in Clause 52(1)
provides that the rates and prices are to
be used as the basis for valuation "so
far as may be reasonable". The
Arbitrator decided that it was
reasonable not to use a price where the
price has been reached by a mistake or
error. He therefore declined to adopt
Rule 2 in the valuation and adopted the
third rule of "fair valuation". HH
Humphrey Lloyd QC allowed an
appeal against the Arbitrator’s decision
and remitted the award back to the
Arbitrator with a direction to make a
valuation under Rule 2 using the sum
of "250,880 for sheet piling work in
the Turbine Hall.
The issue then was the meaning and
application of the second rule in
Clause 52(1) in the valuation of
variations, where the applicable rate
was known to contain a mistake. The
first instance decision was upheld by a
majority.
Lord Justice Lloyd held that Rule 2
provided a half-way house between
Rule 1 and Rule 3. Like Rule 1, Rule 2
is mandatory. It applies where the
work covered by the variation order is
of a different character from the work
priced in the Bill of Quantities, or is
executed under different conditions. If
the differences are relatively small, the
Engineer is obliged to use the rates set
out in the Bill of Quantities as the basis
for his valuation, making such
adjustment as may be necessary, to
take account of the differences. If the
differences are very great, such as
where excavation is to be in rock
instead of clay, the Engineer may take
the view that it would not be
"reasonable" to base his valuation on
the rates contained in the Bill of
Quantities. He then must adopt Rule 3.
It was held that this was the sole
function of the words "so far as may be
reasonable" in Rule 2. The words
called for a comparison between the
6
work covered by the variation order and
the work priced in the Bill of Quantities.
The words did not enable the Engineer to
open up or disregard the rates on the
ground that they were inserted by mistake.
It was the use of the rates in the changed
circumstances brought about by the
variation order that must be reasonable,
not the rates themselves.
It was also held that Clause 52(2) created a
limited exception to Rules 1 and 2 where
the scale and or nature of the variation
makes it unreasonable to use the contract
rates. It was an exception that proved the
general rule that the rates could not be
displaced because they were inserted by
mistake or were too high or too low or
otherwise unreasonable. The same applied
to Clause 56(2) which enabled the
Engineer to increase or decrease the rates
where the actual quantities executed for
the item were greater or less than those
stated in the Bill of Quantities. These
exceptions underlined the basic rule that
the rates themselves were not subject to
correction.
Lord Justice Beldam agreed with the judge
at first instance and Lord Lloyd. He held
that Clause 52(1)(b) contemplates cases in
which it would not be reasonable to use
the rates and prices in the Bill of
Quantities. It was the reasonableness of
using the rates and prices and not the
reasonableness of the rates and prices,
which has to be considered.
8. Tender Price Break-up as a Tool
To facilitate the evaluation of actual and
correct quantities of work, the Contractor
is required to submit a detailed breakdown
of tendered lump sums and unit rates as
required by Instructions to Tenderers.
Such breakdown, though required by the
contract is not itself a contract document
and will be considered as a guide only.
The receipt of the breakdown in no way
implies acceptance of figures and the
Engineer reserves the right to amend or
modify them as and when he deems it
necessary.
The tender price break-up to be
submitted before or after the contract
has been let is not, per se, a contract
document. It is to be used, wholly or
partly, as a guide in pricing variations,
and remains subservient to the
requirements of the contract. Errors,
omissions oversights within the tender
price break-up do not prove particular
inclusion or exclusion within the
contract sum. The nature of the
inclusions within individual tender
rates and prices are determined by the
conditions of contract, not by
Contractor’s subsequent break-up. No
Contractor can be permitted to use his
lack of compliance with tender
requirements to maneuver to his own
advantage.
9. Valuation of Changes in
Measurement
Generally, the Contractor is entitled to
assume that the B/Q has been prepared
in accordance with SMM and that the
items and quantities found in the Bill
of Quantities are reasonably accurate
descriptions and estimates of the work
shown on the Drawings and described
in the Specification. The B/Q may not
have been prepared in accordance with
the Standard Method of Measurement
(SMM). The risk of inaccuracies in
bills has fallen on the parties on the
level of estimation done by a third
party. Any error or omission provides
no grounds for adjusting the contract
price under lump sum contracts.
The varied work should also be
measured in accordance with the
standard method of measurement
adopted in the preparation of contract
bills to maintain the uniformity in the
total contract.
7
10. Loss of Profit against Omissions
Whenever variations are ordered that omit
work under clause 51, and particularly if
such omitted work is substantial in
quantity, Contractors often argue that they
should be entitled to claim loss of profit
that they would have been earned on such
works if carried out. If the variation
omitting works is invalid5 then such is a
breach of contract entitling the Contractor
to damages, and loss of profit can form
part of such a claim for damages. Where
the works have been omitted and given to
others to carry out, it is clearly established
that it is a breach of contract and not a
valid variation order. Gallagheer v Hirsch
NY App Division 467 (1899) where the
American court held that the word
‘omission’ meant only work not to be done
at all, not work not to be taken from the
Contractor and given to another to carry
out.
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.
5
The Employer has absolute immunity under
clause 51.1 against any claim for loss and profit
due to omitted work.
11. Effect of Unrealistic Rates in
Changes of Quantities
Clause 51 requires variations to be
priced as per bill rates presumably for
works of similar nature executed under
similar conditions. The key question is
whether it is reasonable to use bill rates
to value changed quantities when the
rate contains an admitted error.
The court of appeal in ‘Henry Boot vs
Alstom (2000)6 found in favour of the
Contractor and emphasised the fact
that bill rates, which contained an
error, should not prevent them from
being applied to the additional work as
well. (In this case, it was an over
pricing – see section 7).
If the Contractor put an unrealistically
high rate, he is entitled to have the rate
used for valuation of subsequent
variation. “When the Employer
accepted the tender with the
unrealistically high rate, it can be said
that the Employer accepted also the
risk of that being used in valuing
additional quantities”7. The application
of the contract rates can not be avoided
simply because one party is dissatisfied
with them. The contract rates are
immutable, and not subject to
correction. There shall be no
rectification of any error, omission or
wrong estimate in the descriptions,
rates and prices inserted by the
Contractor. The effect of this principle
is that a mistake in a rate is bound by
the parties equally. The only situation
where a contract rate may be departed
from which it is not executed under
similar conditions or when there is a
6
John B. Molloy (2001) Henry Boot
Construction Ltd vs Alstom Combined Cycles
Ltd. A most important case, Roger Knowles,
March 2001.
7
John B. Molloy (2002) Unrealistic Rates in Bill
of quantities, Roger Knowles, July 2002.
8
substantial increase or decrease in
quantities which render the existing rate
unsuitable.
Keating on Building Contracts Fifth
Edition as at page 523 suggests the
following matters be taken into account
when deciding whether conditions are
similar.
a. physical site conditions such as wet
compared with dry
b. confined space compared to ample
working space
c. winter working compared to
summer
The following matters should be taken up
when deciding whether work is of a
similar character.
a. functions of materials
b. size and shape
c. vertical, horizontal and sloping
d. location
However in either of these operations the
fact that a rate or price may be too high or
too low is completely immaterial. A very
high rate or a very low rate is not rendered
unreasonable by a variation or a
substantial change in quantities but is
already unreasonable when the contract is
entered into.
Alternatively, the Contractor has included
an unrealistically low rate in the bill of
quantities; such rate could be applied to
the extent of bill quantities. Any excess in
quantity over and above bill quantity shall
be paid at a fair rate. However the
conditions provide no room for the
Contractor to demand an enhanced rate
even where the actual quantity is of a
substantial increase. 8.
8
Nevertheless, the Contractor may lodge an ex-
gratia claim.
12. Limitations in the Issuance of
Variations
The existence of a variation clause
does not entitle the Engineer to make
large scale or significant changes to the
nature and scope of work. A variation
order that deviates from the
fundamental scope, nature, type or
complexity of work contemplated by
the parties at the tender affects the
validity of the contract. The Engineer
should not introduce work outside the
domain of the original job, which
would cause hardship to the Contractor
in terms of finance and technical
capacity. The criteria to evaluate
whether a change is a variation could
be the cost of work, scope of work,
technical input required, etc. Hence,
the Engineer shall make any variation
under the contract and not in the
contract. All variations shall be
considered in ascertaining the contract
price. As a principle, no variation to
the contract can be made by the
Contractor. This does not however
restrict the Contractor to submit at any
time to the Engineer value Engineering
proposals which in the Contractor’s
opinion will if adopted;
a. accelerate completion.
b. reduce cost to the Employer in
executing, maintaining and
operating works.
c. improve efficiency.
d. enhance the value of completed
work.
e. otherwise be of benefit to the
Employer.
13. Variation Claims and their
Backups
Claims without backups in order are
also commonplace. Backups means
interalia the copies of site instructions,
confirmation of verbal instructions,
copies of drawings and sketches,
relevant pages of specifications, BOQ
9
references, detail cost break-ups,
quotations approved etc, that provide
documentary evidence. In all contracts, it
is essential to have a clear picture of
deductions and additions compared to the
original scope.
The Contractor should establish
entitlement and then compute the
additional cost and time, giving due
reference to the contract and taking all the
circumstances into account. The Engineer
should highlight the works omitted as
well. The Consultants should prepare his
own calculations in absence of Contractor
records.
14. Pending Site Instructions
It is also seen that the Contractor delays
the start of work in connection with
variation till he gets the rates agreed and
considers the date of formal instruction in
writing as the date of issue of instruction
when calculating time extensions. This
belief is wrong. As per clause 51, the
Engineer can give oral instructions and the
Contractor should not await till he gets it
formally in writing in order to start work,
rather he should confirm the recognition of
such instruction in writing to the Engineer,
and immediately proceed to carry out such
instructions. If such confirmation is not
contradicted by the Engineer, such
instruction is deemed to be a formal
instruction of the Engineer, albeit a
deadline is not specified. Hence, the
conditions are clear enough establishing
the validity of the Engineer’s order to
commence work.
The Contractors however feel hesitant to
start work without getting prior approval
on the cost because of the fear of not
getting the full entitlement under payment
procedures, which are usually prolonged.
Any instruction that the consultant thinks
will take additional cost and/or time
should accompany with a tentative budget
estimate before issuing the same to the
Contractor. The date ever first the
Contractor received orally any
instruction is the effective date of
instruction unless otherwise stated. For
planning purposes, it is the date the
Contractor is actually supposed to
commence the varied work.
15. What Constitutes a Separate
Contract?
There may be circumstances which
could lead to changes introduced by
the Engineer falling outside the
variations clause. Contractors who find
themselves with unattractive contract
prices would find it arguable that a
change introduced by the Engineer fell
outside the variation clause thus the
payment for the change should be on a
quantum meruit basis. In Blue Circle
Industries v Holland Dredging Co
(1987), the works involved dredging in
Larne Lough in Ireland to enable larger
vessels to dock. The tender referred to
the dredged material being deposited in
areas approved by the public
authorities, the intention being to
discharge the material excavated in
suitable areas in the Lough. Larne
Harbour Board rejected this proposal
later and as a result an alternative plan
was agreed to use the excavated
material to form an artificial bird
island. It was argued by the Contractor
that this was not a variation to the
works within the confines of the
contract but a separate contract in its
own right. It was held that if the
additional or varied work were so
peculiar, so unexpected and so
different from what any person
reckoned to such an extent that it is not
contemplated by the contract then it
would constitute a separate contract.
Hence, the construction of the bird
island was wholly outside the scope of
the original dredging contract and
10
therefore constituted a separated contract.
When a large number of changes are
instructed though they individually fall
within the ambit of the variation clause,
they can collectively have the effect of
completely changing the scope of the
works. This is referred to as either
abandonment or cardinal change and deals
with the situation where the Employer
makes excessive changes to a project
beyond what the parties reasonably could
have anticipated at the time the contract is
entered into. Courts will look at a number
of factors in helping to decide whether the
changes have been excessive such as the
size, nature, complexity, expected duration
the number of changes, how many changes
were anticipated when the project started,
the magnitude of the work involved in the
changes and the length of time in which
such changes were made etc.
A misunderstanding is that the Engineer
can issue any number of variations for any
purpose. Even where a contract includes
the usual variation clause there may be
circumstances which could lead to
additions or changes introduced by the
Employer which falls outside the
variations clause where the payment for
the change should be on a quantum meruit
or fair valuation basis. It can be argued by
the Contractor that this is not a variation to
the works within the confines of the
contract but a separate contract in its own
right, because the additional work were so
peculiar, so unexpected and so different
from what was contemplated by the
contract.
Also, the Engineer is under liability in the
issue of variation orders, particularly the
concessions granted for the Contractor.
Even if the Engineer’s permission for a
change is fully authorized, the Engineer is
not freed from his general duty to the
Employer to exercise reasonable care and
skill. If the change does later cause the
Employer loss, the Engineer may face
reciprocal claim from the Employer.

16. Significant Quantity Changes
There is a belief that the Contractors
are entitled for revised rates when the
contract value exceeds 20%.
Instructions to Tenderers in some
contracts specify that the Employer has
a right to vary the works upto 20% of
the contract sum. It does not mean that
the Contractor has a claim when the
overall scope exceeded 20%, rather it
gives an ‘ámberlight’ for the parties to
reconsider the rights to have variations
issued and executed.
It should also be noted that the 20% is
the percentage deviated from the
adjusted contract sum giving the net
resultant effect on the contract sum
purely on variations and not on any
individual varied item. This is possible
only at the practical completion.
Accordingly, parties must understand
that there are two separate scenarios;
change in quantities in individual B/Q
items, and the overall change in
quantities exceeding 20%.
If the nature or amount of the work
involved differs so much from that
included in the original contract that
the rates and prices are rendered
inapplicable, it is the Engineer's task to
agree appropriate rates and prices with
the Contractor, or, if agreement cannot
be reached, to fix the suitable rates and
prices under clause 51. The
circumstances that rendered existing
rates inappropriate are a matter of
interpretation.
Any adjustments due to overall
variance shall be applicable only for
the percentage deviated (eg, only 5% is
subject to adjustment if overall
deviation is 25%).
11
17. Dilemma between Tender Rules and
Variations Exceeding 20%
The issue of 20% variations may also
revolve around the Instructions to
Tenderers where the Contractors argue that
they have the right to claim new rates once
the value of works has been exceeded by
20% of the contract sum. Generally, the
Instructions to Tenderers are related to
tender stage carrying directions to
tenderers how to submit their offers. Also,
no party can impose conditions each other
after entering into the contract without
mutual consent, for instance tender and
auction regulations do not govern the
contracts but the tenders. The Engineer
and Employer may of course strictly
follow such regulations and refer the
tender committee at the defined limits of
values prior to issue instructions to the
Contractor.
The impression given by some instructions
is that the Employer has the right to
increase or decrease work, upto 20% of the
contract sum, but not beyond. It also does
not address what will happen when the
limit exceeds. It is therefore true to have a
fear of not getting approval for the varied
work by the Employer who is not legally
capable of going beyond this limit, from
the Contractor’s point of view. Further, the
Contractor may or perhaps do use this
opening to cover up their losses due to
open market price increases as well as any
item quoted unrated in the tender, in spite
of whether a separate mechanism is in
effect or not.
Care must be taken that the Employer’s
right to issue variations upto the limit of
20% original contract sum is different
from the variations exceeding 20% for the
compensation of unabsorbed overhead due
to adjustment of quantities and varied
work. The first limit could be during the
progress of work while the second only at
the practical completion. The first explains
the Employer’s right while the second
deals with the Contractor’s entitlement.
Parties tend to refer FIDIC in silence in
some contracts. The clause 52.3 of
FIDIC 4th edition says if it is found that
the limit has been exceeded on the
issue of the Taking-Over Certificate
for the whole of the Works, the
contract sum to be adjusted having
regard to the Contractor’s Site and
general overhead costs. This Sub-
Clause allows the Contractor and
Engineer to discuss and agree a lump
sum addition or deduction to the
Contract Price at the practical
completion when the
additions/deductions as described at (a)
and (b) are more than 15% of the
"Effective Contract Price". It will be
up to the Contractor to prove the
changes to his Site and general
overhead costs. The burden of the
proof lies upon the Contractor who
affirms, not the other who may deny.
Hence, the details and calculation of
the lump sum will entirely dependant
on the technical reasons for the
increase or decrease to the Contract
Price.
The whole idea is to compensate the
Contractor for any unabsorbed
overhead component due to
overwhelming decrease or increase of
such work where his overhead would
have been expended more and his
profit would have been exhausted more
in proportion to what he had planned
and contracted with, and vice versa for
the Employer.
It is also not reasonably inferable that
the Contractor has the right to refuse
any variations beyond this limit,
except in a circumstance where the
instructed new work fall out of the
contract domain because the additional
work were so peculiar, so unexpected
and so different from what was
contemplated by the contract. A
glaring anomaly of this instruction is
12
the ignorance when some works omitted at
the last lap of the project so that the net
resultant impact is not necessarily
exceeding 20% but still the Contractor
may have a case validly submitted under
the grounds of some tender regulations.
The power to control variations gone into
the hands of the Contractor is not at all
practicable when the Employer badly
needs some varied work inevitable for the
completion of the works. There is no limit
defined in the contract for the Contractor
to stop work or object compliance with the
instructions to variations (except the
circumstances we noted above).
The issue becomes worse with the goes
onto say that the Employer has the right to
vary works upto 20% of the contract sum
at the same rates and prices applicable to
the contract. This again sparks a claim as it
gives formal warranty for the Contractor
to lodge a claim for rate revision, which is
against the valid reasons for rate revision
given in the clause 51. A rate revision can
be made only on the circumstances that
rendered the existing rates unreasonable or
inapplicable (due to nature and amount of
any omission and addition compared with
the nature and amount of whole of the
contract work or to any part thereof). A
rate would even be reduced perhaps in a
typical civil Engineering work where the
rates could be much more profitable owing
to economies of scale whenever the
quantities are overwhelmingly increased,
although many Employers are not looking
from that angle.
Let me present 2 cases under lump sum
situation.
Case 1 :
The ducts for underground electrical
cables at 600mm level shown in tender
drawing No E-00 were not mistakenly
measured in the b/q. The revised
construction drawing No SD-E00
superseded the scope of work
envisaged in the tender drawing No E-
00. This paved the way for adjusting
the contract sum as a valid variation
under the contract as per clause 55,
which involved omission and addition
of the scope shown the drawing No E-
00 and SD-E00 respectively. The
Contractor argued that omission from
the bill of quantities is not possible in
absence of a B/Q item. However, the
logic is that the tender shall be
comprehensive enough to cover up all
the obligations under the contract as
prescribed in the contract documents
including drawings, irrespective of
whether a particular item of work has
been included or excluded in the bill of
quantities unlike in a typical measure
and pay contract. The Contractor shall
also be deemed to have satisfied
himself before tendering as to
correctness and sufficiency of the
tender for the works as per clause
12(1). Accordingly, the cost on PVC
ducts shown in tender drawing is
deemed to be priced within the tender.
Having subsequently altered the
subject scope by the above revised
drawing constituting a variation to the
contract as per clause 51(1), the
Engineer ascertained by ad-
measurement the net resultant value of
the respective work as per clause
51(3). All such works were valued at
the rates set out in the contract in order
to maintain the tender pricing level. As
such, the deduction made for omission
for which the price is already catered
for was contractual.
Case 2 :
Dewatering is an existing b/q item,
quoted as a lump sum, but not
prevailed at site. Hence, the Contractor
was invited to sign the original copy of
the site instruction as a formality to
omit dewatering from the scope of
work. The Contractor regretting
13
signing the site instruction argued that
dewatering is an integral part of
excavation that cannot be separated from
excavation item and hence, the contract
sum can not be adjusted. He further added
that he did not receive soil report at the
time it was priced.
Notwithstanding the extent of availability
of information related to tidal movements,
type of soil, water table etc or the pricing
strategy adopted in the tender, the entire
obligation falls on the Contractor to make
his own interpretation as to the nature and
extent of work involved in both temporary
and permanent works. Such a technical
judgment is a sole prerogative of the
Contractor for which the Employer is not
liable under whatsoever circumstances
except in cases where the Contractor is
able to justify that the Employer is at
default, such as failure to provide accurate
information timely whenever expressly
provided for in the contract.
The Engineer found no such record of
request or qualification during the tender.
The Contractor has neither made any
provision in his clause 14 program nor in
the methods statement as to how he
intends to deal with the issue of
dewatering. The section B for
preliminaries in which the tenderer has an
opportunity to identify the items not priced
elsewhere in the b/q also had a zero value.
Nothing has been executed physically later
at site with regard to control of ground
water such as installation of standpipes
and other devices as specified, altogether
revealing lack of compliance/emphasis on
the subject issue at the time of tender.
Nonetheless, the Contractor shall be
deemed to have satisfied himself before
tendering as to correctness and adequacy
of the tender for the works as per clause
12(1), bearing in mind that pricing risks
are inherent in any typical lump sum fixed
price contract. As such, the tender sum
shall be comprehensive enough to cover
up all obligations under the contract as
specified in drawings, b/q and
specifications etc. Without prejudice to
the primary intention of the contract,
the Engineer reserves the right to vary
the works within the meaning of clause
51 (1). The distinction is made in
clause 55, where any error or omission
from the bill of quantities shall provide
no grounds for adjusting the contract
price. In contrary, omission of an
existing b/q item is defined as a
variation as per clause 51(1) and
thereby provides grounds for adjusting
the contract price. This deletion is thus
contractually valid and the power to do
so has been vested in the Engineer as
per said clause.
Further, the Contractor’s price against
each bill item shall truly reflect the
value of the item described as noted in
pricing preamble. Any individual b/q
item that is itemized and separately
measurable or payable, apart from
other pay items operationally or
otherwise integral, incidental or
associated with it can be assessed in
full at the existing contract rate/s
according to its occurrence. The
dewatering in this particular instance is
an independent bill item of that
category that did not prevail at site at
all, so is apparently a subsequent
variation under the contract by a
complete omission, the benefit of
which shall be retained by the
Employer. Under circumstances, the
Engineer found no strong valid
technical or contractual basis to justify
why the Employer is liable for
payment for dewatering.
18. Conclusion
‘Variations’ has long been recognized
as a major source of conflict in
construction projects. A one of reasons
is the decisions heavily influenced by
subjectivity that differs from one
person to another. My view is that
even under the label of strict lump sum
14
firm price contracts, the Engineer
ultimately sits in a strong position to
convert the whole scenario into a
traditional form of measure and pay.
Variations and measurement clauses are
evident enough. Indeed, computing a
realistic value for variations is often not an
easy task. The parties need a considerable
knowledge, skill and exposure in the art of
judgment in order to have a sound
appreciation of the methods of
construction, estimating practice,
contractual implications, construction
programming techniques and most
importantly the records intact.
Compromise is possible on a give and take
policy without prejudice to the contract
terms, accepted standard norms and
professional ethics. A more rational
approach will enable the parties to use
variations as a fast track mode of
procurement also.
Chandana Jayalath, DSc, MSc, PG Dip,
BSc(QS)Hons, MRICS, AAIQS, AIQS(SL)
is a Chartered Quantity Surveyor working
on free lance basis, contactable over
jayalathchandana@gmail.com
(This paper has been prepared for the
Continuing Professional Development
Program at the Baan Saeng Thai
Auditorium on 3 April 2009 organized by
the SLQS Bahrain. The foregoing opinions
related to the subject paper belong to the
Author and do not represent the issuing
authorities of the subject conditions and
not to be taken as interpretation to a given
issue).