Essential law: Variations, part one

The variations regime is fundamental to both parties to a construction contract. It gives the employer the flexibility to change the works, and determines the extent to which the contractor will be allowed additional time and money for such changes. 

This article, which will be the first of four on the topic of variations, will look at some of the issues regarding the extent of the employer’s right to instruct a variation and the contractor’s right to claim that an employer’s instruction is a variation.

What is a variation?

Most construction contracts will include a definition of what is a “variation” under that contract. In general terms, a variation is an instruction by the employer to alter the works to be performed or an instruction to vary their timing, method or sequence.

However, not all instructions will be treated as variations. In particular:

• Where the instructed work is “indispensably necessary” to complete the contract works, the court will generally infer that it is included in the contracted works, regardless of the fact that it is not expressly identified in the specification. 
• Where the contractor has agreed to design and build a facility to meet certain performance specifications, changes to the design required to meet those performance specifications will generally not be a variation.
• Where the contractor has taken on a risk under the contract (such as ground conditions), any delay or additional cost that arises from that risk will be the responsibility of the contractor, and will generally not be a variation even though the methodology required to complete the works may have changed.
• Where the contract gives the architect the power to determine the method by which the works are executed, it is generally not a variation if the architect chooses a specific methodology, even if that choice was unreasonable.

Can an employer instruct any variation?

There are certain limits on the employer’s right to instruct a variation that will generally be implied into a construction contract, such that the following are not permitted (unless expressly permitted by the contract or agreed by the contractor):

• Instructions that fundamentally change the nature of the contract, or were clearly not contemplated by the original contract. The guiding principle is that after such variation the works should still be capable of being identified as the works originally defined in the contract.
• Instructions that omit works for the purpose of awarding those works to another contractor. If an employer intends to omit work, it should be for the purpose of omitting that work entirely from the project. The courts have held that a contractor has both an obligation to do the works, and a corresponding right to be able to do those works.
• Instructions after practical completion has already occurred. 

Does the contractor have the right to carry out additional work? 

A contract may give the employer the right to instruct additional work, but that does not mean there will be an implied term that if additional work is required, the employer must instruct the contractor to carry it out.

Can the contractor object to a variation?

This would depend on the terms of the relevant variation clause. However, the standard forms generally contain a limited right for the contractor to object. For example, JCT provides that a contractor may make a reasonable objection to an instruction that relates to the imposition by the employer of any restrictions regarding access, limitations of working space or working hours or the execution of work in a specific order.

Are there circumstances where an employer is obliged to instruct a variation?

Certain standard form contracts (such as the old ICE conditions) place a positive obligation on the engineer to instruct a variation if this was necessary for completion. However, whether such an obligation may be implied is more complex. There is a tension between the contractor’s obligation to build what is described in the contract even if that is impossible, and the implied duty on the employer to co-operate.

What if there is no variation clause?

All standard form construction contracts contain variation clauses, but what if the parties have contracted on, say, a simple agreement of price and scope of work without a variations clause?

First, there is no implied right for an employer to instruct a variation under a construction contract. Therefore if there is no express contractual right for an employer to instruct variations, the contractor can refuse to carry out such variations without consequence.

Second, if the contractor agrees to carry out such variation, this varied work may be construed as a new contract such that the varied work is valued on a different basis than under the original contract and not based on the rates and prices in that original contract.

Our next article in this series will cover the topic of how to value variations.

James Worthington is a partner and Vanessa Jones an associate at Charles Russell Speechlys