Essential law: Variations, part three

Whether a contractor is entitled to be paid for carrying out a variation where no written instruction is given is a perennial issue in construction projects. Everyone is working hard to complete a job on time, instructions are given on site to change the works, these changes are implemented but the paperwork never quite catches up. Then a dispute arises.

What are the consequences of such oral instructions? It will depend on the wording of the contract and the actions taken by the parties, but there are a number of potential outcomes:

• There was a valid variation instructed under the contract entitling the contractor to additional time and money.
• There was no valid variation instructed and so the contractor is in breach by changing the works it was required to complete under the contract.
• There was no valid variation instructed such that the contractor is not entitled to additional time or money, but the employer has given the contractor permission to change the works so it is not in breach by changing the works.
• There was no valid variation instructed but the contractor is still entitled to additional money for the varied works on another basis.

The contract

There are a range of ways that a contract can address how a variation has to be instructed. It may:

• Not require the variation to be instructed in writing. In such circumstances, the oral instruction should entitle the contractor to additional time and money provided the instruction is in fact a variation.
• Provide that if a contractor confirms an oral instruction in writing, it will be deemed effective unless the employer objects within a set time period. The contractor is potentially at risk if it proceeds before either the employer has confirmed the position in writing or the set period has expired.
• Allow oral instructions to be retrospectively confirmed in writing after the change has been carried out. If the employer refuses to exercise its discretion under such a clause, an adjudicator, arbitrator or court may have the power to exercise that discretion.
• Stipulate that only written instructions are valid under the contract and that oral instructions have no effect.

Acceptance of work instructed orally by an architect is not on its own sufficient to show an implied promise to pay

Contracts that require instructions to be in writing

If the contract stipulates that any variation must be instructed in writing but the variation is carried out on an oral instruction, the contractor is unlikely to be entitled to payment unless it can establish:

• Implied promise to pay – Where the employer orders work that it knows will cause extra cost, there may be an implied promise by the employer that the work should be paid for as an extra even if not instructed in accordance with the requirements of the contract. This is particularly the case where any other inference from the facts would be to attribute dishonesty to the employer. When the employer insisted that certain work be undertaken without an instruction, as it did not consider it amounted to additional work, the court has held that a promise was to be inferred from the employer to pay for it should it be found to be extra work. Acceptance of work instructed orally by an architect is not on its own sufficient to show an implied promise to pay. However, there are cases where the employer has requested additional works, has seen the expenditure on them and taken the benefit of that expenditure, and the court has held that the employer has to account for the value of the extra work.
• A collateral contract – A variation may be deemed to be undertaken pursuant to a separate contract, with a corresponding entitlement to be paid a reasonable sum for that variation. This may be arguable if the works fall outside the scope of the variations clause under the contract, are carried out after completion of the original contract work, or are considered to be “so peculiar and so different” that they are deemed to be outside the contract.
• Waiver – By the employer of the requirement to instruct variations in writing. The party wishing to rely on the waiver will need to demonstrate the waiver and reliance upon it. Was the employer aware of the work being carried out? Has the employer given any indication that the formal requirements under the contract did not need to be followed? Further, is there any clause in the contract providing that a waiver of any right is only effective if given in writing?

Often contractors are dealing with the contract administrator or employer’s agent, who do not typically have authority to bind the employer. If the contractor is seeking to rely on one of the exceptions outlined above, it may have to demonstrate that it has been agreed by the employer.

Next time we will look at the consequences of omitting work under a variations clause.

Katherine Keenan is an associate in the construction, engineering and projects team at Charles Russell Speechlys