“Variations” in construction contracts allow the parties to make necessary changes to the project without vitiating the contract. Without variations stakeholders cannot proceed the project within the scope of the original contract, which would result in a potentially invaluable asset, delays which cannot be rectified due to circumstances outside of party’s control, and result in additional time and supplies going unpaid for. Variations are also critically important to duly compensate the contractor as well as to facilitate necessary changes to the project as per the employer’s requirement. According to FIDIC 1999 red book, the engineer is the authorized person to initiate variations by way of issuing variation instructions. Most companies allocate contingencies for the project which strength their margins and capability to absorb change and unforeseen circumstances, but this doesn't mean they should be paying for other party’s work
The variation process in the construction industry consists of variation identification, issuing instruction for the variation, submission of variation proposal, cost and time assessment, negotiation and agreement, documentation and formal approval, implementation, monitoring and documentation, finalization and payment. As given in FIDIC 1999 red book, once a variation is identified, the engineer issues instructions for such variation, subsequently. the contractor has to prepare a variation proposal for that particular context.
A variation proposal, also known as a change request or change order, refers to a formal document submitted during a project to propose modifications or alterations to the original project scope, specifications. It is typically initiated when there is a need to deviate from the agreed-upon project requirements due to various reasons such as unforeseen circumstances, employer’s requests, design changes, or other factors which becomes necessary to be implemented whilst fulfilling the fundamental requirements of ‘fitness for the purpose’ and ‘merchantable quality’. Construction variations enable projects to be more dynamic which results in better asset delivery.
According to the FIDIC 1999 conditions of contract, sub clause 13.1 provides that the engineer has the right at any time before the issue of the taking over certificate to initiate a variation either by an instruction or by a request for the contractor to submit a proposal. The contractor is obliged to carry out every variation unless he cannot readily obtain the goods required for the variation.
Where the engineer has requested the proposal, the contractor is entitled to reply by advising why the engineer cannot comply with this request or by submitting, a proposal setting out the work proposed and a programme, any necessary modifications to the programme along with his price proposal. The engineer is required to respond as soon as practicable with approval, disapproval or comments.
Typically, a variation proposal is included with a title and project information, a brief introduction and background for the proposal. Further, the scope of variation should be given. An explanation of the reasons behind the proposed variation should be there. Impact assessment, technical details, cost estimation, schedule adjustment, approval process and identification of any strategies to mitigate any potential risks associated with the proposed variation should consist of a variation proposal. Thereafter, an overall conclusion will be given. Furthermore, any supporting documents, such as drawings, specifications, or additional analysis should be attached.
Few related decisions made upon the variation proposal at legal proceedings can be summarised as follows.
· Thorn v London Corporation (1876):
It was suggested that where the scope of the variation could not have been foreseen in the contract then the contractor could either refuse to undertake the work or claim a quantum meruit for payment of this work. In the United States this is referred to as the principle of “cardinal change”.
· Luria Brothers & Company Inc v United States (1966):
The court held that the ground conditions for the work had so changed that the Contractor was able to establish that a cardinal change had occurred.
· ICS (Grenada) Limited v NH international (Caribbean) Limited (2004)
The High Court of Trinidad and Tobago held that an implied agreement to accelerate the works would not amount to a variation but would be a separate contract.