Friday, May 14, 2004

Variations and Claims

The term Variation is used to describe any difference between the circumstances and/or content of the contract works as carried out, compared with the content and/or circumstances under which the works are described in the contract documents as intended to have carried out. Any change shall entitles the contractor to an adjustment of the contract price. A change is implied by the actions or omissions of the contracting parties.

Usually, contract does have a clause empowering the contract administrator to issue instructions for change, and employers does have a right to make any change covered by the clause for which he is willing to pay and, if necessary, grant more time.

A sound understanding of why change occurs is important in relation to the circumstances leading to and impacts on time and cost. The starting point is to decide what precisely is the extent of the work, which the contractor has undertaken to perform under the original contract. The significance of change must be considered in relation to whether the effect of change is:

 Discrete to the change itself
 Has consequences beyond itself
 Requiring action to minimize its effect, whether there are choices available and which one is appropriate, and
 Who needs to know about it?

A starting point in consideration of whether there is a change is: “what is the necessary and implicit work which the contractor is required to do under the contract and upon what basis can that work be varied?”

“Variation” in the PAM 1998 Form contract covers five main areas. Clause 11.1(i) to (v) intend a tangible change in the works. Clause 11.1(vi) excludes any default and/or breach of contract by the contractor from being a variation. This clause relates to changes in the obligations or restrictions imposed by the employer in the contract with regards to matters connected with the manner the work is constructed. It sets out situations where the employer may affect the contractor’s activity under the contract on the project. Clause 11.2 of the PAM 1998 Form goes on to provide that no variation shall “vitiate the contract”. The purpose of the statement is to ensure that the ordering of substantial variations will not entitle the contractor to treat the contract as at an end and claim to be paid on a “quantum meruit” basis rather than in accordance with the contractual terms. It is only “the works” as described in the contract documents that may be altered or modified. The architect’s power does not extend to ordering additions or substitutions that would require the contractor to execute work clearly not contemplated by the contract.

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