WHAT CONSTITUTE A VARIATION IN CONSTRUCTION

FROM LEGAL PERSPECTIVE

LIM CHENG SIM

UNIVERSITI TEKNOLOGI MALAYSIA

iii

DEDICATION

To my beloved husband,

sister Chin Mooi,

daughters: Ee Chien, Ee Xuan, Ee Han & Ee Lin

……………………….Thanks for everything.

iv

ACKNOWLEGDEMENT

First of all, I would like to express my highest gratitude to my supervisor,

Prof. Madya Dr. Rosli b. Abdul Rashid for his guidance, advice and support in

completing this master project.

Next, I am also indebted to all the lecturers of this course (Master of Science

in Construction Contract Management) especially En. Jamaluddin Yaakob, for their

kind advice during the process of completing this master project.

I would also like to express my gratitude to my fellow course mates for their

guidance and support.

Not forgetting my dearest husband, eldest sister and children, thanks for their

tolerance and support given.

Last but not the least, a special thank to my colleague Mr. Chiew Seng Khoon

for his advice and moral support during the whole course of study.

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ABSTRACT

Construction projects are complex thus the requirement for changes to be made before they are completed is inevitable. Construction contracts commonly include variations clauses to enable the employer’s design team to vary the design and specification. Various forms of construction contract defined the variation differently and different standard forms of contract have different wordings for it. The variation clauses are usually drafted in very wide terms and appeared to be all embracing. Although the descriptions are clear but it is difficult to determine the point where it is ‘variation’ or ‘new work’, and it is not clear from the ambit of these clauses as to how extensive a variation may be and still be binding. Thus variation clauses often give rise to argument, debate and litigation. The main objective of this study is to determine what constitute a variation in construction from legal perspective. The scopes of this study are (1) contractual provisions in the three major and popular forms of construction contract in Malaysia, namely PAM 98 Form, PWD Form 203A (Rev. 10/83) and CIDB 2000, and (2) Legal cases reported in Lexis Nexis in relation to variations in Malaysia and other Commonwealth countries. The research methodology adopted for this report consists of 4 stages. Stage 1: initial study and finding the research topic, objective, scope and outline; Stage 2: collecting data and research design; Stage 3: analyzing and interpreting data and Stage 4: writing-up. This report covers five (5) chapters. Chapter 1 sets the background of the study, problem statement, objective of the study, scope and limitation of the study, research methodology and the organization of the chapters. Chapter 2 discusses some basic terminologies and provides a general understanding of variation, contractual terms and contract interpretation on variation. Chapter 3 examines the detailed provision of variation clauses in relation to ‘definition of variation’ and ‘valuation of variation’ of the most commonly used local standard forms, i.e. PAM 98 Form, PWD 203A (Rev. 10/83) and CIDB Form 2000. Chapter 4 analyses legal perspective of ‘what constitute a variation’ in construction of the various court cases chosen in order to achieve the objective of this project report. Chapter 5 summarises the findings of the research according to the research objective. The finding derived from the analysis of the court cases is that there is no single legal perspective regarding what constitute a variation in construction. However, based on the cases analysed, the most common issue is whether the extra over of the changes fall under reasonable scope and nature of the original work; but what is reasonable under the circumstances will be a matter for the courts to establish on the facts of the particular case.

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ABSTRAK

Projek-projek binaan adalah kompleks, dengan demikian perubahan kepadanya sebelum ia dilengkapkan tidak dapat dielakkan. Kontrak binaan biasanya mempunyai klausa-klausa perubahan untuk membolehkan kumpulan reka bentuk majikan membuat perubahan pada reka bentuk dan spesifikasi. Pelbagai kontrak binaan mempunyai taktif yang berbeza untuk ‘perubahan’ dan kontrak yang berlainan menggunakan perkataan yang berlainan untuknya. Klausa-klausa perubahan biasanya didrafkan dalam frasa yang sangat luas and kelihatan merangkumi. Walaupun gambaran kata-katanya jelas tetapi sukar untuk menentukan bila ia adalah ‘perubahan’ dan bilanya ‘kerja baru’, dan tidak jelasnya sebesar mana perubahan boleh dibenarkan. Oleh kerana itu, klausa-klausa perubahan sentiasa menyebabkan pertelingkahan, penghujahan dan tindakan undang-undang. Objektif utama pengajian ini ialah untuk menetapkan ‘apa yang merupakan perubahan dalam binaan dari segi pemandangan undang-undang’. Skop kajian ini adalah: (1) peruntukan kontrak dalam tiga form kontrak umum yang utama iaitu PAM 98 Form, PWD Form 203A(Rev 10/83) dan CIDB 2000, dan (2) kes-kes mahkamah yang dilaporkan di Lexis Nexis mengenai perubahan binaan di Malaysia dan negara-negara Komanwel. Kajian in mempunyai 4 peringkat. Peringkat 1: kajian yang pertama dan pencarian topik kajian, objektif, skop dan garis luar. Peringkat 2: Pengumpulan data dan reka bentuk kajian. Peringkat 3: Analisis data dan Peringkat 4: Penulisan. Lapuran ini mengandungi lima (5) bab. Bab 1 menceritakan latar belakang kajian, penyataan masalah, objektif kajian, skop dan pembatasan kajian, perkaedahan kajian dan susunan bab. Bab 2 membincangkan peristilahan asas dan mengemukakan perfahaman untuk perubahan binaan. Bab 3 periksa secara teliti klausa-klausa ‘definasi perubahan’ dan ‘cara-cara penilaian perubahan’ diperolehi dalam PAM 98 Form, PWD Form 203A(Rev 10/83) dan CIDB 2000. Bab 4 menganalisis pemandangan undang terhadap ‘apa yang merupakan perubahan dalam binaan’ berdasarkan kes-kes mahkamah terpilih. Bab 5 membuat ringkasan untuk hasil penyiasatan pengajian mengikuti objektif pengajian. Hasil penyiasatan pengajian ini menunjukkan bahawa tiada satu pemandangan undang-undang yang tunggal terhadap apa yang merupakan perubahan dalam binaan’. Walaupun demikian, berdasarkan kes-kes yang dikajikan, isu lazimnya adalah sama ada tambahan perubahan jatuh dalam skop yang munasabah; tetapi apa adalah munasabah adalah terpulang pada mahkamah untuk ditetapkan berdasar fakta-fakta satu-satu kes itu.

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TABLE OF CONTENTS

CHAPTER TITLE PAGE

Title i

Declaration ii

Dedication iii

Acknowledgement iv

Abstract v

Abstrak vi

Table of Contents vii

List of Cases x

List of Tables xiii

List of Figure xiv

List of Abbreviations xv

1 INTRODUCTION

1.1 Background Study 1

1.2 Problem Statement 3

1.3 Objective of the Study 5

1.4 Scope of the Study 5

1.5 Significance of the Study 5

1.6 Research Methodology 6

1.6.1 Stage 1: Initial Study and Finding the Research

Topic, Objective, Scope and Outline 6

viii

1.6.2 Stage 2: Collecting Data and Research Design 7

1.6.3 Stage 3: Analyzing and Interpreting Data 7

1.6.4 Stage 4: Writing-up 7

1.7 Organisation of the Report 9

2 VARIATION ORDER IN CONSTRUCTION PROJECT

2.1 Introduction 11

2.2 Definition of Variation/Variation Order 11

2.3 Reasons For Variations 15

2.4 Reasons For Variation Clauses 21

2.5 Types of Variation 23

2.6 Factors Determining A Valid Variation Order 25

2.7 Conclusion 32

3 PROVISION OF DEFINITION OF VARIATION

AND RULES FOR VALUATION OF VARIATION

IN LOCAL FORMS OF CONSTRUCTION CONTRACT

3.1 Introduction 33

3.2 Definition of Variation 34

3.2.1 Provision of Definition of Variation in

PAM 98 Form 35

3.2.2 Provision of Definition of Variation in

PWD 203A Form 37

3.2.3 Provision of Definition of Variation in

CIDB Form 2000 38

3.2.4 Comparison of Provisions for

‘Definition of Variation’ in the

Local Standard Forms of Contract 39

ix

3.3 Rules for Valuation of Variations 45

3.3.1 Provision of Rules for Valuation of

Variation in PAM 98 Form 45

3.3.2 Provision of Rules for Valuation of

Variation in PWD 203A Form 49

3.3.3 Provision of Rules for Valuation of

Variation in CIDB Form 2000 53

3.3.4 Comparison of Provisions for

‘Rules for Valuation of Variation’ in the

Local Standard Forms of Contract 55

3.4 Conclusion 60

4 VARIATION IN CONSTRUCTION FROM LEGAL

PERSPECTIVE

4.1 Introduction 61

4.2 Variation In Construction From Legal

Perspective 62

4.3 Conclusion 99

5 CONCLUSION AND RECOMMENDATIONS

5.1 Introduction 104

5.2 Summary of Research Findings 104

5.3 Problems Encountered During Research 112

5.4 Further Research 112

5.5 Conclusion 113

REFERENCES 114

x

LIST OF CASES

CASE PAGE

AE Farr Ltd v Ministry of Transport (1965) 5 BLR 94 87

Brodie v Cardiff Corporation [1919] AC 337 12,31

Barter v Lord Mayor of Melbourne (1870) 1 AJR 160. 28

Blue Circle Industries PLC v Holland Dredging Company

(UK) Ltd (1987) 37 B.L.R. 40. 68

Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273. 29,98

Coker v Yound [1860] 2 F&F 98 51

Commissioner for Main Roads v Reed & Stuart Pty Ltd

& Anor. [1974] ALJR 461 95

Franklin v Drake (1826) 6 L.T. 291. 31

Goodyear v Weymouth and Melcombe Regis Corporation

(1865) 35 L.J.C.P. 12 31

Hardwood v Civic Construction Pty Ltd 1990 NSW LEXIS 10604. 100

xi

CASE PAGE

Hill v South Staffordshire Railway Company 73

John Laing Construction Ltd v County and District

Properties Ltd (1982) 23 BLR 1 47,51

Kemp v Rose (1858) 1 Giff. 258 at 268. 13

Laidlaw v Hastings Pier Co. (1974). 31

Lamprell v Guardians of Billericay Union 73

London Steam Stone Saw Mills v Lorden [1900]

HBC 4the edn, vol 2, p 301 51

McAlpine Humberoak Ltd v McDermott International

Inc. (No. 1) (1992) 58B.L.R. 1 76

Mitsui Construction Co. Ltd v Attorney General of Hong Kong

Government [1987] 1 HKC 31 83

Molloy v Liebe (1910) 102 LT 616 12,31

Re Chittick and Taylor (1954) 12 W.W.R. 653 22,28

Richards v Oppenhaim (1950) 1 KB 616, 626. 31

Russel v Sa Da Bandiera (Viscount) (1862) 13 cBNS 149;

32 LTCP 68; 7 LT 804. 28

Sharpe v San Paulo Railway (1873) L.R. * Ch.App. 597 13,28,62

xii

CASE PAGE

Simplex Concrete Piles Ltd v St Pancras Borough Council

(1958) 14 BLR 80. 18,37

Sir Lindsay Parkinson & Co Ltd v Commissioners of

His Majesty’s Works & Public Buildings [1950] 1 All ER 208. 30

Stockport Metropolitan Borough Council v OReilly

[1978] 1 Lloyd’s Rep 595. 2

Tarverner & Co. Ltd. V Glamorgan County Council

(1940) 57 TLR. 32

Tharsis Sulphur and Copper Company v McElroy

& Sons (1878) 3 App Cas 1040 72

Thorn v London Corporation (1987) 1 App Cas 120 (HL) 31,70,91

xiii

LIST OF TABLES

TABLE NO. TITLE PAGE

Table 3.1 Comparison of Provisions for ‘Definition of Variation’

in the Local Standard Forms of Contract 43

Table 3.2 Comparison of Provisions for ‘Rules for Valuation of

Variation’ in the Local Standard Forms of Contract 59

Table 5.1 Tabulation for Principles of ‘What constitute a

Variation in construction from legal perspective’ 105

xiv

LIST OF FIGURE

FIGURE NO. TITLE PAGE

Figure 1.1 Research Methodology 8

xv

LIST OF ABBREVIATIONS

CIDB Construction Industry Development Board

CIPAA Construction Industry Payment and Adjudication Act

FIDIC Federation Internationale de Inginieurs Conseils

HGCR Housing Grants, Construction and Regeneration

ICE The Institution of Civil Engineers, UK

ISM The Institution of Surveyors, Malaysia

JCT Joint Contract Tribunal

PAM Persatuan Arkitek Malaysia

PWD Public Work Department

RIBA Royal Institute of British Architects

SMM Standard Method of Measurement

SO Superintending Officer

VO Variation Order

1

CHAPTER 1

INTRODUCTION

1.1 Background of the Study

Construction projects are complex thus the requirement for changes to be

made before they are completed is inevitable. There are three ways in which a

variation might occur. Firstly, clients may change their minds about what they asked

for before the work is complete. Secondly, designers may not have finished all of the

design and specification work before the contract was let. Thirdly, changes in

legislation and other external factors may force changes upon the project. Although

these three origins are very different, construction contracts tend to ignore these

differences and deal with all variations in the same way.1

Construction contracts commonly include variations clauses to enable the

employer’s design team to vary the design and specification. This is to avoid the

problem that a contract would, in principle, have to be re-negotiated due to the change

of specification of the work. The purpose of the variations clauses is to allow such

changes to be made, and also to permit any consequential changes to be made to the 1 Murdoch,J. , Hughes, W.. Construction Contracts- Law and Management, Spon Press, London (2000), p.200.

2

contract sum. Each standard or tailored form of construction contract will have a

form of words attempting to address the question of ‘What is a variation?’ Some

attempted definitions are prescriptive, i.e. “You will do anything I tell you to do, or

shown on drawings issued to you by the Architect, and there will be no change in

price or time unless I have previously agreed the extra money and time.” Such a

unilateral definition can work, either by mutual reasonableness or by the contractor

taking an equally robust attitude – “If you want me to do that, you will agree my price

and my additional time before I will even order the materials.” Mutual

reasonableness cannot be relied on and disputes will have to be referred to a “Third

Party Umpire”. In UK, the trend of the adjudicator as a “Third Party Umpire” which

was formally given statutory status by the Housing Grants, Construction and

Regeneration (HGCR) Act 1996 to make the pre-agreement of variations becoming

the “norm”.2 However, this is quite impossible to be a scenario in Malaysia in near

future in view of the enactment of the proposed Construction Industry Payment and

Adjudication Act (CIPAA) is still ‘on the way’.

The provision of variation clauses in construction contracts compels the

contractor to obey instructions issued by the contract administrators. However, a

variation order may be issued in terms which contradict the terms of the power and

thus will be an invalid variation.

The issue of a variation order triggers the operation of other provisions in the

contract to adjust the contract price of the contract - it may turn out to be higher or

lower, depending on the nature of the variation. Thus, where a contractor has secured

a project on prices and terms which are profitable, he will have a strong interest to

argue that any additional work should be construed as a variation and valued

according to the prices and rates contained in the contract. There is nothing to prevent

the parties from agreeing that varied work should be undertaken under a separate

contract.3 Hence, where the contract was awarded on prices and rates which were

2 Jeremy Hackett. Construction Claims: Current Practice And Case Management, (2000), p.116. 3 See Stockport Metropolitan Borough Council v OReilly [1978] 1 Lloyd’s Rep 595.

3

subsequently shown to be unprofitable, a contractor may be expected to press the case

that the subject work should not be construed as a variation on the terms of the

contract and that, instead, it should be the subject of a separate contract or undertaking

between the parties, in which case new prices and rates have to be agreed between the

parties.4

In Malaysia, majority of the local contractors/sub-contractors are usually less

‘legal-conscious’ or less preferring to legal proceedings. This situation is attributed

by firstly, there is always unequal contractual bargaining power which favors the

employer instead of the contractor; and secondly, the existing dispute resolution

mechanisms are too time consuming and expensive. Therefore, it seems that they do

not have much choice of solutions but to uplift the awareness of the common issues of

disputes in variations claims.

It is thus essential to foster the understanding of variations claims among all

the parties in the construction industry especially the contractors/sub-contractors.

1.2 Problem Statement

Various forms of construction contract defined the variation differently and

different standard forms of contract have different wordings for it. The variation

clauses are usually drafted in very wide terms and appeared to be all embracing.

Although the descriptions are clear but it is difficult to determine the point where it is

‘variation’ or ‘new work’, and it is not clear from the ambit of these clauses as to how

4 Chow Kok Fong. Law and Practice of Construction Contracts (3rd Edition), Sweet & Maxwell Asia (2004), p175.

4

extensive a variation may be and still be binding. Thus variation clauses often give

rise to argument, debate and litigation.

Uff (2005) pointed out that when there has been a departure from the work

specified in the contract, it is necessary to decide whether there is, in law, a variation

under the contract; if there is a variation, whether the contractor is entitled to be paid

extra; and if so, the amount of the extra payment.5

He further noted that contracts do not usually place any limit on the

permissible extent of variations. The usual provision that no variation is to vitiate (or

invalidate) the contract, makes it difficult to imply any limit. However, there must

always be some limit to what may be added to the contract. If work exceeding such

limit is ordered, the contractor may be entitled to be paid on a quantum meruit basis.6

Meanwhile, Vincent Powell Smith (1990) commented that there are more

misunderstandings and disputes about variations than any other aspect of construction

contracts. The wide definition of the term ‘variation’ or ‘varied work’ in the standard

forms of contract also give rise to difficulties. Indeed, it is sometimes suggested that

such definition means that the architect can in fact use the variations clause as a

means of making fundamental changes in the work.7

Therefore the issue here is “what constitute variation” and when variation is

considered as new works.

5 John Uff. Construction Law – Law and Practice relating to the Construction Industry (9th Edition). Sweet & Maxwell (2005), p274. 6 Ibid, p277. 7 Vincent Powell-Smith. Problems in Construction Claims. Oxford BSP Professional Books. Pg42.

5

1.3 Objective of the Study

The main objective of this study is to determine what constitute a variation in

construction from legal perspective.

1.4 Scope of the Study

The study is focused on the following:

1. Contractual provisions in the three major forms of construction

contract in Malaysia, namely PAM 98 Form, PWD Form 203A (Rev.

10/83) and CIDB 2000.

2. Legal cases reported in Lexis Nexis in relation to variations in

Malaysia and other Commonwealth countries.

1.5 Significance of the Study

Basically, this study is expected to answer some of the uncertain issues that

arise in construction contracts such as issues that in relation to variation orders. In

accordance to that, issues will be analyzed based on the interpretation and judgment

by the courts. It is hoped that this study will be able to help the stakeholders in the

6

construction to have a more complete understanding of judicial interpretation on what

constitute variations in construction projects.

1.6 Research Methodology

The process and method of approach act as guidelines so that the study could

be done in a systematic way to achieve the research objective. The study process

consists of 4 stages. Stage 1: initial study and finding the research topic, objective,

scope and outline; Stage 2: collecting data and research design; Stage 3: analyzing

and interpreting data and Stage 4: writing-up. Figure 1.1 shows the research

methodology.

1.6.1 Stage 1: Initial Study and Finding the Research Topic, Objective, Scope

and Outline

Stage 1 of the research involves initial study which there are two approaches

used i.e. discussion with friends and lecturers regarding what research topic can be

done. Initial literature review is also done to help get the idea of the research topic.

After the initial study, the rough idea of the research topic is formed. The objective

and scope of the research are fixed then. After this, a research outline will be

prepared in order to identify what kind of data will be needed in this research. Also,

data sources will be identified as well.

7

1.6.2 Stage 2: Collecting Data and Research Design

Collection of all relevant data and information is done during this stage. Data

will be collected mainly through documentary analysis. All collected data and

information are recorded systematically. Data collected are mainly from the Malayan

Law Journal, Singapore Law Report, Building Law Report, Construction Law Report

and other law journals. It is collected through the Lexis-Nexis online database. All

the cases relating to the research topic will be sorted out from the database. Important

cases will be collected and used for the analysis at the later stage.

1.6.3 Stage 3: Analyzing and Interpreting Data

This stage of research involves data analysis, interpretation and data

arrangement. This process is to convert the data collected to information that is useful

for the research. Arrangement of data tends to streamline the process writing of the

paper.

1.6.4 Stage 4: Writing-up

This stage is the final stage of the research process. It involves mainly the

writing up and checking of the writing. Conclusion and recommendations will be

made based on the findings during the stage of analysis.

8

Stage 1

Stage 2

Stage 3

Stage 4

Initial Study

Fix the research topic

Fix the research objective, scope and prepare the research outline

Data Collection

Data analysis & interpretation

Writing-up

Identify type of data needed and data sources

Approach: Documentary Analysis • Law Journals, e.g. Malayan Law Journal, Singapore

law Report, Building Law Report, etc.

Approach 1: Literature review • Books, journals, internet sources Approach 2: Discussion • Discussion with friends and lecturers

Research Design

Figure 1.1: Research Methodology

9

1.7 Organisation of the Report

This report covers five (5) chapters as follows:

Chapter 1: Introduction

This chapter sets the background of the study, problem statement,

objective of the study, scope and limitation of the study, significance of the

study, research methodology and the organization of the chapters.

Chapter 2: Variation Order in Construction Project

Chapter 2 discusses some basic terminologies and provides a general

understanding of variation, contractual terms and contract interpretation on

variation, which will be useful to enhance the understanding when reading the

subsequent chapters.

Chapter 3: Provision of Definition of Variation and Rules for Valuation of

Variation in Local Forms of Construction Contract

This chapter examines the detailed provision of variation clauses in

relation to ‘definition of variation’ and ‘valuation of variation’ of the most

commonly used local standard forms, i.e. PAM 98 Form, PWD 203A (Rev.

10/83) and CIDB Form 2000 only.

10

Chapter 4: Variation in Construction from Legal Perspective

This chapter analyses legal perspective of ‘what constitute a variation’

in construction of the various court cases chosen in order to achieve the

objective of this project report. It is done mainly through documentary

analysis of law journals and law reports, e.g. Malayan Law Journal, Singapore

Law Report, All England Report, Canada Law Report, Building Law Report,

Construction Law Report, etc.

Chapter 5: Conclusion and Recommendations

This chapter is the final chapter that summarises the findings of the

research according to the research objective. It also contains the problems

encountered during the research as well as the recommendations for future

researches.

11

CHAPTER 2

VARIATION ORDER IN CONSTRUCTION PROJECT

2.1 Introduction

This chapter discusses some basic terminologies and provides a general

understanding of variation, contractual terms and contract interpretation on variation,

which will be useful to enhance the understanding when reading the subsequent

chapters.

2.2 Definition of Variation/Variation Order

A number of terms have been employed in the industry to label the instant

topic; the more common of these are Variations, Changes, Extra Works and Extras.8

8 Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – Post-Commencement Practice. (2003), p424.

12

Webster Dictionary 9 defines “Variation” as alteration, modification or

mutation or partial change in the form, position, state or quantities of a thing. “Order”

is meanwhile defined as an issued command.

“Variation” is explained as “This is a technical usage of the common term and

refers to a definable alteration to the nature or extent of contract works or to the

conditions under which it has been agreed such contract works will be carried out.

The various standard forms of contract provide in differing ways for calculating the

financial effect of variations and for consequently adjusting the contract sum.” in the

Construction Contract Dictionary10.

The said dictionary has a further more precise explanation on variation under

“Extra Work”. It says that: “Extra work is work which is not expressly or impliedly

included in the work for which the tendered sum is payable. Where the contractor

quotes a lump sum based on drawings and/or a specification, there is an implied

obligation to do all indispensably necessary work at no extra cost, whether or not such

work is shown on the drawings or described in the specification. However, where the

scope of the work included in the price purports to be precisely defined, as in a bill of

quantities, any work in excess of the measured quantities, in so far as it is properly

done in response to a valid instruction and not rendered necessary by any default of

the contractor, would be treated as a variation. If extra work is completely outside the

scope of, and quite unrelated to, the original contract work then it may well not be a

variation and may become the subject of an implied new contract and of a quantum

meruit payment. However, if both parties treat it as a variation it might well be

difficult for either party subsequently to contend that it was to be treated as the subject

of a separate contract. [See Law Reports: Molloy v Liebe (1910); Brodie v Cardiff

Corporation (1919.)]

9 The New Webster Encyclopedic Dictionary of English Language. 10 Leonard Fletcher, Reginald Lee & John A Tackaberry. Construction Contract Dictionary, (1980).

13

Similarly, Keating (2001)11 proffered the meaning of “Extra Work” as “There

is no generally accepted definition of extra work, but in a lump-sum contract it may

be defined as work not expressly or impliedly included in the work for which the

lump sum is payable.12 If work is included in the original contract sum the contractor

must carry it out and cannot recover extra payment for it, although he may not have

thought at the time of entering into the contract that it would be necessary for the

completion of the contract.13 The question is one of construction in each case, but

lump-sum contracts may be broadly classified into those in which the contractor’s

obligation is defined in wide terms, such as “to build a house”, and those in which it is

defined in exact terms, such as “to execute so many cubic metres of digging.”

James R. Knowles (1994)14 defined the term “variation” as works, which are

not expressly or impliedly included in the contract and therefore are not included in

the contract price. They represent a change of alteration of the original work or

simply an addition to or omission from it.

Prof. Haji Hashim Sikan (1999)15 described “variation” as “ In plain language

a variation in a construction contract could possibly be construed as the introduction

during the progress of the construction work of something mostly work-related in

nature added to or deducted from that which was tendered and accepted originally.

However, the proper technical definition can be found in the standard forms of

contract between a client and a building contractor commonly used in the construction

industry.”

He added further that “It is a change or deviation in design, material or

workmanship from that specified in the original tender document. Variations may

11 Stephen Furst & Vivian Ramsey, Keating On Building Contracts, Seventh Edition, (2001), p.106. 12 Kemp v Rose (1858) 1 Giff. 258 at 268. 13 Sharpe v San Paulo Railway (1873) L.R. * Ch.App. 597 14 James R. Knowles. A Full Day Seminar On Construction Claims : Their Mysteries Unraveled. (1994). 15 Prof. Haji Hashim Sikan. Salient Points On Contract Administration Of Building And Civil Engineering Works (Local Practice). (1999). P51.

14

occur any time not only during the progress of the construction work but also prior to

the possession of site. As a rule no instruction for variation will be issued after the

practical completion has been certified.”

Meanwhile, Chow (1980)16 described the terms “Variations” or “extras” in a

more legal term as works, which are not expressly or impliedly included in the

original contract and therefore not part of the works covered by the original contract

price. Variations could represent either additional works, or omissions or alterations

to the works originally included in the contract.

Jabatan Kerja Raya’s P.W.D. Form 203A (Rev. 10/83), Condition Of Contract

To Be Used Where Bills of Quantities Form Part Of The Contract, Clause 24:

“Variation means the alteration or modification of the design, quality or quantity of

the Works as shown upon the Contract Drawings, Bills of Quantities and/or

Specification, and includes the addition, omission or substitution of any work, the

alteration of the kind or standard of any of the materials or goods to be used in the

Works and the removal from the Site of any of the materials or goods executed or

brought thereon by the Contractor for the purposes of the Works other than work,

materials or goods which are not in accordance with this Contract.”

Pertubuhan Akitek Malaysia (PAM) Standard Form Of Building Contract

(With Quantities), Clause 11: “Variation as used in these Conditions means the

alteration or modification of the design, quality or quantity of the Works as shown

upon the Contract Drawings, and described by and referred to in the Contract Bills,

and includes the addition, omission or substitution of any work, the alteration of the

kind or standard of any of the materials or goods to be used in the Works, and the

removal from the Site of any work materials or goods executed or brought thereon by

the Contractor for the purposes of the Works other than work materials or goods

which are not in accordance with this Contract.

16 Chow Kok Fong. The Law Relating To Building Contracts – Cases and Materials. (1980).

15

No matter how the variation is being defined, Harbans Singh (2003) 17

concluded that “Although there is a proliferation of terms being employed in the

industry, the essential elements of all the terms are fundamentally similar; these

being:

(a) There must be a change effected;

(b) This change must be in relation to the scope of the work; and

(c) The scope of work being changed must be as:

(i) Expressly included in the contract documents, i.e. detailed or described

in the specifications, BQ, drawings, employer’s requirements,

contractor’s proposals, etc;18 and/or

(ii) Impliedly included in the contract documents.19

For the purpose of this study, it can be said that variation is “the addition or

omission of cost to the original contract sum.”

2.3 Reasons For Variations

As commented by Harbans Singh (2003)20, the actual reasons for variations

plaguing the engineering and construction industry have never been a subject of any

17 Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – Post-Commencement Practice. (2003), p424. 18 As applicable. 19 Eg as necessary or incidental.

16

comprehensive study on the local scene despite the impact of these on the said

industry.

However, Prof. Haji Hashim Sikan (1999) 21 has mentioned some good

examples of the reasons for variations and they could be classified under three major

categories as below:

• Changes in design and technology of construction

It is considered imperative and practical for a construction contract to have

a provision for variations in its working procedures because of the length

of time for the completion of a project and the complexity of design

especially for a prestigious project in which changes in design and

technology of construction will have to be accommodated in pursuit of

aesthetic excellence and to comply with the changing needs of

environment. Take a prestigious project which needs two or three years to

complete for instance. When the project was approved to be constructed

about four years ago the design was acclaimed to be of the highest quality

ever and the construction technology was methodically worked out and

programmed for a targeted completion date. But when the work started

and the project gradually took shape new idea to improve the design was

conceived. Perhaps the owner (the client) has just returned from an

extensive tour and inspired by some projects he happened to see he

decided to include some interesting features into his own to make it his

dream project, so to speak. This new idea or the features to enhance the

aesthetic qualities of the project causes amendments on the original design,

hence a variation.

20 Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – Post-Commencement Practice. (2003), p428. 21 Prof. Haji Hashim Sikan. Salient Points On Contract Administration Of Building And Civil Engineering Works (Local Practice). (1999). p51 & p52.

17

• Unforeseen site, underground or environmental issues

On the technical aspect, it may deal with site, underground or

environmental issues. Prior to the design work, it is pre-requisite that the

site survey and possibly underground investigation are conducted to

determine the prevailing conditions which will have great influence on the

structural design work. It is normal to accept that the data obtained from

such investigation will only serve as a guideline to help the design work

but will not guarantee that the design will work. The actual conditions will

only be known when they are encountered and exposed during the

progress of the construction work. Since the design was mainly based on

the survey report, the discovery of the actual conditions which is different

from that shown in the report will make it mandatory for the designer to

make relevant changes in his original design, hence a variation.

• Change of the statutory regulations

The statutory regulations in the Local Authorities in which area the project

is constructed may contribute to a change within the procedure of the

construction work. A new bye-law or an amendment to the prevailing

regulation will cause changes to be made in the design or work procedure

of the on going project that has been approved previously, hence a

variation. Changes in the requirements on the fire safety precautions by

Jabatan Bomba during the progress of work is a good example.

18

Meanwhile, Harbans Singh (2003)22 has covered a wider range of the same

aspect and has classified the reasons for variations into two major categories as

follows.

(A) Employer Induced/Initiated Variations

Prima facie, in most contracts, the employer is the main cause, directly or

indirectly23 for the bulk of the variations. These can be summarized as:

• Changes in the employer’s/user’s requirements post-contract, e.g.

owing to a rethinking of the needs, change in the nature and use of the

anticipated/future utilization of the finished works, etc;

• Review or reassessment of the design24 by the designers due to issues

such as safety, buildability, correction of deficiencies/errors, etc;

• Correction of discrepancies, ambiguities, etc in the contract

documents, e.g. defective specifications, drawings, etc;

• Wrong or negligent advice being issued to the contractor by the

contract administrator;25

22 Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – Post-Commencement Practice. (2003), p429. 23 Vicariously for his designers, contract administrator, etc. 24 For an ‘employer designed’ contract. 25 Simplex Concrete Piles Ltd v St Pancras Borough Council (1958) 14 BLR 80.

19

• Interference in the contractor’s undertaking of the works under the

contract either by the employer and/or the contract administrator, e.g.

changing the method and/or sequence of working, etc;

• Revisions attributed to statutory or legislatives changes post contract

award;

• The need to address safety concerns or issues arising in relation to the

carrying out of works, e.g. changes in site conditions, effects of

neighbouring owners, etc;

• Adverse environmental factors impacting on the contract works, e.g.

safety, quality of work, etc;

• Changes in commercial and/or political factors; and

• Miscellaneous reasons, e.g. due to/arising from properly ordered

suspension of work, inadequate site investigation prior to contract

award, impossibility, etc.

(B) Contractor Induced/Initiated Variations

Though relatively uncommon in practice, there are a number of reasons for

contractors to be the source of variations to the contract. This is becoming

increasingly common in the so called ‘package deal’ type of contracts. The

principal reasons for the contractor to initiate variations are:

20

• Review or reassessment of the design where the contractor is

responsible for this element, e.g. in Turnkey Contracts, Design and

Build Contracts, Contracts with Employers Design,26 etc;

• Changes in contractor’s proposals in line with design development in

‘package deal’ type of contracts;

• Correction of discrepancies, ambiguities, etc in contract documents

prepared by the contractor, e.g. in ‘package deal’ type of contracts;

• Revisions attributed to statutory or legislative changes;

• Need to address safety issues in undertaking the works, e.g. changes in

site conditions,27

• Adverse environmental conditions affecting the undertaking of the

works, e.g. safety, quality, etc.

• Correction of tendering errors, e.g. rates in ‘remeasurement’ type of

contracts, etc;

• Non-availability of materials, equipment, plant, etc for reasons beyond

contractor’s control, e.g. discontinuance of product line/manufacture,

redundancy, obsolescence, etc;

26 E.g. where Option Module D is used for the CIDB Form (2000 Edition), etc. 27 Also to address safety concerns arising out of activities of neighbouring owners e.g. landslips, drainage, erosion, etc.

21

• Product improvement due to quality/safety reasons, better technology,

improved efficiency, etc;

• Value engineering undertaken post-contract award;

• Considerations involving buildability; and

• Miscellaneous reasons, e.g. due to/arising from sub-contractors,

suppliers, impossibility, etc.

Not discounting the fact that a relatively high proportion of the contractor

initiated changes result in the so called ‘extra work’ or ‘extra cost’ to the

employer, it is nevertheless important to appreciate that many of these changes

also constitute omissions; the latter being particularly so in equipment related

and ‘package deal’ types of contracts.

2.4 Reasons For Variation Clauses

Variation clauses are inserted into nearly all construction contracts. Wallace

(1995)28 pointed out that there are two principal reasons to insert variation clauses

into construction contracts.

28 I.N. Duncan Wallace Q.C., M.A. OXON. Hudson’s Building And Engineering Contracts. (1995), p880.

22

In the first place, they give the owner the power to require a variation of the

work, unilaterally and as of right, as opposed to relying on the willingness of the

contractor to agree to the variation, which would otherwise enable the contractor to

exert unacceptable pricing or other pressures on the owner in return for his agreement

to carry out the variation.

In the second place, it has already been seen29 that an architect has no implied

authority to contract on behalf of his employer.30 In the absence of such a provision,

therefore, the contractor will not be able to recover payment for any additional or

varied work which he has done on the Architect/Engineer’s instructions, unless he can

show a separate contract with the owner that he should do it and be paid for it (as, for

example, where the owner knows of the architect’s instruction and does not

countermand it, provided that it is realized or ought to be realized by the owner that a

change of price is intended or probable as a consequence of the instruction).31 With

such a provision the contractor, provided he complies with any requirements of form,

is protected from any denial by the owner of the Architect/Engineer’s authority to

order the variation.

Wallace added further that a third and subsidiary reason for variation clauses

is that they enable the parties to agree in advance on the basis for valuing and pricing

the varied work.

Meanwhile, Prof. Haji Hashim Sikan (1999), having the same meaning as the

first reason pointed out by Wallace (1995) above, stated a good example to the point:

29 Ibid, Chap. 2, paras. 2.061-2.063. See, however, the case of Carlton Contractors v. Bexley Corporation there referred to, in which a local authority’s salaried architect was held to have implied authority to contract. 30 See, e.g. he case of Ashwell and Nesbit v. Allen (1912), Hudson, Building Contracts (4th edn.), Vol. 2, p. 462, illustrated ante, Chap. 6, para. 6.016. 31 See, e.g. Re Chittick and Taylor (1954) 12 W.W.R. 653, Canada, referred to infra, para 7.072.

23

“Imagine what would be the situation in the construction work if there is no

built-in provision in the contract that allows changes or variations to be made?

The work cannot accommodate the new idea on the aesthetic qualities and

consequently the design and the appearance of the project remain the same as

the original. The designer cannot make adjustment to his structural design to

suit the actual conditions found on site. As a result the project will have to be

aborted because the ground conditions do not permit the work to proceed if

amendments to the original structural design cannot be carried out. As for the

statutory regulations the work would proceed in accordance with the original

design but the possibility that the work being ordered to stop, the owner being

fined or the building will not be allowed to be occupied when completed. (no

Certificate of Fitness) is great. This is all because the construction work

cannot comply with the recently amended or newly introduced bye-laws.” 32

2.5 Types of Variation

The most popular categorization preferred by most practitioners is to classify

the variations according to the nature of the change itself.

Harbans Singh (2003)33 stated that variations or changes can be classified

according to three different criteria, namely the identity of the initiator; the nature of

the variation; and the consequences/effects of the variation. While under the

classification per nature, there are three main types of variation and these could be

summarized as follows:

32 Prof. Haji Hashim Sikan. Salient Points On Contract Administration Of Building And Civil Engineering Works (Local Practice). (1999). p52. 33 Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – Post-Commencement Practice. (2003), p447 & p448.

24

• Additions

Additions or Additional Variations are also labeled as ‘Extra Work’… the

instant type of variations involves an increase in the:

• Quantity of the works; and/or

• Quality of the works; and/or

• Scope of the works; and/or

• Nature of the works.

• Omissions

Generally, an ‘omission’ involves a decrease in:

• Quantity of the works; and/or

• Quality of the works; and/or

• Scope of the works; and/or

• Nature of the works.

25

• Hybrid.

Despite the apparently clear terminological and definitive demarcations

between ‘additions’ and ‘omissions’, the dividing line between variations

actually undertaken in real life is not that clear cut. There is seldom, if

ever, a pure ‘addition’ or ‘omission’. In most cases, there is a mixture of

the two, i.e. ‘omission and addition’ or ‘addition and omission’; thereby

giving rise to the so-called ‘hybrid’ variations or changes.

2.6 Factors Determining A Valid Variation Order

A variation must be valid in order to be tenable at law. Unless a variation

meets the validity test, the contractual consequences ensuing thereof cannot arise and

accordingly cannot be enforced.

Chow (2004) 34 identifies two main factors determining the validity of a

variation order, namely:

1. The formalities governing the change:

a. Issue of the variation order by the designated person

b. The applicable procedural requirements.

34 Chow Kok Fong. Law and Practice of Construction Contracts (3rd Ed.). (2004), p179.

26

2. The legal nature of the proposed change:

a. Contract conditions governing variations

b. The common law rules governing the scope of change

Harbans Singh (2003)35, quoting the same factors as later identified by Chow

(2004), illustrated them in the greater depth. It could be summarized as below:

(1a) Issue of the variation order by the designated person

For a variation order to be upheld as contractually valid, one of the main

requirements is that it must be issued by the person empowered under the

contract to effect the same. Such a body or person might be:

• The employer himself; or

• The contract administrator; or

• Any other body or person designated in the contract or authorized

expressly under the contract.

35 Ir Harbans Singh K.S.. Engineering and Construction Contracts Management – Post-Commencement Practice. (2003), p457.

27

(1b) The applicable procedural requirements

A primary factor in ensuing the validity of a variation order issued by the

contract administrator is the satisfaction of the relevant procedural

requirements prescribed in the contract pertaining to the same. It can be

gleaned from the various express contractual provisions considered

previously, most contracts require such orders to be in the form of written

instructions.

(2a) Contract conditions governing variations

It is settled law that a contractual valid variation order can only be issued if

there is a term or clause in the contract permitting the same and strictly in

accordance with this term. Should there be no such term or that the provisions

of an existing term be not complied with, any variation thereupon issued may,

for all intents and purposes, be invalid and therefore unenforceable.

(2b) The common law rules governing the scope of change

Notwithstanding the presence of and the satisfaction of the express contractual

provisions governing the subject of variation orders, the parties to a typical

contract in implementing such changes must be mindful of and comply with

the applicable common law rules e.g.:

28

• Works which are indispensably necessary to give effect to the intention of

the parties when they enter into the contract are not additional works or

variations.36

• Extras are works which are not contemplated by the parties at the time of

the execution of the contract and are not provided for.37

• If work is included in the original contract sum the contractor must carry it

out and cannot recover extra payment for it, although he may not have

thought at the time of entering into the contract that it would be necessary

for the completion of the contract.38

• In the absence of express provisions to the contrary, the following rules as

laid down in the Canadian case Re Chittick & Taylor may be of some

guidance:

(a) An item specifically provided for in the contract is not an ‘extra’ or

‘variation’;

(b) If the contractor supplied material of a better quality than the

minimum quality necessary for the fulfillment of the contract without

any express or implied instruction from the principal to do so, he was

not entitled to charge the extra cost as an ‘extra’ or ‘variation’; and

36 Russel v Sa Da Bandiera (Viscount) (1862) 13 cBNS 149; 32 LTCP 68; 7 LT 804. 37 Barter v Lord Mayor of Melbourne (1870) 1 AJR 160. 38 Sharpe v San Paulo Railway (1873) LR 8 Ch App 597.

29

(c) If the contractor did work, or supplied materials, not called for by the

contract documents (plans or specifications) without any expressed or

implied instruction from the principal or the consent of the principal,

he was not entitled to charge for this additional works or materials as

an ‘extra’ or ‘variation’.

Other areas of the variation process where the relevant common law rules have

to be observed include:

• Invalid omission

A meticulous study of the various express provisions contained in the standard

forms of contract reveals that the designated person, i.e. the contract

administrator is empowered to order not only additional work but also work to

be omitted with the consequent adjustment of the contract price.

Notwithstanding the conferment of such power on the designated person, it

certainly is not a ‘carte blanche’ for him to carry out omissions

indiscriminately; there being a limit in practice for such a variation. Such a

limit may be either agreed upon by the parties expressly in the contract, e.g. up

to twenty percent of the Contract Price or may be implied from the various

judicial decisions that have been expounded pertaining to the said matter.

Where the exercise of the power of omission has been misused for improper

purposes, an omission undertaken thereupon has been conveniently labeled as

an ‘invalid omission’. Such omission, being not a ‘genuine’ omission

involves situations where the omission has been carried out with the object of

giving it to a third party, e.g. another contractor perhaps at a cheaper price:

Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273.

30

• ‘Cardinal’ changes

The general rule as to the employer’s or the contract administrator’s power to

vary the work through the issuance of a variation order is that it is valid only if

it falls within the general scope of the works reached ‘consensus ad idem’ of

the parties at the time of contracting. Should the scope of the variation order

be ‘materially in excess’ of the agreed sum or ‘fundamentally changes’ the

nature of the works, prima facie, such a variation order would be contractually

invalid: Sir Lindsay Parkinson & Co Ltd v Commissioners of His Majesty’s

Works & Public Buildings [1950] 1 All ER 208. These changes have been

labeled as ‘Cardinal Changes’ in the United States of America, i.e. changes to

the works which are substantially different from that which would be expected

from the intended exercise of the variation provisions.39

• Recovery without written variation orders

As pointed out by Chin (1988),40 who commented that instruction to vary and

compliances of the same were invariably seldom recorded by parties involved

(i.e. employer and contractor) and it is only when the contract has neared an

end or when their relationship is soured up, that the contractor is making a

host of claims under variations.

In certain circumstances, the courts have permitted recovery by the contractors

without written variation orders. In this instance, the courts are prepared to

impute and implied promise by the employer to pay, which has not been

ordered in accordance with the formalities stipulated in the contract. Such

instances are:

39 Chow Kok Fong, Law and Practice of Construction Contract Claims (2nd Edn) at p77. 40 W.Y. Chin. Contracts Administration And/Or Contractual Claims – An Architect’s viewpoint. Seminar on Construction Management & Contractual Claims (1988: Kuala Lumpur).

31

• Most standard conditions of contract forms require that any variation order

should be effected in writing. Where a written variation order is a

condition precedent to the contractor’s right for additional payment, the

contractor can nevertheless recover without an order in writing if the

additional work is outside the scope of contract. Thorn v London

Corporation (1987).

• Where the condition precedent requiring an order in writing has been

expressly or impliedly waived but something more than mere oral

instructions is necessary to achieve this effect. Franklin v Drake (1826) 6

L.T. 291.

• Where the employer is proved to have done some act suggesting that he is

waiving the condition precedent and which has the effect of leading the

contractor reasonably to believe that the strict legal rights will not be

insisted on. Molloy v Liebe (1910) 102 LT 616; Richards v Oppenhaim

(1950) 1 KB 616, 626.

• The contractor has the right for additional payment where there has been

an improper refusal to give an order in writing. Brodie v Cardiff

Corporation (1919) A.C. 337 H.L.

• The contractor has the right for additional payment where a final or

conclusive certificate includes the additional work. Goodyear v Weymouth

and Melcombe Regis Corporation (1865) 35 L.J.C.P. 12; Laidlaw v

Hastings Pier Co. (1974).

32

It is important to note that the Contract Administrator is not considered to

possess the required power to waive a term of the contract requiring extras to

be ordered in writing. As such, the waiver of the condition of contract would

have to be effected, in most cases, by the employer himself. Tarverner & Co.

Ltd. V Glamorgan County Council (1940) 57 TLR.

2.7 Conclusion

From the literature review above, it can be concluded that even though the

standard forms of construction contract have clear definitions on what is a variation,

the variation clauses are somehow or rather subject to the judicial interpretations

under common law. Therefore, analysis on the common law cases in relation to

definition of variation will be essential and will be done in the later part of this study.

Meanwhile, comparison of the clauses on definition of variation will be made among

the three most commonly used standard forms of contract in Malaysia namely PAM

98 Form, PWD Form 203A (Rev. 10/83) and CIDB 2000 Form to enhance the

understanding of the proviso of the said variation clauses.

33

CHAPTER 3

PROVISION OF DEFINITION OF VARIATION

AND RULES FOR VALUATION OF VARIATION

IN LOCAL FORMS OF CONSTRUCTION CONTRACT

3.1 Introduction

The most commonly used construction contracts in Malaysia in the past two

decades are the local standard forms of contract, the choice of which is mainly

between PWD 203A (Rev. 10/83) issued by the Public Works Department, commonly

used for public sector projects and the PAM 98 Form, issued by the “Pertubuhan

Arkitek Malaysia”, widely used by the private sector. The other standard forms, not

so commonly used, are the Institute of Engineer Malaysia’s standard forms of contract

for civil engineering works and mechanical engineering works. In the year 2000 then,

it emerged the CIDB Form 2000, issued by the Construction Industry Development

Board (CIDB) in September 2002, which is quite new for the industry and have yet to

gain the popularity.

Due to the rapid expansion of the construction industry in Malaysia over the

past twenty years and the large numbers of major infrastructure works, there has been

an increased use of international standard forms like the FIDIC contracts, ICE

34

contracts and the JCT contracts with necessary modifications to suit local

arrangements. This recourse to UK standard forms is largely due to the lack of

development to the local standard forms and the absence of local provisions suited for

specific procurement systems such as “cost reimbursement” contracts and turnkey

packages. Another factor is the increase in foreign participation and expertise in the

construction industry and their lack of familiarity with local standard forms.

This chapter examines the detailed provision of variation clauses in relation to

‘definition of variation’ and ‘valuation of variation’ of the most commonly used local

standard forms, i.e. PAM 98 Form, PWD 203A (Rev. 10/83) and CIDB Form 2000

only.

3.2 Definition of Variation

The main reason for the provision of variation clauses in the contract is

summed up by Eggleston (2001) as “In the absence of an express provision in the

contract giving the employer the power to order variations, the contractor is not

obliged to undertake them. The contractor’s general obligation is merely to complete

the work specified in the contract and such work as can reasonably be inferred for

completion.”41 Thus, most if not all standard forms of building and construction

contract provide for the variation clauses and primarily ‘definition of variation’.

41 Brian Eggleston. The ICE Design and Construction Contract: A Commentary. Blackwell Science Ltd (2001). p.292.

35

3.2.1 Provision of Definition of Variation in PAM 98 Form

Sundra Rajoo (1999) has made detailed examination on the clauses in PAM 98

Form of Contract. His comment for Definition of Variation under Clause 11.1 of the

PAM 98 Form is precise and straight forward. He started his comment on Clause

11.1 saying that “Clause 11.1 contains a definition of ‘variation’ for the purposes of

the contract. It is the restatement of Clause 11(2) of the PAM/ISM 1969 Form with

two additional provisions, namely Clause 11.1(v) and 11.1(vi). The definition gives

the architect a wide right under the PAM 1998 Form to issue variation instructions.

However, the inclusion of these two new provisions defines and limits the architect’s

power as regards to variations. The right of the architect to issue variation

instructions is not absolute, nor can he assume that employer has given him absolute

authority to use what power he has been given under the contract.”42

‘Definition of Variation’ of the PAM 98 Form covers five main areas. Clause

11.1(i) to (v) intend a tangible change in the works whereas Clause 11.1(vi) excludes

any default and/or breach of contract by the contractor from being a variation.

Clause 11.1 of the PAM 98 Form reads:

11.1 Definition of Variation

The term ‘Variation’ as used in these Conditions means:

11.1 (i) alteration or modification of the design, quality or quantity of the

Works as shown in the Contract Drawings and described by or

referred to in the Contract Bills.

11.1 (ii) the addition, omission or substitution of any work.

11.1 (iii) the alteration of the kind or standard of any material or goods to be

used in the work. 42 Sundra Rajoo. The Malaysian Standard Form of Building Contract (The PAM 1998 Form) 2nd Edition. Malayan Law Journal Sdn Bhd 1999. p114.

36

11.1 (iv) the removal from the site of any work executed, or materials or

goods brought thereon by the Contractor for the purposes of the

Works other than work materials or goods which are not in

accordance with this contract.

11.1 (v) the addition, alteration, or omission of any expressed obligation or

restrictions imposed by the Employer under the Conditions of

Contract with regards to any limitation of working hours, working

space, or access to or utilization of any part of the site or the

execution and completion of the work in any specific order.

11.1 (vi) For the avoidance of doubt the term ‘Variation’ shall include any

changes as aforesaid which may be designed to alter the ultimate

use to which the Works will be put or changes in the obligations

and/or restrictions which may be imposed on the Contractor’s

methods of working, but shall exclude any instruction which has

arisen due or is necessitated by or is intended to cure any default of

and/or breach of contract by the Contractor.

Clause 11.1(v) relates to changes in obligations or restrictions imposed by the

employer in the contract with regards to matters connected with the manner the

Works is constructed. It sets out situations where the employer may affect the

contractor’s activity under the contract on the site. These matters may overlap to

some extent. For example, access or use of parts of the site may be inseparable from

limitations of working space. Again working space may be restricted only at certain

times of day, say to allow passage of the employer’s employees or plant, effectively

causing a restriction of working hours at those times. The first three situations,

namely ‘limitation of working hours, working space or access to or utilization of any

specific part of the site’, all affect the contractor’s Works programme negatively by

setting bounds to his activities. The last situation namely, ‘execution and completion

of the work in specific order’ may overlap with the earlier three situations.43

43 Ibid. pg117.

37

Clause 11.1(vi) states that it is variation to alter ultimate use or change the

contractor’s methods of working. It excludes any instruction necessitated by or to

cure any default of or breach of contract by the contractor. This provision arrests the

problem such as that arose in Simplex Concrete Piles Ltd v St Pancras Borough

Council (1958) 14 BLR 80. A pile driving specialist proposed RC piles. The test

piles failed. They then proposed bored piles and wrote to the architect seeking his

‘instructions and views as to the extra cost which will be involved’. The architect

accepted the proposal with further conditions. It was held that the architect’s letter

was an instruction for a variation to use bored piles. The contractor was entitled to be

paid extra despite the contractor conceding that, but for the work sanctioned by the

architect’s letter, he would have been in breach of contract.44

3.2.2 Provision of Definition of Variation in PWD 203A Form

PWD 203A (Rev. 10/83) Form of Contract defines variation under Clause

24(b).

Clause 24(b) reads:

The term “variation” means the alteration or modification of the design,

quality or quantity of the Works as shown upon the Contract Drawings, Bills

of Quantities and/or Specifications, and includes the addition, omission or

substitution of any work, the alteration of the kind or standard or any of the

materials or goods to be used in the Works and the removal from the Site of

any work, materials or goods executed or brought thereon by the Contractor

44 Ibid.

38

for the purposes of the Works other than work, materials or goods which are

not in accordance with this Contract.

3.2.3 Provision of Definition of Variation in CIDB Form 2000

CIDB Form of Contract 2000 defines variation under Clause 1.1 which is the

general provision clause for definitions for all contractual terms.

Clause 1.1, under the definition for variation, reads:

any change in the original Contract intention as deduced from the Contract

Documents as a whole describing or defining the Works to be carried out and

shall include but is not restricted to:

(a) an increase and/or decrease in the quantity of any part of the Works;

(b) an addition to or omission from the Works (but not if the omitted work is

to be carried out by the Employer or by another contractor),;

(c) a change in the character, quality and/or nature of any part of the Works;

(d) a change in the levels, elevations, layout and dimensions of any part of

the Works;

(e) the demolition of or removal of any part of the Works, Equipment,

materials or goods no longer desired by the Employer or the

Superintending Officer;

(f) a change in the Contractor’s Temporary Work and/or method of working

and/or Construction Plant imposed by the Employer or the

Superintending Officer;

(g) the postponement of any part of the Works desired by the Employer;

and/or

39

(h) a requirement to complete the Works or any part or section of the Works

by a date earlier than the relevant Time for Completion desired by the

Employer.

For the avoidance of doubt the term “Variation” shall include changes which

may be intended to alter the use to which the Works will be put, but shall

exclude any instruction which has arisen due to or is necessitated by or

intended to cure any default of or breach of contract by the Contractor.

3.2.4 Comparison of Provisions for ‘Definition of Variation’ in the Local

Standard Forms of Contract

PAM 98 Form provides for ‘definition of variation’ under Clause 11.1(i) to

(vi); while PWD 203A Form defines variation all under a single sub-clause 24(b);

whereas CIDB Form 2000 includes definition of variation under Clause 1.1

(variation), sub-clause (a) to (h).

Table 3.1 shows the comparison of ‘Definition of Variation’ as provided for in

the three local standard forms of contract mentioned above, of which the PAM 98

Form is taken as the basis for comparison.

Clause 11.1(i)

Both PAM 98 Form and PWD 203A Form have quite the similar wordings

where Clause 11.1(i) of PAM 98 Form reads “alteration or modification of the

design, quality or quantity of the Works as shown in the Contract Drawings

40

and described by or referred to in the Contract Bills.” Whereas PWD 203A

Form has included one extra document out of the ‘Contract Drawings and

Contract Bills’, which is the ‘Specifications’. On the other hand, there are

three sub-clauses of the CIDB Form 2000 Clause 1.1 which resemble the

PAM 98 Form Clause 11.1(i), namely (a) an increase and/or decrease in the

quantity of any part of the Works; (c) a change in the character, quality and/or

nature of any part of the Works; and (d) a change in the levels, elevations,

layout and dimensions of any part of the Works.

Clause 11.1(ii)

Part of the PWD 203A Form Clause 24(b) is exactly the same as Clause

11.1(ii) of the PAM 98 Form, where they both read as “the addition, omission

or substitution of any work.” However, the CIDB Form 2000 Clause 1.1

(variation) (b), similar to that which reads “an addition to or omission from the

Works” but with the further wordings “but not if the omitted work is to be

carried out by the Employer or by another contractor.” The CIDB Form

intends to include the rule of common law.

Clause 11.1(iii)

Part of the PWD 203A Form Clause 24(b) is almost the same as Clause

11.1(ii) of the PAM 98 Form which reads “the alteration of the kind or

standard of any material or goods to be used in the work”, except in PWD

203A Form Clause 24(b) the words ‘of any’ after ‘the alteration of the kind or

standard’ is replaced by the word ‘or’. And there is no similar provision in the

CIDB Form 2000.

41

Clause 11.1(iv)

Although the wordings are of a little difference, part of the PWD 203A Form

Clause 24(b) is having the exact meaning as Clause 11.1(ii) of the PAM 98

Form which reads “the removal from the site of any work executed, or

materials or goods brought thereon by the Contractor for the purposes of the

Works other than work materials or goods which are not in accordance with

this contract.” The similar clause of CIDB Form 2000 to this is the sub-clause

(e) of Clause 1.1, where it adds a word ‘demolition’ before the removal and

‘Equipment’ to the ‘work executed…’ and ‘no longer desired by the

Employer/S.O.’ in lieu of ‘brought thereon by the Contractor… .’

Clause 11.1(v)

This sub-clause of PAM 98 Form expresses the ‘extra requirements’ imposed

by the Employer as variations. It reads “the addition, alteration, or omission

of any expressed obligation or restrictions imposed by the Employer under the

Conditions of Contract with regards to any limitation of working hours,

working space, or access to or utilization of any part of the site or the

execution and completion of the work in any specific order.”

There is no provision for this aspect under PWD 203A Form.

Unlike PAM 98 Form, CIDB Form 2000 divides the ‘extra requirements’

imposed by the Employer as variations under three separate sub-clauses (f) to

(h). Sub-clause (f) allows for “a change in the Contractor’s Temporary Work

and/or method of working and/or Construction Plant imposed by the

Employer/S.O.” as a variation. Sub-clause (g) allows for “the postponement

of any part of the Works desired by the Employer” as a variation, and sub-

42

clause (h), “a requirement to complete the Works or any part or section of the

Works by a date earlier than the relevant Time for Completion desired by the

Employer.”

Clause 11.1(vi)

The last paragraph of definition of variation under Clause 1.1 of CIDB Form

2000 closely resembles Clause 11.1(vi) of PAM 98 Form, even though there is

minor difference in the wordings in the first part of the text. The important

fact is that both the forms of contract intend to exclude “changes which has

arisen due or is necessitated by or is intended to cure any default of and/or

breach of contract by the Contractor.”

Similar to Clause 11.1(v), again there is no provision for this aspect under

PWD 203A Form.

43

PAM 98 (Clause 11.1) PWD 203A (Clause 24(b)) CIDB 2000 (Clause 1.1-Variation)

(i) alteration/modification of the design/quality/quantity of the Works ‘as shown in the Contract Drawings’/‘described by/referred to in the Contract Bills’.

- alteration/modification of the design/quality/quantity of the Works as shown upon the Contract Drawings/Bills of Quantities/Specifications..

(a)

(c)

(d)

an increase and/or decrease in the quantity of any part of the Works. a change in the character/quality/ nature of any part of the Works. a change in the levels/elevations/ layout/dimensions of any part of the Works.

(ii) The addition/omission/substitution of any work.

- the addition/omission/substitution of any work.

(b) addition to/omission from the Works (but not if the omitted work is to be carried out by the Employer or by another contractor).

(iii) The alteration of the kind/standard of any material/goods to be used in the work.

- the alteration of the kind/ standard/‘any of the material/ goods to be used in the work’.

-

(iv) The removal from site of ‘any work executed’/‘materials/goods brought thereon for the purposes of the Works’.

- the removal from the site of ‘any works’/‘materials/goods executed/brought thereon for the purposes of the Works’.

(e) the demolition/removal of any part of the Works/Equipment/ materials/goods no longer desired by the Employer/S.O.

Table 3.1: Comparison of Provisions for ‘Definition of Variation’ in the Local Standard Forms of Contract

44

PAM 98 (Clause 11.1) PWD 203A (Clause 24) CIDB 2000 (Clause 1.1-Variation)

(v) the addition/alteration/omission of any expressed obligation/restrictions imposed by the Employer regarding any limitation of ‘working hours’/‘working space’/‘access to/utilisation of any part of the site’/‘the execution and completion of the work in any specific order’.

-

(f)

(g)

(h)

change in the Contractor’s Temporary Works/method of working/Construction Plant imposed by the Employer/S.O. the postponement of any part of the Works desired by the Employer. a requirement to complete the Works/any part/section of the Works by a date earlier than the relevant Time for Completion desired by the Employer.

(vi) The term ‘Variation’ shall - include ‘any changes as

aforesaid …. - exclude any instruction which

has arisen due/is necessitated by/is intended to cure any default/breach of contract by the Contractor.

-

-

The term ‘Variation’ shall - include changes which

may be intended to alter the use to which the Works will be put,

- exclude any instruction which has arisen due/is necessitated by/is intended to cure any default/breach of contract by the Contractor.

Table 3.1: Comparison of Provisions for ‘Definition of Variation’ in the Local Standard Forms of Contract (Cont’d)

45

3.3 Rules for Valuation of Variation

Reeves (2002): “Because the power to instruct variations under most forms

of contract is very wide, the provisions included to value them must be drafted to

deal with the range of potential variations which may result. Rules for the valuation

of variations are therefore usually found to be in fairly general terms and open to

some interpretation and judgment as a result. Standard forms of contract express

these rules in somewhat different terms with the result that a variation may be

valued differently depending on the contract being used.”45

3.3.1 Provision of Rules for Valuation of Variation in PAM 98 Form

Clause 11.5 of the PAM 98 Form reads:

11.5 Rules for Valuation of Variation

The valuation of Variations and of work executed by the Contractor for

which a provisional sum is included in the Contract Bills (other than for

work for which a tender had been accepted under Clause 27.846) shall, unless

otherwise agreed, be made in accordance with the following rules:

11.5 (i) the prices in the Contract Bills shall determine the valuation of

work of similar character executed under similar conditions as

work priced therein.

11.5 (ii) where work is of similar character to work included in the

Contract Bills but may not be executed under similar conditions

the rates in the Contract Bills shall, as far as may be reasonable,

45 Kevin Reeves. Valuing Variations – Read The Small Print. JUBM-Construction News and Views, Issue 3/2002, p5. 46 Clause 27.8: Contractor Shall Be Permitted to Tender for PC Sums

46

be the basis for valuation, which shall include a fair allowance for

the difference in conditions.

11.5 (iii) Where work cannot be properly measured and valued the

Contractor shall be allowed day work rates at the prices

prevailing as far as may be reasonably ascertained at the time that

such work is carried out or at the day work rates stated in the

Contract Bills or if no such rates are included at the actual prime

cost to the Contractor of his materials, transport and labour for the

work concerned plus fifteen percent (15%), which percentage

shall include of the use of all ordinary plant, tools and

scaffolding, supervision, overheads and profit. Provided that in

any case vouchers specifying the time spent daily upon the work,

the workers’ names, the plant and the materials employed shall be

delivered for verification to the Architect or to the Quantity

Surveyor as instructed by the Architect not later than seven (7)

days after the work had been completed.

11.5 (iv) The prices in the Contract Bills shall determine the valuation of

item omitted. If omissions substantially vary the conditions under

which any remaining items of work are carried out, the prices of

such remaining items shall be valued under sub-clause 11.5 (ii).

11.5 (v) Effect shall be given to measurement and valuation of all

Variations in Interim Certificates and by adjustment of the

Contract Sum.

Same as for Definition of Variation, Sundra Rajoo (1999) has also made

detailed and precise examination on the clauses of Valuation of Variation. His

review of the clauses are as follows47:

Clause 11.5 provides for the rules for valuation to be only applicable to

variations as defined by Cluase 11.1, and to any contractor’s work ordered 47 Sundra Rajoo. The Malaysian Standard Form of Building Contract (The PAM 1998 Form) 2nd Edition. Malayan Law Journal Sdn Bhd 1999. p121&122.

47

by the architect when issuing instructions on the expenditure of provisional

sums. The rules apply ‘unless otherwise agreed’ between the employer and

the contractor. The phrase ‘unless otherwise agreed’ had occasionally been

interpreted to mean ‘agreed by or with the architect or the quantity surveyor’.

But this view was decisively rejected by the court in John Laing

Construction Ltd v County and District Properties Ltd (1982) 23 BLR 1 for

reasons which are entirely convincing. The words actually mean ‘agreed

between the contracting parties’ although employer may give the architect or

quantity surveyor express authority to make such an agreement.

Clause 11.5 sets out four methods of valuation based on the conditions and

character of the variations. These can be termed as ‘rules’ of valuation under

the PAM 98 Form.

Rule 1 says that the prices in the Contract Bills shall determine the valuation

of work of similar character executed under similar conditions (Clause

11.5(i)). The word ‘similar’ should be interpreted to mean ‘of a like nature’

and not taken to mean ‘identical’. The character of an item is that of the

description given in the Contract Bills. An item is not of a similar character

if it is required to be measured or described differently. Just because an item

of work is different in character does not itself mean that the contract rates

set out should not be applied for the work. The item must not only be

different in character but be required to be measured and/or described

differently on account of the variation. Similar conditions under which the

work will be executed, for example, similar site and weather conditions,

must also be ascertained.

Rule 2 says that where the work is of a similar character but not executed

under similar conditions, the Contract Bill rates and prices ‘so far as may be

reasonable’ shall be used with a fair allowance for the difference in

48

conditions. The Bill rates and prices provide the starting point (Clause

11.5(ii)).

Rule 3 applies where work cannot be properly measured and valued. Unless

otherwise provided in the Contract Bills, the contractor will be allowed day-

work rates on the prices prevailing when the work is carried out. This is to

be done at the rates (if any) which the contractor has put in the Contract Bills

or Form of Tender. If no rates have been so inserted, the actual prime cost to

the contractor of his materials, transport and labour for the work concerned,

plus 15 percent will be taken into account. The percentage added is inclusive

of the use of all ordinary plant, tools, scaffolding, supervision, overheads and

profit. The provision makes it clear that in both cases day-work vouchers

must be produced for verification not later than seven days after the work has

been completed (Clause 11.5(iii)).

Rule 4 deals with omitted work. The Bill prices determine the valuation of

the omitted work. However, if the omission substantially changes the

conditions under which any remaining items of work are carried out the

prices of the remaining items are ascertained in accordance with Rule 2

(Clause 11.5(iv)).

Clause 11.5(v) provides for the cost of variations so valued to be included in

Interim Certificates and the Contract Sum to be adjusted accordingly.

49

3.3.2 Provision of Rules for Valuation of Variation in PWD 203A Form

PWD 203A (Rev. 10/83) Form of Contract lists down rules for valuation of

variation under Clause 25(b).

Clause 25(b) reads:

25. MEASUREMENT AND VALUATION OF WORKS INCLUDING

VARIATIONS

(b) Unless where the quantities of the Works or any part thereof are stated

as “provisional” in the Bills of Quantities such quantities are conclusive

and not subject to remeasurement. For purposes of valuation of

variations in respect of the said Works or part thereof where the

quantities are conclusive, unless previously or otherwise agreed, such

valuation shall be made in accordance with the following rules:

(i) The rates in the Bills of Quantities after adjustment if necessary as

provided in Clause 24(c) 26(d) hereof, shall determine the

valuation of work of similar character and executed under similar

conditions as work priced therein;

(ii) The said rates, where work is not of similar character or executed

under similar conditions as aforesaid, shall be the basis of rates for

the same, so far as may be reasonable, failing which a fair

valuation thereof shall be made by the SO;

(iii) The rates in the Bills of Quantities shall determine the valuation of

items omitted, provided that if the omission substantially vary the

conditions under which any remaining items of work are carried

50

out, the rates of such remaining items shall be valued under rule

(ii) of this sub-clause.

(c) Where the quantities of the Works or any part thereof are stated as

“provisional” in the Bills of Quantities the amount to be paid to the

Contractor in respect of the said Works or part thereof upon the

completion of this Contract shall be ascertained by remeasurement and

valuation of the Works including any variation authorized or

subsequently confirmed by the SO in writing under Clause 24 thereof,

as they are actually executed. The valuation of such remeasured works

including any variation shall be in accordance with rules (i) and (ii) of

sub-clause (b) above.

(d) Where work cannot properly be measured or valued the Contractor shall

be allowed day-work price, plus fifteen percent, which shall include for

the cost of all ordinary plant, tools, scaffolding, supervision and profit.

Provided always that as a condition precedent to any right to any

payment the Contractor shall produce vouchers, receipts and wage

books specifying the time for labour and plant employed and materials

used to the SO not exceeding seven(7) days after the work shall have

been done. Unless otherwise provided in the Bills of Quantities the

day-work prices for the purpose of this contract shall be taken to mean

the actual net cost to the Contractor of his materials, plant and labour

for the work concerned.

(e) The SO shall when he requires any part or parts of the Works to be

measured give reasonable notice to the Contractor who shall attend or

send a qualified agent to assist the SO or SO’s Representative in making

such measurement and shall furnish all particulars required by the SO.

Should the Contractor not attend or neglect or omit to send such agent

then the measurement made by the SO or approved by him shall be

taken to be the correct measurement of the work. The Contractor shall

be supplied with a copy of the measured bill in respect of the said part

or parts of the Works.

51

(f) The amount to be allowed in respect of variations, as ascertained under

the provisions of this Condition shall be added to or deducted from the

Contract Sum as the case may be.

Lim (2004)48 when commenting on Clause 25(b) of the PWD 203A Form

pointed out that:

Clause 25(b) serves two (2) important functions. Firstly it provides that the

quantities in the Bills of Quantities are conclusive, unless provided therein as

provisional. The Bills of Quantities are not subject to remeasurement other

than for those items stated as provisional. Consequently, the Contractor will

not be able to recover the difference if the actual quantities of work as-built

are in excess of those provided in the Bills of Quantities (see Coker v Yound

[1860] 2 F&F 98), nor the Government if the actual quantities are less than

those in the Bills of Quantities (see London Steam Stone Saw Mills v Lorden

[1900] HBC 4the edn, vol 2, p 301). In this regard, it should be noted

particularly by the Contractor that this is a departure from the normal and

traditional understanding that the Contractor does not in a Bills of Quantities

contract assume the risk of any error in the quantity provided by the

employer.

Secondly, the clause sets out the rules for the valuation of variations ordered

in accordance with clause 24. The rules for valuation apply unless the

valuation has been otherwise agreed between the Contractor and the

Government. In John Laing Construction Ltd v County and District

Properties Ltd (1982) 23 BLR 10, it was held that the phrase “unless

otherwise agreed” was confined to agreement between the contracting parties

although the employer may give his quantity surveyor express authority to

make such an agreement. In this regard, it is common of many contractors to 48 Lim Chong Fong. The Malaysian PWD Form of Construction Contract. Sweet & Maxwell Asia 2004.

52

submit a quotation each time a variation instruction is issued. However,

unless the Government (or the Superintending Officer with the

Government’s express authority) has accepted the Contractor’s quotation, the

variation rules in this sub-clause would apply. The Contractor cannot refuse

to comply with the instruction for want of acceptance of the quotation.

The variation rules are set out in the order of application as follows:

(i) The rates in the Bills of Quantities after rationalization (see clause

26(d) by virtue of the Addendum and not 24(e)) shall determine the

valuation of work of similar character executed under similar

conditions.

(ii) Where the work is not of similar character, or is executed under

dissimilar conditions, or both, then the rates in the Bills of

Quantities shall be used so far as may be reasonable. The usual

differences in character are sizes and brands whilst the differing

conditions of work include height, confined space, accelerated

working, etc. If the bases of using the rates are inapplicable, a fair

valuation must be made, usually at fair market prices.

(iii) The rates in the Bills of Quantities shall similarly be used for

valuing omissions and if the conditions of executing the remaining

items of work substantially differ, then the rates of these remaining

items shall be valued in accordance with rule (ii).

(iv) Although not expressed in clause 25(b), but instead in clause 25(d),

where the work cannot be properly measured and valued, then the

Contractor is to be allowed day work price computed from rates

found in the Bills of Quantities or otherwise the actual nett costs is

incurred by the Contractor plus 15% profit and attendances. The

proviso thereto makes it clear that the day work vouchers must be

53

produced for verification not later than 7 days following that in

which the work is executed.

Clause 25(c) basically provides that the remeasurement of the items of work

in the Bills of Quantities which are stated as provisional would be

undertaken after the completion of the Contract….

The Superintending Officer is obliged under clause 25(e) to notify the

Contractor to attend to any measurement made for the purposes of this

clause. ….

By clause 25(f), it is stated that the Contract Sum shall be adjusted in respect

of variations valued under this clause.

3.3.3 Provision of Rules for Valuation of Variation in CIDB Form 2000

CIDB Form of Contract 2000 sets out Valuation Methods for variation under

Clause 29.1, which reads:

All Variations shall be valued in accordance with the following valuation

methods:

(a) Where the varied work is of a similar character to, is executed under

similar conditions as, and does not significantly change the quantity of

the work described in the Contract Documents, the Rates for the

Works as set out in the Contract shall be used for the valuation; or

54

(b) Where the varied work is of a similar character to the work described in

the Contract Documents and/or is not executed under similar conditions

and/or involves significant changes in the quantity of such work

described in the Contract Documents, the Rates for the Works as set

out in the Contract shall be basis for the valuation but with a fair

allowance for any differences in conditions and/or changes in quantity;

or

(c) Where paragraphs (a) and (b) above don not apply, then by valuation at

fair market rates and prices; or

(d) Where none of the above methods is applicable or appropriate in the

circumstances of that particular varied work, the valuation shall be

based on Daywork rates and prices of necessary Plant, materials or

goods, labour and any additional Construction Plant necessary for the

execution of the varied work subject to the following:

(i) As a condition precedent to any right to any payment under this

paragraph, the Contractor shall have received from the

Superintending Officer an instruction authorizing that the varied

work be executed on Daywork basis.

(ii) Unless otherwise specified the Contractor shall be entitled to

additional 15 per cent on the Daywork rates which percentage shall

be deemed to compensate adequately the Contractor in respect of

all supervision, the use of Construction Plant (except for additional

Construction Plant necessary for the execution of the varied work),

overheads, profit and all other loss, expense, costs or damages

incurred in or connected with the execution of the varied work.

(iii) The Contractor shall maintain proper daily records specifying the

time spent by each workman of the relevant trade (and if required

by the Superintending Officer, specifying the workmen’s names),

55

any Construction Plant employed and Equipment, materials or

goods used in the execution of the varied work.

(iv) Such records together with the relevant vouchers, delivery orders

or receipts shall be delivered to the Superintending Officer for

verification not later than 7 Days after the varied work shall have

been executed. In the case of continuing work, such records shall

be delivered to the Superintending Officer at weekly intervals for

verification with the final records delivered not later than 7 Days

after varied work shall have been completed.

(e) The Rates for the Works as set out in the Contract shall be used for the

valuation of work omitted; provided that if the omission varies the

conditions under which any remaining work are carried out, the values

for such remaining work shall be determined in accordance with sub-

clauses 29.1(b) or (c) or (d) as the case may be. For the avoidance of

doubt, the Contractor shall not be entitled to Loss and Expense for

omission of work unless such work is carried out by the Employer or

by another contractor.

3.3.4 Comparison of Provisions for ‘Rules for Valuation of Variation’ in the

Local Standard Forms of Contract

PAM 98 Form provides for ‘rules for valuation of variation’ under Clause

11.5(i) to (iii); while PWD 203A Form provides the rules under Clause 25; whereas

CIDB Form 2000 includes them under Clause 29.1(a) to (d).

The valuation rules of the three local forms of contract are summarised in

Table 3.2. From the table, observations made are:

56

(i) Provision of the very first rule where contract rates are to be used,

where the nature of variation is having ‘similar character and executed

under similar conditions’ to the contract work, is the very typical

provision where all the three forms have inclusions for it. The CIDB

Form 2000 has additional wording which provides that rates may be

adjusted if the quantity is significantly changed.

(ii) The second rule which is also a common provision, which states that

“where the nature of variation is of ‘similar character but not executed

under similar conditions’ to the contract work, then contract rates shall

be the basis with a fair allowance for differences.” Both the PAM 98

Form and CIDB Form 2000 have the provision for this but surprisingly

the PWD 203A has done away with this rule.

(iii) The third rule is for the situation where the first and second valuation

rules do not apply. PAM 98 Form keeps silent on this, while PWD

203A Form says ‘contract rates to be the basis so far may be reasonable

failing which a fair valuation shall be made’ and CIDB Form 2000

suggests ‘valuation at fair market rates’.

(iv) The fourth rule seems to be the last resource for the valuation of

variation, where work cannot be properly measured or valued, then,

daywork rates shall be used. All the three forms have the provision for

this, and with the similar method of allowances though are drafted in

different wording.

(v) One peculiar happening is that all the three forms of contract are

without the provision of valuation method for circumstances where the

variation is ‘not with similar character and the conditions may or may

not be similar’, of which is provided in the PAM 69 Form. For the

57

PAM 98 Form especially, this is of significance if, for example, a

variation involves concrete in column of a different grade to that in the

contract. The ‘character’ is not similar so the contract rates cannot be

used and the only basis of valuation left would appear to be dayworks.

This cannot be the intention, particularly as the dayworks are stated to

apply only where ‘work cannot be properly measured and valued’, but

would seem to be the only method of valuing the works left.

In conclusion, by applying the rules for the valuation of variations under the

PAM 98 Form, PWD 203A Form and CIDB Form 2000 to any set of circumstances,

it can be seen that they may produce different results. For example, Reeves (2002)49

expressed his point of view for ‘how similar is similar?” of the character or

condition of the works by pointing out that:

The typical PAM69/PAM98/CIDB2000 type provisions for “similar

character” and “similar conditions” are used in a lot of contracts but what

do they mean in practice?

The words “similar character” has tested construction commentators who

are in legal agreement that it does not mean “identical”, but fail to reach

consensus on the extent to which variation work needs to be similar for the

contract rates to apply unadjusted. This is not surprising as clearly an

element of judgment applies. However, on balance, I would suggest that

evaluation appears to fall into two stages. Firstly, the description for the

work should be the same, or at least subject to only very minor differences.

Secondly, the character of the work as shown on the drawings and other

contract documents would also have to be similar (even if the description is

the same) – brickwork in smaller areas or involving more complicated

setting out may be considered not to be similar. 49 Kevin Reeves. Valuing Variations – Read The Small Print. JUBM-Construction News and Views, Issue 3/2002, p5

58

The term “similar conditions” is probably open to wider interpretation and

conditions which are not similar may be considered to include, for example,

work in a restricted space or in wet site conditions.

It is submitted that in PAM69/PAM98 “similar conditions” are to be

construed as relating in quite general terms to similar site and weather

conditions under which the contract and variation works are carried out.

CIDB 2000, however, refers to similar conditions as “described in the

Contract Documents”. This gives a more restricted meaning in that

conditions may only be considered to be dissimilar where the variation work

is to be executed under conditions that are different to those which have been

expressly described in the Contract Documents. You may find this a

surprising result, but it shows how a minor change in the wording can result

in a quite different interpretation.

Other than the above examples given pertaining the problem of different

interpretation on “similar character” and “similar conditions”, Reeves (2002)50 also

pointed out some practical examples of the problems faced on “when are rates no

longer applicable?” and “when the contract rates no longer apply”.

Thus as advised by Reeves 51 , the lesson is simple, read the contract

carefully. It may not give the result you initially expected.

50 Kevin Reeves. Valuing Variations – Read The Small Print. JUBM-Construction News and Views, Issue 3/2002, p6 51 Ibid.

59

Nature of Variation (In order of Application)

PAM 98 (Clause 11.5) PWD 203A (Clause 25) CIDB 2000 (Clause 29.1)

Similar character and executed under similar conditions.

Contract rates (11.5(i))

Contract rates (25(b)(i))

Contract rates (rates may be adjusted if the quantity is significantly changed*) (29.1(a))

Similar character but not executed under similar conditions.

Contract rates to be the basis so far may be reasonable with a fair allowance for differences (11.5(ii))

Contract rates to be the basis with a fair allowance for differences (29.1(b))

If above valuation rules do not apply.

Contract rates to be the basis so far may be reasonable failing which a fair valuation shall be made (25(b)(ii))

Valuation at fair market rates (29.1(c))

If all else fails Daywork rates where the work cannot be properly measured and valued (11.5(iii))

Daywork rates where work cannot properly be measured or valued (25(d))

Daywork rates where none of the above methods is applicable or appropriate (29.1(d))

Table 3.2: Comparison of Provisions for ‘Rules for Valuation of Variation’ in the Local Standard Forms of Contract

60

3.4 Conclusion

The table shows that contracts do not usually set any limit on the permissible

extent of variations. Thus, in practice, it is always difficult to decide whether a

departure from the contract works is a ‘variation’ or ‘new work’. Similarly, the

typical PAM 98/PWD 203A/CIDB 2000 forms of contract’s type provisions for

“similar character” and “similar conditions” are used in a lot of contracts but what do

they mean in practice? The words “similar character” have tested the construction

commentators who are in general agreement that it does not mean “identical”, but fail

to reach consensus on the extent to which variation work needs to be similar for the

contract rates to apply unadjusted. This is not surprising as clearly an element of

judgment applies. The term “similar conditions” is probably open to wider

interpretation.

Due to the above scenario, it is essential to examine the decided court cases in

order to determine what constitute a variation in construction in legal perspective.

61

CHAPTER 4

VARIATION IN CONSTRUCTION

FROM LEGAL PERSPECTIVE

4.1 Introduction

This chapter analyses legal perspective of ‘what constitute a variation’ in

construction of the various court cases chosen in order to achieve the objective of this

project report. It is done mainly through documentary analysis of law journals and

law reports, e.g. Malayan Law Journal, Singapore Law Report, All England Report,

Canada Law Report, Building Law Report, Construction Law Report, etc.

62

4.2 Variation In Construction From Legal Perspective

After the literature review on ‘variation’ in Chapter 2 and Chapter 3, it is

learnt that even though that the contract conditions have been drafted effectively to

embrace all respects of the validity of a variation work, it will still be subject to

common law principles in governing the scope of change. The analysis of the

selected court cases as follows show the perspectives of the court decision on what

constitute a variation in construction.

Perspective 1:

_____________________________________________________________________

(a) Case Analysed

Sharpe v San Paulo Railway Company (1873) LR 8 Ch App 597

(b) The Fact of the Case

In this case, J. Brunlees, the engineer of San Paulo Railway Company

(hereafter referred as the company) prepared a detailed statement of the nature and

quantities of the various works to be executed, and the materials to be provided on a

proposed railway, and submit the same to Messrs. Sharpe & Sons (hereafter referred

as the contractors). The contractors accordingly made a tender, offering to form and

complete the line of railway, and fixing prices to the different items of the statement,

which made the sum total amount to ₤1,850,000. On the 8th of February, 1860, the

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contractors entered into a contract with the company, which was under the seal of the

company.

In 1862, a supplemental contract was made, by which the time was extended,

and the contractors acknowledged that they had then no claim for extra additional

works. On the 8th of April, 1864, a second supplemental contract was made, by which

after reciting that the contractors had claimed ₤98,000 for extra works, and altered

and additional works, and that the company denied their liability, and alleged that all

was to be covered by the contract sum of ₤1,745,000, and that this supplemental

contract was by way of final settlement of all differences between them; the company,

amongst other things, agreed to pay ₤30,000 in full discharge of all past, present and

future claims by the contractors against the company for all works, matters, and things

in connection with the railway, for which but for the now stating contract the

contractors might claim to be paid, on the ground of their being extra, or altered, or

additional works; and on these terms the contractor agreed to complete the whole

railway on or before the 1st of January, 1868. It was further agreed that if the railway

was completed before the 1st of July, 1866, the contractors should receive a graduated

bonus.

The contractors alleged that when the railway was partially completed it

became obvious that the proposed mode of conveying the traffic up and down a

mountain called the Serra was wholly inadequate. The engineer prepared new plans

and requested the contractors to construct the railway according to these plans; the

contractors objected as that the execution of these new plans would occasion the

excavation of earthworks greatly in access of the quantities specified. Brunlees

assured the contractors that he would, as engineer, be able to effect considerable

savings in other parts of the railway. The contractors constructed the inclines on the

Serra in accordance with the new plans. During the progress of the works it became

apparent that the actual quantities of earthwork being done by the contractors were

greatly in excess of the quantities specified in the schedule. The contractors objected

and Brunlees agreed that if it should prove that the total quantity of earthwork was in

excess the contractors should be compensated by savings in sidings, stations, and

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other things. The contractor continued to work on the railway in reliance on the

promise. Brunlees did some alterations, but the savings effected thereby were not

sufficient. The contractor then filed a bill against the company, the company

demurred generally and the Master of Rolls allowed the demurrer, and the contractors

appealed.

(c) Critical Issues and Judgments

The central issue related to what constitute a variation is whether the

contractors are to be paid for the extra works, when the quantities and drawings

supplied to the contractors for tender were wrong.

Sir W. M. James, L.J., the judge in this case stated that:

“I think that the decision of the Master of the Rolls is perfectly unquestionable

upon any principles of equity.

In this case the contractors undertook to make the railway, not to do certain

works; but they undertook to complete the whole line, with everything that was

requisite for the purpose of completion, from the beginning to the end; and

they undertook to do it for a lump sum, …

The first contract was that the line should be completed for a fixed sum. But

the Plaintiffs say they are, upon several heads, entitled to a great deal more

than that sum. The first head is that the earthworks were insufficiently

calculated, that the engineer had made out that the earthworks were two

million and odd cubic yards, whereas they turned out to be four million and

odd cubic yards. But that is precisely the thing which they took the chance of.

65

They were to judge for themselves. There was no fraud; it is not alleged that

Mr. Brunlees had willfully made miscalculations for the purpose of deceiving

them; and if so, that would be the personal fraud of Mr. Brunlees himself. But

he made the calculations apparently to the best of his ability, and calculated

that the earthworks would be of a certain amount. The Plaintiff say it is quite

clear that this was a miscalculation.

But that was a thing the contractors ought to have looked at for themselves. If

they did not rely on Mr. Brunlees’ experience and skill as an engineer, they

ought to have looked at the consequences and made out their own

calculations. … But that is one of the things which, in my mind, was clearly

intended to be governed by the contract, the company virtually saying,

“Whether the earthwork is more or whether it is less, that is the sum we are to

pay.”

Then there was a considerable item as to the inclines up the Serra, but every

statement in the bill, it seems to me, puts the Plaintiffs completely out of Court

as to that. The bill says that the original specification was not sufficient to

make a complete railway, and that it become obvious that something more

would be required to be done in order to make the line. But their business,

and what they had contracted to do for a lump sum, was to make the line from

one terminus to terminus complete, and both these items seem to me to be on

the face of them entirely included in the contract. They are not in any sense of

the word extra works.

Then it is alleged that the engineer, finding out that this involved more

expense than he had calculated upon, promised that he would make other

alterations in the line, making a corresponding diminution so as to save the

contractors from loss on account of that mistake. And then in the vaguest

possible way it is said that all these promises of the engineer were known to

and ratified by the company. I am of opinion you cannot in that way alter a

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contract under seal to do works for a particular sum of money. The Plaintiffs

cannot say that the company is to give more because the engineer found he

had made a mistake and promised he would give more, and the company

verbally, or in some vague way, ratified that promise. To my mind it was

perfectly nudum pactum. It is a totally distinct thing from a claim to payment

for actual extra works not included in the contract.”

Held, the appeal must be refused with costs.

Held, that the contractors could not, on mere verbal promises by the engineer,

maintain against the company a claim to be paid sums beyond the sums specified in

the contract under seal.

Held, that, although the amount of the works to be executed might have been

under-stated in the engineer’s specification, the contractors could not under the

circumstances maintain any claim against the company on that ground.

(d) Principles Applied

In this case, the principles applied on what constitute a variation are:

(i) If work is included in the original contract sum the contractor must carry

it out and cannot recover extra payment for it, although he may not have

thought at the time of entering into the contract that it would be necessary

for the completion of the contract.

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(ii) Indispensably necessary works. Where the contractor must complete a

whole work, such as a house, or a railway from A to B, for a lump sum,

the court readily infer a promise on his part to provide everything

indispensably necessary to complete the whole work.52

(iii) Works not taken out on the quantities supplied to the contractor for tender

are not extras for they are impliedly included in the lump sum contract.

(iv) Generally, an agent such as the architect or engineer is not considered to

possess the required authority to waive a term of the contract requiring

extras to be ordered in writing.

(v) If a contractor alleged that work he was ordered to do was an extra and

refused to continue without a promise to pay for it, and the owner on that

account promised to pay extra for it, he would not be liable on such a

promise for it is ‘lack of consideration’.

52 Williams v Fitzmaurice (1858) 3 H. & N. 844

68

Perspective 2:

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(a) Case Analysed

Blue Circle Industries PLC v Holland Dredging Company (UK) Ltd (1987) 37

B.L.R. 40.

(b) The Fact of the Case

On 23rd December 1977, the appellants (Blue Circle) invited the respondents

(Holland) to tender for the execution of dredging works in Lough Larne, Eire. The

contract conditions were described as substantially the ICE Conditions 5th Edition.

Special Condition 72 provided that the areas within Lough Larne for the

deposition of the dredged material would be submitted upon approval by the local

authorities. Holland tendered against this invitation on 3rd January 1978 (the tender

incorporated the general conditions) and in particular allowed for the deposition of

dredged material within Lough Larne. Blue Circle responded to the tender on 14th

August 1978 by an order form which, in print, referred to conditions on its reverse but

on its face in typescript referred to the tender in terms equivalent to an unqualified

acceptance.

Contemporaneously with the exchange of these documents, multi-lateral

discussions were taking place between Blue Circle, Holland and certain statutory and

non-statutory interested bodies. In consequence of the discussions, general agreement

was reached that the dredge material should be used to form a kidney-shaped island

appropriate for use as a bird sanctuary. On 28th September 1978, Holland quoted for

69

the work of forming the artificial island which required, inter alia, the forming of

bund constructed of basalt. On 4th October, Blue Circle accepted this quotation by

letter, which continued “An Official Works Order will follow in due course”. The

works order for the forming of the artificial island was issued on 19th October, which

was in the same printed form as the first order.

In the event, the execution of the works for the construction of the artificial

island was only partly successful; the resultant island merely broke the surface at low

water.

Blue Circle commenced proceedings against Holland claiming inter alia

damages for negligence, breach of collateral warranty and misrepresentation in

advising as to the construction of the artificial island. Holland applied to have the

action stayed pursuant to s 4 of the Arbitration Act 1950 contending that their offer on

28th September was no more than a confirmation of an agreed variation of the

dredging contract within clause 51 of the Conditions. The application was successful

before the Master and Blue Circle appealed.

(c) Critical Issues and Judgments

The main issue of this case has centered upon the terms and co-relation of the

two “agreements” and whether the “island agreement” was in truth and effect a

variation of the “dredging agreement”, or was it a separate contract entered into

collaterally with the dredging contract?

The judge in this case, Purchas LJ quoted the statement made by Mr. Joseph

(counsel for Blue Circle) in his submission as follows:

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“On the first issue Mr. Joseph contended that the agreement for the

construction of the island was quite separate and in its manner of creation

wholly inconsistent with it being a variation of the contract under clause 51 of

the General Conditions. In support of this submission he relied upon a

passage in Halsbury’s Law of England, 4th Edn, Vol 4, para 1178:

“1178. Work falling outside the contract. If the nature or extent of the

variation or additional work is such that it is not contemplated by the

contract, the contractor can refuse to carry it out or can recover

payment for it without complying with the requirements of the

variation clause. For the varied work to fall outside the contract, it

must, it seems, either result in it being impossible to trace the original

work contracted for or be a kind totally different from that originally

contemplated.”

He also relied on Thorn v Mayor and Commonalty of London (1876) 1 A C

120 per Lord Cairns at p127:

“My Lords, it appears to me, that under those circumstances, the appellant

must necessarily be in this dilemma, either the additional and varied work

which was thus occasioned is the kind of additional and varied work

contemplated by the contract, or it is not. If it is the kind of additional or

varied work contemplated by the contract, he must be paid for it, and will be

paid for it, according to the prices regulated by the contract. If, on the other

hand, it was additional or varied work, so peculiar, so unexpected, and so

different form what any person reckoned or calculated upon, that it is not

within the contract at all; then, it appears to me, one of two courses might

have been open to him; he might have said: I entirely refuse to go on with the

contract – non haec in foedera veni: I never intended to construct this work

upon this new and unexpected footing. Or he might have said, I will go on with

71

this, but this is not the kind of extra work contemplated by the contract, and if

I do it, I must be paid a quantum meruit for it.

In considering whether a particular turn of events comes within clause 51 of

the General Conditions as a variation, as Mr. Joseph correctly submitted, the

question must be posed:

Could the employer have ordered the work required by it against the wishes of

the contractor as a variation under clause 51? If the answer is “No” – then

the agreement under which such work is carried out cannot constitute a

variation but must be a separate agreement. … In my judgment, Mr. Joseph’s

submission that the island contract is separate from the dredging contract is

correct.”

Held, the appeal allowed. Because the construction of the island was work

wholly outside the scope of the original dredging contract, Holland would not, had

they been unwilling, have been obliged to accept the work as a variation. Therefore

the construction of the island was not a variation of the dredging contract but was the

subject of a separate agreement.

(d) Principles Applied

In this case, the principles applied on what constitute a variation are:

(i) A variation order is not valid if the effect is to change the scope of the

contract so that the works as varied attains a character which is

fundamentally different from that contemplated by the parties at the

time when the contract was made.

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(ii) If the variation work is wholly outside the scope of the original

contract, the contractor would not, been unwilling, is obliged to accept

the work as a variation.

Perspective 3:

_____________________________________________________________________

(a) Case Analysed

Tharsis Sulphur and Copper Company v McElroy & Sons (1878) 3 App Cas

1040

(b) The Fact of the Case

In 1872 the Appellants, the Tharsis Sulphur and Copper Company (hereafter

referred as the company) entered into a contract with the Respondents, M’Elroy &

Son, engineer in Glasgow (hereafter referred as the contractors), for the construction

of large iron buildings for a lump sum of ₤25,000.

The terms of the contract were embodied in a formal deed in May 1873,

contained a clause, inter alia, that no alterations or additions should be made without a

written order from the employer’s engineer, and no allegation by the contractors of

knowledge of, or acquiescence in, such alterations or additions on the part of the

employers, their engineers or inspectors, should be accepted or available as equivalent

to the certificate of the engineer, or as in any way superseding the necessity of such

certificate as the sole warrant for such alteration and additions.

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During the execution of the contract the contractors alleged it was impossible

to cast certain iron trough-girders of the weight specified in the contract, and

subsequently the engineer allowed them to erect girders of a much heavier weight.

The actual weights were entered in the engineer’s certificates issued from time to time

authorizing interim payments. On the completion of the work the contractors claimed

a considerable amount in excess of the contract price for the extra weight of metal

supplied. Disputes arose, and in 1876 the contractors raised the action for the extra

cost. The company resisted the claim on the ground that they did not order, or desire,

the extra weight; that it was unnecessary; that the girders could with care have been

made of the specified thickness and weight; that no oral agreement had been entered

into by their engineer for furnishing the additional material; and that though the

engineer’s certificates, issued solely for the purpose of authorizing interim payments,

included as a matter of course the actual weight, this was not a written order such as

was required under the contract.

(c) Critical Issues and Judgments

The main issue of this case is whether the contractors entitled to extra payment

relying on the fact that the addition weight of girders was reflected in the interim

certificates.

The judge of the House of Lords, Lord Cairns, L.C., citing the cases of Hill v

South Staffordshire Railway Company and Lamprell v Guardians of Billericay Union:

“… The contract has been carefully scanned and brought before your

Lordships. It is sufficient for me to say that, as I understand that contract and

its construction, it was one which obliged the Respondents to execute the work

which was contracted for, and if in the execution of the work the castings

which were to be supplied (the casting, for example, for the girders),

occasioned any difficulty in the work, if the girders had to be of a length

74

different from what was specified or of a breadth different from what was

specified, that was a risk which the contractors took; and they were obliged to

execute the work with the necessary alterations in the size of the castings….

Now what happened was this: the girders for the structure which I have

referred to came to be cast by the Respondents, and it was found that if these

girders were made of the thickness mentioned in the specification the result

was that in the process of cooling they were liable to crack… . On the other

hand, the Respondents were in this position: they were obliged to execute the

work; as I understand the contract, they were obliged to execute it with the

girders. If they could not cast the girders of the scantling, that is to say, of the

exact thickness, mentioned in the contract, that was so much the worse for

them. They ought to have known that they undertook to execute the work in

that form. …

The certificates I look upon as simply a statement of a matter of fact, namely,

what was the weight and what was the contract price of the materials actually

delivered from time to time upon the ground, and the payments made under

those certificates were altogether provisional, and subject to adjustment or to

re-adjustment at the end of the contract. I repeat, the utmost that can be said

of these certificates is, that in their form they were equivocal and consistent

with either view turning out to be the facts of the cases; either that there was

or that there was not a verbal agreement to pay for extra work. I am of

opinion, upon the evidence, that there was no such verbal agreement, and

therefore the certificates, in my opinion, cannot make better the case of the

Respondents.”

Held, that the engineer’s certificates were not written orders, and the claim

was therefore excluded by the terms of the contract.

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(d) Principles Applied

In this case, the principles applied on what constitute a variation are:

(i) Mere references in progress payment certificates to some extra work, in

the absence of Variation Order Instructions, did not constitute as Valid

Variation Orders.

(ii) There is authority for the proposition that when a contractor undertakes to

execute a contract for a lump sum price, he basically warrants that the

works as described in the drawings and specifications could be

constructed.

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Perspective 4:

_____________________________________________________________________

(a) Case Analysed

McAlpine Humberoak Ltd v McDermott International Inc. (No. 1) (1992)

58B.L.R. 1.

(b) The Fact of the Case

On 8 October 1981, the plaintiff (McAlpine) was in invited by the defendant

(McDermott) to tender for the construction of nine steel pallets forming part of the

weather deck for a tension leg platform in the Hutton Oil Field in the Shetland Basin.

McDermott was employed as main contractor by Conoco (UK) Ltd to construct the

whole of the deck structure.

On 18 November 1981, McAlpine was awarded the contract for four of the

pallets, number W3, W4, W5 and W6. The contract was not signed until 24 March

1982. But it was to take effect from 18 November 1981. The total contract was

₤890,330. The completion dates for W3 and W4 were 8 and 1 February 1982

respectively. In the event W3 was not delivered until 17 July 1982, and W4 until 11

September 1982. W5 and W6 had already been withdrawn by the defendants. The

costs actually incurred by the plaintiffs, as agreed between the parties at the trial,

came to ₤2,590,000, including overheads. The plaintiffs put forward a claim for

₤3,548,848, well in excess of their actual costs. McAlpine’s case was that it had been

considerably delayed in constructing the pallets due to considerable numbers of

drawings issued in December 1981 and January 1982 which in turn gave rise to

technical queries; and thus it was entitled to extra payments in respect of the delays

which it had suffered. McDermott counterclaimed for certain additional costs which

77

it alleged it had suffered, and for the costs of remedying allegedly defective work

performed by McAlpine.

The trial of the action took place over 92 days between November 1987 and

June 1989 before His Honour Judge John Davies QC, who, in a judgment given in

1990 held: (1) the issue of the drawings had distorted the substance and identity of the

contract, and that as a result it had been frustrated; (2) the effect of the frustration was

that there had come into existence a substituted contract which entitled McAlpine to a

reasonable time within which to complete its works, and to a reasonable price for

performing those works: (3) McAlpine was entitled to a further payment of

₤1,838,805 under the terms of the substituted contract; (4) McDermott’s counterclaim

failed save as to the sum of ₤5,208.50 in respect of defective work.

McDermott was given leave to appeal on findings of fact and also appealed

against the decision on the issue of law.

(c) Critical Issues and Judgments

The main issue of this case was whether the considerable numbers of drawings

issued effected cardinal changes to the contract thus they were not valid variation

orders.

The judge in this case, Lloyd LJ, in reversing the judgment of Judge John

Davies QC for the trial, and while examining the judgment for the trial commented

that:

“We found ourselves unable to agree with the reasoning in this passage, or

with the judge’s conclusion that the contract was frustrated. The revised

78

drawings did not “transform” the contract into a different contract, or

“distort its substance and identity”. It remained a contract for the

construction of four pallets until 24 March 1982, when W5 and W6 were

withdrawn. It is not suggested by the judge that it was the withdrawal of W5

and W6 which frustrated the contract. Rather it is found that the contract was

frustrated as early as 11 December 1981 on the receipt of the second drawing

issued. This was, of course, over three months before the contract was signed.

The contract, when signed, provided expressly by clause 6(b) and clause 35(d)

that the receipt of drawings would constitute change instructions for the

purpose of clause 35. It was further provided (1) by clause 2 that the

plaintiff’s rights to time and recompense were covered elsewhere in the

contract where disruption and delay ensued due to reasons beyond the

plaintiff’s control and (2) by Exhibit C clause 2.6 that recompense for

additional work not being carried through on revised drawings to fabricate

was covered by the variation order clauses and the contractor’s right to claim.

If we were to uphold the judge’s finding of frustration, this would be the first

contract to have been frustrated by reason of matters which had not only

occurred before the contract was signed, and were not only well known to the

parties, but had also been provided for in the contract itself”

Held, allowing the appeal. The trial judge’s decision on frustration could not

be supported in fact or in law.

(d) Principles Applied

In this case, the principles applied on what constitute a variation are:

(i) If a change makes fundamental alterations to the contractor’s

obligations, and it could not have been foreseen at the time the contract

was entered into, it is beyond the scope of a variation order.

79

(ii) A long series of design changes to a contract does not necessary frustrate

the original contract if the scope of the work has not been transformed.

Perspective 5:

_____________________________________________________________________

(a) Case Analysed

Wegan Construction Pty Ltd v Wodonga Sewerage Authority [1978] VR 67

(b) The Fact of the Case

The defendant (the Authority) entered into three contracts with the plaintiff

(the Contractor) in respect of the construction of stage 4a and 4b, stage 7 and stage 8

of the sewers. The latest completion date was that provided for in the stage 8

contract, namely 16 March 1976. The contract incorporated the General Conditions

of Contract for Civil Engineering Work CA 24.1-1973 (Standard Association), with

the provision of variation under CL 40.1, which also provided that “The extent of all

such variations shall not, without the consent of the contractor, be such as to increase

or decrease the moneys otherwise payable under the contract to the contractor by

more than the sum which is the percentage stated in the Annex A of the contract sum,

or if not so stated, by a reasonable amount.

The owner of the stage 8 land redesigned the proposals for the development of

the land and consequently the Authority prepared new plans and quantities for the

construction of stage 8 which were given to the Contractor on or about 15 June 1976.

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Evidence was given for the Contractor and substantially accepted by the Authority

that in the new plan excavation was increased by about 60 per cent; sewer length from

840 to 1181 metres, or 40 per cent; manholes from 19 to 27, requiring 90 per cent

more concrete; and the number of house connection branches from 47 to 91. In

addition the specification for pipe bedding was altered in respect of various lengths

and a schedule of quantities derived from the new design made provision for 160

metres of excavation below 4 metres which was not required by the old plan. The

original contract price was $30,867.40; the total extended price of the new design was

$43,200. One of the claims made in an action by the Contractor relating to the stage 8

contract was for damages for breach of contract alleged to be constituted by the

repudiation of the contract on or about 15 June 1976 by the defendant requiring the

plaintiff to carry out altered and increased works which were not a variation of the

original contract but substantially different.

(c) Critical Issues and Judgments

The main issue of this case was whether the extensively altered and increased

works merely variations to original contract or repudiation of the contract.

The judge Lush,J stated the relevant facts of the case and proceed to consider

the question whether the Authority had repudiated the contract, with the key points as

follows:

“Was the amended plan a variation which increased the moneys payable by

more than a reasonable amount? This question raises a matter of

interpretation. Although general condition 40.1 is a standard term, there

appears to be no authority upon it.

81

Mr. Smith submitted that the only consideration relevant to the question of

reasonableness was the amount of the increase, stressing that price only was

significant and the amount of the change not the percentage was to be

regarded. He said, although the total increase was 40 per cent the amount of

the increase was $13,000 – a very small sum in the context of a construction

contract. I find the word “reasonable” difficult to construe in this paragraph.

Reasonableness is not an abstract quality but one which is to be judged

against the background of surrounding circumstances. What circumstances

can be taken into consideration? Again, it may be reasonable for a principal

to seek variations to an ascertainable amount; it could be equally reasonable

for the contractor to decline to undertake them. Still again, it might be

reasonable for a contractor to undertake the variations but at the same time

reasonable for him to refuse them.

There remains the question: what matters can be taken into

consideration in assessing reasonableness? An exhaustive definition cannot

be attempted. … Other factors which I would regard as relevant are the past

history of the contract, the time at which the variation is ordered, and any

changes in circumstances between the date of the contract and the date of the

variation.

In the present case the amount of the increase may have been small but

it was large in proportion to the expected contract price, and the increase

represents a proportionately large increase in the work to be done. … Labour

costs had risen by 12 ½ per cent since the contract date. Subject to general

condition 40.4 the contract did not provide for variation in prices. The totality

of the work to be done was not identifiable with the original project, but was

manifestly a large project extending over additional ground. In these

circumstances, my conclusion is that it was not 15 June 1976 reasonable in

the relevant sense to increase the estimated price in the proposed way and so

to require the contractor to remain on site to perform the additional work

upon the terms of the existing contract.”

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Held: In the circumstances the amended plan did not constitute a variation

permitted by the original contract.

Per curiam: The test o the reasonableness of a variation is that of objective

assessment by an independent by-stander, namely whether the amount of the increase

or decrease is such that it would be judged by the by-stander to be reasonable for the

principal to require the contractor to submit to the increase or reduction of the total

sum and so to the increase or reduction of the work involved, and to the performance

of the extra or reduced work on the contract terms.

(d) Principles Applied

In this case, the principles applied on what constitute a variation are:

(i) The essence of an invalid variation order is the magnitude and quality of

the changes.

(ii) What is reasonable under the circumstances will be a matter for the courts

to establish on the facts of the particular case.

83

Perspective 6:

_____________________________________________________________________

(a) Case Analysed

Mitsui Construction Co. Ltd v Attorney General of Hong Kong Government

[1987] 1 HKC 31.

(b) The Fact of the Case

The appellants (Mitsui) entered into an agreement with the respondent

(Government of Hong Kong) for civil engineering works intended to improve the

water supply of Hong Kong. The only part of the works with which the dispute arose

is the excavation and construction of a tunnel some 3,227m in length and 3.6m in

diameter from Ma Mei Ha to Nam Chung. It was impossible to predict in advance the

nature of ground through which the tunnel was to pass. The contract provide for five

different types of lining for the engineer to decide which type was needed for

particular parts of the tunnel as work proceeded. The contract, however, included

bills of quantities priced by the contractors with reference to estimated lengths of

tunnel which were to be left unlined and to be lined with each of the different types of

lining respectively.

In the event the estimates turned out to be wrong and the work on the tunnel

took much longer than expected. The billed length of tunnel to be left unlined was

1,885m; the length left unlined in the event was 547m. The billed length of tunnel to

be lined with the heaviest and most expensive type of lining was 275m; the length so

lined in the event was 2,448m. The billed quantity of steel required for lining support

was 40 tonnes; the quantity required and used in the event was 2,943 tonnes. As a

result of these differences, work on the tunnel took very much longer than it would

84

have done if the quality and quantity of lining required had corresponded reasonably

closely with the billed quantities. The time allowed by the contract for completion

was two years. The engineer exercised his power under the contract to grant an

extension of time of 784 days to compensate for the extra time required to cope with

ground conditions in executing the tunnel excavation and lining works.

The appellants were paid at the bill rates for the amount of linings actually

carried out but they contended that they were entitled to a fresh determination by the

engineer of the rates. The respondent contended that any adjustment of bill rates

could only be made under clause 74, which could only be triggered by variation

orders by the engineer under clause 73 of the general conditions and that there having

been no variation orders under clause 73, there could be adjustment of the bill rates

and the engineer had no power to agree or fix any new rates.

The arbitrator made an interim award in favour of the appellant in the form of

a special case for the High Court, which upheld the arbitrator. The Court of Appeal,

however, allowed the government’s appeal against the decision of the High Court by a

majority. The appellants appealed to the Privy Council.

(c) Critical Issues and Judgments

The main issue of this case was whether the contractor should be paid contract

rates or new rates when the actual quantities of work executed exceed the quantities

shown in the contract bills, whereby it is obvious that the extra over is not within a

reasonable limit.

In the judgment delivered on behalf of the Privy Council, Lord Bridge of

Harwich commented that:

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“It is obvious that this is a badly drafted contract. This, of course, affords no

reason to depart from the fundamental rule of construction of contractual

documents that the intention of the parties must be ascertained from the

language they have used, interpreted in the light of the relevant factual

situation in which the contract was made. But the poorer the quality of the

drafting, the less willing any court should be to be driven by semantic niceties

to attribute to the parties an improbable and unbusinesslike intention if the

language used, whatever it may lack in precision, is reasonably capable of an

interpretation which attributes to the parties an intention to make provision

for contingencies inherent in the work contracted for on a sensible and

businesslike basis. As already stated, the ground conditions which would

largely dictate the scope of tunnel lining works required were unpredictable.

As the government themselves stated in a document entitled a ‘brief’ which

was before the arbitrator in lieu of a pleading: ‘All tunneling work is mainly

determined by ground characteristics on which planning and methods of

construction are largely dependent’. Later, they added: ‘ … time related costs

are a significant factor and are closely determined by ground conditions’.

Against this background of facts, if the contract documents were understood in

the sense contended for by the government, engineering contractors tendering

for the work would have two options. They could either gamble on

encountering more of less favourable ground conditions or they could

anticipate the worst case and price their tenders accordingly. It is clear from

what happened here that the worst case might double or more than double the

time required to do the work with a consequent increase in time related costs.

On this basis, tenders gambling on favourable ground conditions would risk a

large loss while conversely if all tenderers anticipated the worst case but in

the event reasonable conditions were encountered, the government would be

the losers. It follows that if the government are right, there is a large element

of wagering inherent in this contract. It seems to their Lordships somewhat

improbable that a responsible public authority on the one hand and

responsible engineering contractors on the other contracting for the execution

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of public works worth many millions of dollars should deliberately embark on

a substantial gamble.

By contrast, if the contractors’ submission is correct, tenderers can and will

base their tenders on the expectation that the scope of the tunneling and lining

work is reasonably to be inferred from the billed quantities. Then, if

unexpectedly bad ground conditions dictate so large a departure from those

quantities and consequent alteration of the scope of the work, that, in the

opinion of the engineer, the bill rates are rendered unreasonable or

inapplicable, the rates can be suitably adjusted. Given the inherent

uncertainty as to the scope of the work that will be required, a provision to

this effect would seem an eminently sensible means of ensuring that the

contractor receive no less and the government pay no more than a reasonable

price for the work actually done.”

Held, allowing the appeal.

(d) Principles Applied

In this case, the principles applied on what constitute a variation are:

(i) Where the actual quantities of work as executed by the contractor exceed

the quantities shown against the particular item in the contract bills of

quantities, this may constitute a ‘variation’

(ii) Accordingly, if such extra over is not within a reasonable limit, the

contract rates may have to be adjusted. For the purposes of the latter, it is

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immaterial that they do not stem from an express exercise of the variation

powers.

Perspective 7:

_____________________________________________________________________

(a) Case Analysed

AE Farr Ltd v Ministry of Transport (1965) 5 BLR 94.

(b) The Fact of the Case

This was an appeal by AE Farr Ltd, the contractors, from a decision of the

Court of Appeal on December 4, 1964, reversing a judgment of Salmon, L.J., who had

confirmed an arbitrator’s award in favour of the company’s claim against the Ministry

of Transport for payment for certain additional excavation work at the junction of

Western Avenue and Hanger Lane, Ealing, where they had agreed to construct a dual

carriage-way, an underpass, a pedestrian subway and other works. The arbitration

award was for ₤171,959, with interest at 6 per cent from July 23, 1960.

The contract in question was formulated on the conditions of contract issued

by the British Institution of Civil Engineers. Clause 57 of the contract conditions had

incorporated the rules contained in the Standard Method of Measurement (SMM). It

was provided that the bills of quantities should be prepared on the basis of the

measurement rules contained in the SMM. The bills stated that the price or rate for

each item shall be the full inclusive price or rate of the finished work described in

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each item, including timbering works used in connection therewith, except those in

respect of which separate items have been provided. The particular rule of the SMM

provided that the measurement of excavation was to be the net plan area and any

additional excavation required for working space was to be given and paid for as

separate items. The main excavation work of the project was measured and billed

without allowing for working space, although separate items for working space was

provided for a minor part of the excavation work.

The argument had turned in the main on the meaning of clause 16 of bill of

quantities, which followed closely that of clause 40 of the SMM of Civil Engineering

Quantities issued by the Institution of Civil Engineers (1953), which read as follows:

“The measurement of excavation in pit or trench for the structure shall, unless

otherwise state, be the net plan area of the permanent work multiplied by the

depth measured from the mean ground level at the top of the pit or trench

down to the authorized bottom; any additional excavation which may be

required for working space, etc., will be paid for under separate items, the

measurement being the sum of the areas of the sides of the excavations based

on the outline of the net plan area. Rates for working space shall be inclusive

of all consequent refilling. In all other cases the measurement of excavated

material shall be the volume of the said material in the ground before being

excavated.”

(c) Critical Issues and Judgments

The main issue of this case was whether the contractors were entitled to be

paid for additional excavation for working space, there being no separate item in the

bill of quantities that expressly entitled them to make a charge.

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Lord Morton of Henryton said that:

“The crucial words of clause 16 were “any additional excavation which may

be required for working space, etc., will be paid for under separate items.”

Counsel for the appellants had pointed out that these words were looking to

the future. The words referred to excavation that might be required in

addition to all the work specified in the numerous items set out in the bill of

quantities. If this work was done it would be “separated” from the items

already appearing in the bill of quantities. Counsel for the respondents had

argued that these words applied only to work that fell to be paid for under

items appearing on the bill of quantities. If this contention was well-founded,

the appellants would get no payment for the additional work they had done,

for it was common ground between the parties that this work was not covered

by any of these items.”

Sir Derek Walker-Smith, counsel for the respondent, had submitted that it was

inherently improbable that the words in question contained a promise to pay “at

large”. Secondly, he said that the appellants’ construction did not tie in with the

pattern and logical sequence of the relevant provisions of the contractual documents

as a whole. In particular, he said the appellants’ argument ascribed to clause 40 of the

Standard Method a meaning other than the meaning it was intended to have and did

have. Thirdly, he said that the object of the bills of quantities was to afford a basis for

tenders, and clause 16 tended to defeat that object if the appellants’ construction was

correct. His Lordship was at one time inclined to think that the arguments for the

respondents should prevail, but he had come to the conclusion that the words of

clause 16 could not bear the meaning the respondents sought to attach to them. He

could not believe that the reference to “separate items” under which any additional

excavation would be paid for, if in the course of carrying out the work any such

excavation was required, was a reference to items that had already been set out and

priced in the bill of quantities. The words used were quite inappropriate to convey

such a meaning, but they were quite appropriate to convey the meaning for which the

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appellants contended, and no unfair or absurd result followed if they were given that

meaning.

Held, the contractors’ appeal allowed by bare 3-2 majority; whatever working

space required should be paid by the Ministry of Transport.

(d) Principles Applied

In this case, the principles applied on what constitute a variation are:

(i) When certain parts of the contract bills have not been prepared in

accordance with the stipulations of the Standard Method of Measurement,

then the non-compliance are to be treated as “departures or errors” which

should be corrected by mean of a variation.

(ii) The Standard Method of Measurement, has the effect of overriding any

specific words in the contract documents which evince a clear intention

to depart from the practice assumed by these standard documents

.

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Perspective 8:

_____________________________________________________________________

(a) Case Analysed

Thorn v London Corporation (1876) 1 App Cas 120 (HL).

(b) The Fact of the Case

On the 24th of May, 1864, the plaintiff, Thorn contracted with the defendants,

London Corporation, to take down an old bridge at Blackfriars, and erect a new bridge

in its place. The works were to be completed within three years, for the sum of

₤269,045. The employer’s engineer had prepared plans and specifications, part of

which described the use of caissons to enable the works to be executed despite the

tide. The descriptions given were stated to be “believed to be correct”, but were not

guaranteed; and, in one particular matter at least, he was warned to make an

examination of the physical conditions for himself. As it turned out, the caissons

failed to withstand the tidal pressures and had to be abandoned. Accordingly, the

remaining works had to be executed during periods of low tides, entailing

considerable additional costs.

The contract contains provisions as to the payment for extra work, and the

work had (with the contract work) been duly paid for. The contractor sought for

compensation for his loss of time and labour occasioned by the failure of the caissons,

and in his declaration alleged that the defendants had warranted that the Blackfriars

Bridge could be inexpensively built according to the plans and specification. This

was refused, and this action was brought.

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The facts were turned into a special case for the opinion of the Court of

Exchequer. The case was argued in May, 1874, and the Lord Chief Baron, Mr. Baron

Pigott, and Mr. Baron Amphlett, gave judgment for the defendants on the ground that

there was no implied warranty in the contract. On Error, this judgment was affirmed

in the Exchequer Chamber. Error was then brought to this House (House of Lords).

(c) Critical Issues and Judgments

The main issue of this case was whether the contractor can sustain an action

for the loss he had suffered, as upon a warranty, when the loss was not resulted by his

own fault but by the mistakes of the person whose directions he was bound to obey.

The following passage appears in their lordships’ judgment:

“There can be no doubt that the Plaintiff (the contractor) in the exercise of

common prudence, before he made his tender, ought to have informed himself

of all the particulars connected with the work, and especially as to the

practicality of executing every part of the work contained in the specification,

according to the specified terms and conditions. It is said that it would be

very inconvenient to require … the contractor to make himself thoroughly

acquainted with the specification, as it would be necessary upon each

occasion for him to have an engineer by his side … But if the contractor ought

prudently and properly to have full information of the nature of the work he is

preparing to undertake, and the advice of a skillful person is necessary to

enable him to understand the specification, is it any reason for not employing

such a person that it would add to the expense of the contractor before making

his tender? It is also said that it is the usage of contractors to rely on the

specification and not to examine it particularly for themselves. If so, it is a

usage of blind confidence of the most unreasonable description.”

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Lord Cairns, in particular, said that:

“My Lords, it appears to me, that under those circumstances, the Appellant

must necessarily be in this dilemma, either the additional and varied work

which was thus occasioned is the kind of additional and varied work

contemplated by the contract, or it is not. If it is the kind of additional or

varied work contemplated by the contract, he must be paid for it, and will be

paid for it, according to the prices regulated by the contract. If on the other

hand, it was additional or varied work, so peculiar, so unexpected, and so

different from what any person reckoned or calculated upon, that it is not

within the contract at all; then, it appears to me, one of two courses might

have been open to him; he might have said: I entirely refuse to go on with the

contract - I never intended to construct this work.”

Held, the appeal dismissed with cost.

Where plans and specification, for the execution of a certain work, are

prepared for the use of those who are asked to tender for its execution, the person

asking for the tenders does not enter into an implied warranty that the work can be

successfully executed according to such plans and specification.

The contractor for the work cannot, therefore, sustain an action for damages,

as upon a warranty, should it turn out that he could not execute it according to such

plans and specification.

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(d) Principles Applied

In this case, the principles applied on what constitute a variation are:

(i) A contractor who has been put to unexpected expense because of

inaccurate plans and specification provided by the employer, cannot

usually recover the expense by bringing an action for breach of an

Implied Warranty that the plans and specification are

accurate/practicable.

(ii) The employer in a construction contract does not warrant that the works

can be constructed according to the plans and specification prepared by

his professional consultants.

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Perspective 9:

_____________________________________________________________________

(a) Case Analysed

Commissioner for Main Roads v Reed & Stuart Pty Ltd & Anor. [1974] ALJR

461.

(b) The Fact of the Case

The contractor (Reed) contracted with the Commissioner for Main Roads of

New South Wales to perform the works and supply all the materials set forth in the

contract for the construction of the Warringah Expressway. The works included:

Topsoil, placing only – 49,700 cubic yards at 15s. -- ₤37,275. The contract provided

also: Supply, haul and spread topsoil – Schedule of rate only at ₤3 per cubic yard.

The contract, which was for a bulk or lump sum, provided that (see clause

B3.03 of the specification): “If sufficient topsoil to meet the requirements of the

Works cannot be obtained within the right-of-way, the Engineer may direct the

Contractor in writing to obtain topsoil from other approved locations. The excavation

and removal of topsoil from such locations shall be under the direction of the

Engineer. Payment for such a additional topsoil per ton will be made at the scheduled

rate, and such price shall include the excavation or stripping of topsoil, loading and

cartage of up to three (3) miles from source of supply to point of delivery and

placement on the surface to be topsoiled.”

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The contract contained clause 18, a common enough provision to be found in

engineering contracts, which permitted the omission from time to time by the

Commissioner of portion of the contract works.

The site yielded only some 25,000 cubic yards of topsoil whereas it had been

estimated that some 49,700 cubic yards would be required and the position was

aggravated when it was later discovered that this estimate was in any event in error, a

total considerably in excess of 60,000 cubic yards being in fact required so as to

accord with contract drawings.

When the shortfall of topsoil manifested itself the respondents sought to, but

the Commissioner refused to, invoke those provisions of the contract which were

designed to deal with that eventuality; instead the Commissioner adopted a quite

different course. The Commissioner’s engineer decided that, rather than incur the rate

of ₤3 per cubic yard, he would instead, by the exercise of what he regarded as powers

available to him under the contract, arrange for work of importing topsoil onto the site

to be done by a third party, no doubt at cheaper rates. Having initially informed the

respondents in the above terms, the Commissioner’s engineer later somewhat

modified his stance; he maintained his right to employ a third party to bring the

necessary quantities of topsoil onto the site ready for spreading but offered to permit

R to undertake placement of all topsoil on the site, the respondents thereby avoiding

the penalty of any deduction from the lump sum price although gaining no entitlement

to any part of the rate of ₤3 per cubic yard. This offer the contractor rejected,

adhering to its contention that if imported topsoil were to be brought onto the site this

should be done by it and it should be remunerated at the tendered rate of ₤3 per cubic

yard.

The Supreme Court of New South Wales made a declaration at the instance of

the contractor that on the true construction of the contract, and in the events which

had happened, the Commissioner was in breach of the said contract “by obtaining

from a contractor other than Reed the supply, haul and spread and placing of topsoil

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necessary to make up the deficiency between topsoil yielded from the site of the

works the subject of the said contract and the total amount of topsoil required for such

works”.

The Commissioner then appealed to the High Court of Australia for judgment.

(c) Critical Issues and Judgments

The main issue of this case was whether the Commissioner’s engineer had the

right under clause 18 of the contract to omit portion of the contract work in order to

enable the omitted work to be executed by a third party.

Gibbs J. in his judgment stated that:

“For my own part I should not have thought it necessary to vary the

declaration made by Taylor J. As my brother Stephen has shown, the first

respondent was entitled under the contract to place all the topsoil as shown in

the contract drawings, unless the engineer required the omission of any of that

work under clause 18 of the General Conditions. In the absence of a

requirement by the engineer under clause 18, it was a breach of contract for

the appellant to render it impossible for the respondent to do the work. The

appellant did render it impossible for the respondent to do the work, and

thereby committed a breach, by getting someone else to do the work and also

by failing to give the direction under clause B3.03 of the specification without

which the respondent could not do the work. The declaration made by Taylor

J and that suggested by my brother Stephen describe in alternative ways that,

in my opinion, amounts to one breach, but nothing, I would think, turns on this

difference of form.”

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Held, per Gibbs, Stephen and Mason JJ, the appeal should be dismissed; but

per Stephen and Mason JJ, the declaration made by the Supreme Court should be

varied by declaring that on the true construction of the contract, and in the events

which had happened, the Commissioner was in breach of the said contract “by failing

to give a direction to Reed pursuant to the fourth paragraph of clause B3.03 of the

specification …”, because:

(i) Clause 18 clearly did not permit the taking away of portion of the

contract work from Reed in order that the Commissioner might have that

portion performed by some other contractor. The case of Carr v JA

Berriman Pty Ltd (1953) 89 CLR 327; 27 ALJ 273 applied.

(ii) The Commissioner’s engineer was mistaken in regarding the fourth

paragraph of Clause B3.03 as conferring on him the opinion of having the

work of importing topsoil onto the site performed either by Reed or by a

third party: for the only choice which that paragraph left open to the

engineer in the event of a shortfall of on-site topsoil was between

directing Reed to obtain it elsewhere, cart it to the site and there

undertake its placement, all for the agreed rate of ₤3 per cubic yard, and,

on the other hand, abstaining from exercise of his powder of direction but

instead electing under clause 18, the omissions clause, to omit so much of

the work of topsoil placement as may be necessary due to the deficiency

of on-site topsoil.

(iii) The Commissioner was in breach of his contractual obligations under the

contract. First there was the failure of his engineer to direct Reed to

obtain additional topsoil from outside the site once it was decided that the

contract work of spreading topsoil to the extent shown in the contract

drawings should proceed despite the shortfall of on-site topsoil; secondly,

there was the closely allied act of taking away from the contractor the

balance of topsoil placement work, using imported topsoil, and, in

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consequence, the deduction from the lump sum price of an amount

calculated by reference to the uncompleted portion of the original

estimated cubic yardage of topsoil required to be placed on site.

(d) Principles Applied

In this case, the principles applied on what constitute a variation are:

(i) The power to vary the works in a construction contract are exercised

within the bounds of the expectations of the parties at the time when they

entered into the contract.

(ii) Omissions of work can only be validly exercised in respect of

genuine omissions. It is now settled law that work cannot be omitted

where the overriding purpose of the omission is to enable the omitted

work to be executed by some other party. Thus, work cannot be omitted

merely because it could be done by some other party at a reduced price or

lower rate.

4.3 Conclusion

The above case analysis shows 9 legal perspectives regarding what constitute

a variation in construction, which applied the same or different principles in the

judgments. Generally, the findings are found to be in parallel with the principles as

discussed in the literature review. It shows that the principles applied by the courts in

giving perspectives of what constitute a variation discussed in Chapter 2 and Chapter3

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have been satisfied, for example indispensably necessary works are not variations,

invalid omissions are not variations and etc.

Despite all the above, attention is drawn to note that the principles may only

be the guideline to show the principles where the courts ordinarily giving their

perspectives or what constitute a variation.

Through the analysis, it is observed that the courts will not simply improve the

contract conditions which the parties have made for themselves however desirable the

improvement might be. This is due to the fact that the court’s primary function is to

interpret and apply the contract conditions which the parties have made for

themselves.53

The principles derived from the cases analysed, in the writer’s opinion, can be

categorized (according to Chow (2004)’s suggested factors determining the validity of

a variation order) as follows:

(1a) Issue of the variation order by the designated person

- Mere references in progress payment certificates to some extra work, in

the absence of Variation Order Instructions, did not constitute as Valid

Variation Orders.

- Generally, an agent such as the architect or engineer is not considered to

possess the required authority to waive a term of the contract requiring

extras to be ordered in writing.

53 Hardwood v Civic Construction Pty Ltd 1990 NSW LEXIS 10604.

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- The power to vary the works in a construction contract are exercised

within the bounds of the expectations of the parties at the time when they

entered into the contract.

(1b) The applicable procedural requirements

Not applicable.

(2a) Contract conditions governing variations

- Where the contractor must complete a whole work, such as a house, or a

railway from A to B, for a lump sum, the court readily infer a promise on

his part to provide everything indispensably necessary to complete the

whole work.

- Works not taken out on the quantities supplied to the contractor for tender

are not extras for they are impliedly included in the lump sum contract.

- The employer in a construction contract does not warrant that the works

can be constructed according to the plans and specification prepared by

his professional consultants.

(2b) The common law rules governing the scope of change

- If a contractor alleged that work he was ordered to do was an extra and

refused to continue without a promise to pay for it, and the owner on that

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account promised to pay extra for it, he would not be liable on such a

promise for it is ‘lack of consideration’.

- A variation order is not valid if the effect is to change the scope of the

contract so that the works as varied attains a character which is

fundamentally different from that contemplated by the parties at the time

when the contract was made.

- If the variation work is wholly outside the scope of the original contract,

the contractor would not, been unwilling, is obliged to accept the work as

a variation.

- There is authority for the proposition that when a contractor undertakes to

execute a contract for a lump sum price, he basically warrants that the

works as described in the drawings and specifications could be

constructed.

- If a change makes fundamental alterations to the contractor’s obligations,

and it could not have been foreseen at the time the contract was entered

into, it is beyond the scope of a variation order.

- A long series of design changes to a contract does not necessary frustrate

the original contract if the scope of the work has not been transformed.

- The essence of an invalid variation order is the magnitude and quality of

the changes.

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- What is reasonable under the circumstances will be a matter for the courts

to establish on the facts of the particular case.

- Where the actual quantities of work as executed by the contractor exceed

the quantities shown against the particular item in the contract bills of

quantities, this may constitute a ‘variation’

- Accordingly, if such extra over is not within a reasonable limit, the

contract rates may have to be adjusted. For the purposes of the latter, it is

immaterial that they do not stem from an express exercise of the variation

powers.

- The Standard Method of Measurement, has the effect of overriding any

specific words in the contract documents which evince a clear intention

to depart from the practice assumed by these standard documents

- It is now settled law that work cannot be omitted where the overriding

purpose of the omission is to enable the omitted work to be executed by

some other party. Thus, work cannot be omitted merely because it could

be done by some other party at a reduced price or lower rate.

In conclusion, it can be seen from the above analysis that there is no single

legal perspective regarding what constitute a variation in construction. However,

based on the cases analysed, the most common issue is whether the extra over of the

changes fall under reasonable scope and nature of the original work; but what is

reasonable under the circumstances will be a matter for the courts to establish on the

facts of the particular case.

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CHAPTER 5

CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

This chapter is the final chapter that summarises the findings of the research

according to the research objective. It also contains the problems encountered during

the research as well as the recommendations for future researches.

5.2 Summary of Research Findings

Generally, the objective of this research, i.e. to determine “what constitute a

variation in construction from legal perspective” had been achieved through the

documentary analysis of law journals. The various principles have identified from the

9 cases analysed. The findings are shown in Table 5.1 as follows:-

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Perspectives Cases Issues Decision of the Courts Principles Applied

1

Sharpe v San Paulo Railway Company (1873) LR 8 Ch App 597

Whether the contractors are to be paid for the extra works, when the quantities and drawings supplied to the contractors for tender were wrong.

Although the amount of the works to be executed might have been under-stated in the engineer’s specification, the contractors could not under the circumstances maintain any claim against the company on that ground.

- If work is original contract work, the contractor must carry it out & cannot recover extra payment, though he may not have thought at the time entering into the contract that it would be necessary for the completion of the contract. - Where the contractor must complete a whole work, it infers a promise on his part to provide everything indispensably necessary to complete the whole work. - Works not taken out on the quantities supplied to the contractor for tender are not extras. - Agent does not possess the required authority to waive a term of the contract. - If a contractor alleged that work he was ordered to do was an extra and refused to continue without a promise to pay for it, and the owner on that account promised to pay extra for it, he would not be liable on such a promise for it is ‘lack of consideration’.

Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’

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Perspectives Cases Issues Decision of the Courts Principles Applied

2

Blue Circle Industries PLC v Holland Dredging Company (UK) Ltd (1987) 37 B.L.R. 40.

Whether the “island agreement” was in truth and effect a variation of the “dredging agreement”, or was it a separate contract entered into collaterally with the dredging contract?

The construction of the island was work wholly outside the scope of the original dredging contract, therefore it was not a variation of the dredging contract but was the subject of a separate agreement.

- A VO is not valid if the effect is to change the scope of the contract so that the works as varied attains a character which is fundamentally different from that contemplated by the parties at time when the contract was made - If the variation work is wholly outside the scope of the original contract, the contractor would not, been unwilling, is obliged to accept the work as a variation.

3 Tharsis Sulphur and Copper Company v McElroy & Sons (1878) 3 App Cas 1040

Whether the contractors entitled to extra payment relying on the fact that the addition weight of girders was reflected in the interim certificates.

The engineer’s certificates were not written orders, and the claim was therefore excluded by the terms of the contract.

- Mere references in progress payment certificates to some extra work, in the absence of Variation Order Instructions, did not constitute as valid variation orders. - There is authority for the proposition that when a contractor undertakes to execute a contract for a lump sum price, he basically warrants that the works as described in the drawings and specifications could be constructed.

Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)

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Perspectives Cases Issues Decision of the Courts Principles Applied

4 McAlpine Humberoak Ltd v McDermott International Inc. (No. 1) (1992) 58B.L.R. 1.

Whether the considerable numbers of drawings issued effected cardinal changes to the contract thus they were not valid variation orders.

Allowing the appeal. The trial judge’s decision on frustration could not be supported in fact or in law.

- If a change makes fundamental alterations to the contractor’s obligations, and it could not have been foreseen at the time the contract was entered into, it is beyond the scope of a variation order. - A long series of design changes to a contract does not necessary frustrate the original contract if the scope of the work has not been transformed.

5 Wegan Construction Pty Ltd v Wodonga Sewerage Authority [1978] VR 67

Whether the extensively altered and increased works merely variations to original contract or repudiation of the contract.

In the circumstances the amended plan did not constitute a variation permitted by the original contract.

- The essence of an invalid variation order is the magnitude and quality of the changes. - What is reasonable under the circumstances will be a matter for the courts to establish on the facts of the particular case.

Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)

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Perspectives Cases Issues Decision of the

Courts Principles Applied

6 Mitsui Construction Co. Ltd v Attorney General of Hong Kong Government [1987] 1 HKC 31.

Whether the contractor should be paid contract rates or new rates when the actual quantities of work executed exceed the quantities shown in the contract bills, whereby it is obvious that the extra over is not within a reasonable limit.

Allowing the appeal, the contractors should be paid new rates.

- Where the actual quantities of work as executed by the contractor exceed the quantities shown against the particular item in the contract bills of quantities, this may constitute a ‘variation’ - If such extra over is not within a reasonable limit, the contract rates may have to be adjusted.

Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)

109

Perspectives Cases Issues Decision of the

Courts

Principles Applied

7 AE Farr Ltd v Ministry of Transport (1965) 5 BLR 94.

Whether the contractors were entitled to be paid for additional excavation for working space, there being no separate item in the bill of quantities that expressly entitled them to make a charge.

Whatever working space required should be paid by the Ministry of Transport.

- When certain parts of the contract bills have not been

prepared in accordance with the SMM, then the non-

compliance are to be treated as “departures or errors”

which should be corrected by mean of a variation

- The SMM, has the effect of overriding any specific

words in the contract documents which evince a clear

intention to depart from the practice assumed by these

standard documents.

Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)

110

Perspectives Cases Issues Decision of the

Courts Principles Applied

8 Thorn v London Corporation (1876) 1 App Cas 120 (HL).

Whether the contractor can sustain an action for the loss he had suffered, as upon a warranty, when the loss was not resulted by his own fault but by the mistakes of the person whose directions he was bound to obey.

The contractor for the work cannot sustain an action for damages, as upon a implied warranty that the plans and specification are accurate.

- A contractor put to unexpected expense because of inaccurate plans and specification by the employer, cannot usually recover the expense by action for breach of an Implied Warranty that the plans and specification are accurate/practicable. - The employer in a construction contract does not warrant that the works can be constructed according to the plans and specification prepared by his professional consultants.

Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)

111

Perspectives Cases Issues Decision of the

Courts Principles Applied

9 Commissioner for Main Roads v Reed & Stuart Pty Ltd & Anor. [1974] ALJR 461.

Whether the Commissioner’s engineer had the right under clause 18 of the contract to omit portion of the contract work in order to enable the omitted work to be executed by a third party.

Clause 18 clearly did not permit the taking away of portion of the contract work from Reed in order that the Commissioner might have that portion performed by some other contractor.

- The power to vary the works in a construction contract are exercised within the bounds of the expectations of the parties at the time when they entered into the contract. - Omissions of work can only be validly exercised in respect of genuine omissions. It is now settled law that work cannot be omitted where the overriding purpose of the omission is to enable the omitted work to be executed by some other party.

Table 5.1: Tabulation for Principles of ‘What constitute a variation in construction from legal perspective’ (Cont’d)

112

Out of the 9 cases analysed, it is found that majority of 4 cases are with the

perspective referring to the ‘scope of changes’ of the works; 2 cases with ‘mistake in

information provided by the employer’s consultant’; the other 3 cases with ‘the

engineer’s progress payment certificates are not written orders’, ‘contract bills not

prepared in accordance with SMM should be corrected by means of variation orders’

and ‘omissions must be genuine’ respectively.

5.3 Problem Encountered During Research

The main and only problem in writing up this project report is the

insufficiency of time. There is only 14 weeks’ time provided for this research

for the writer is a part time student of the master course. Everything has to be

done in a very fast manner, especially during the data collection process. This

results in less cases being found to support the findings. Meanwhile, there is

also difficulty in finding cases which are related to variation claims especially

cases in Malaysia.

5.4 Future Research

It is suggested that future research can be done by suing survey method using

interview or questionnaire instead of mere documentary analysis of law journals as

what is being done for this project report. The objective of the proposed research

shall be to identify more practical interpretation of what constitute a variation in

construction and the logical methods of valuation of variations by the experienced

professionals in the construction industry.

113

5.5 Conclusion

As a conclusion for all, construction contracts usually provide for expressed

terms for definition of variation and also rules for valuation of variations. However,

there remains a great deal of uncertainty as to what constitute a variation thus result in

dispute between the contracting parties. Thus the research is done to determine what

constitute a variation in construction from legal prospective. The discussion, though

may not be comprehensive, may be a guidelines for construction contracting parties as

well as contract administrator pertaining the principles judges normally based on in

deciding the judgments for construction disputes.

114

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