Variation Orders

Legal Reference: IRR-A Annex “E” provides the rules in relation to Variation Orders.

What is a Variation Order?

A Variation Order refers to any increase/decrease in quantities within the general scope of the project as bid and awarded, in any
of the following aspects:
1. Introduction of new work items that are not included in the original contract; or
2. Reclassification of work items that are either due to change of plans, design or alignment to suit actual field conditions resulting
in disparity between the preconstruction plans used for purposes of the bidding and the “as staked plans” or construction drawings
prepared after a joint survey by the contractor and the government after award of the contract, or during actual construction.

A Variation Order may either be in the form of a Change Order or Extra Work Order.

A Change Order covers any increase/decrease in quantities of original work of items in the contract.

An Extra Work Order covers the introduction of new work necessary for the completion/improvement or protection of the project
which are not included as items of work in the original contract. As an example, there may be subsurface or latent physical conditions
at the site that differ materially from those indicated in the contract. There might also be duly unknown physical conditions at the
site of an unusual nature that differ materially from those ordinarily encountered and generally recognized as inherent in the work
or character provided for in the contract.

The addition/deletion of works should be within the general scope of the project as bid and awarded, and the deletion of the work
should not affect the integrity and usefulness of the structure.

When can the Procuring Entity issue a Variation Order?

Variation Orders may be issued by the Procuring Entity concerned at any time during contract implementation. However, the
adjustment provided for in these orders must be necessary to fully meet the requirements of the project. The issuance of a Variation
Order, must conform to the following:
1. That there will not be any short changes in the original design;
2. That it will not affect the structural integrity and usefulness of the structure; and
3. That it is covered by a CAF.

How much Variation Order is allowed?

The net cumulative amount of the Variation Order should not exceed positive ten percent (+10%) of the original project cost.

If the adjustments provided for in a Variation Order costs more than ten percent (10%) of the original project costs, these shall be
the subjects of another contract to be bid out if the works are separable from the original contract. However, if these adjustments
are urgently necessary to complete the original scope of work, the Head of the Procuring Entity may authorize the Variation Order
beyond ten percent (10%) but not more than twenty percent (20%), subject to the guidelines to be determined by the GPPB.

In case the Variation Order exceeds ten percent (10%), the Procuring Entity must ensure that appropriate sanctions are imposed on
the designer, consultant or official responsible for the original detailed engineering design which failed to consider the conditions
that led to the need for adjustments costing more than ten percent (10%) of the original total contract price

https://www.coa.gov.ph/phocadownload/userupload/ABC-
Help/Updated_Guidelines_in_the_Audit_of_Procurement/Annex%207/section4-8.htm

What are the conditions under which a contractor may start work under Variation Orders and receive payments?

Under no circumstances can a contractor proceed to commence work under any Change Order or Extra Work Order unless the
Head of the Procuring Entity or his/her duly authorized representative has approved the order.

The Procuring Entity’s Regional Director or equivalent official, under whose jurisdiction the project is located, may, subject to the
issuance of the CAF, authorize the immediate start of work under any Change or Extra Work Order, subject to any or all of the
following conditions:
1. In the event of any emergency where the prosecution of the work is urgent to avoid any detriment to public service, or
damage to life and/or property; and/or
2. When time is of the essence, for works in the critical path based on the approved PERT/CPM;
However, the approval is valid on work done up to the point where the cumulative increase in value of work on the project which
has not yet been duly fully approved does not exceed five percent (5%) of the adjusted original contract price whichever is less.
Furthermore, immediately after the start of work, the corresponding Change Order or Extra Work Order must be prepared and
submitted for approval in accordance with the above rules herein set. Payments for works satisfactorily accomplished on any Change
Order or Extra Work Order may be made only after approval of the same by the Head of the Procuring Entity or his duly authorized
representative.

For a Change Order or Extra Work Order involving a cumulative amount exceeding five percent (5%) of the original contract, no
work thereon may be commenced unless said Change Order or Extra Work Order has been approved by the Secretary or his duly
authorized representative.

What rules govern price adjustments due to a Variation?

The payment to the contractor for additional work under Variation Orders, must be derived based on the following:

1. For additional/extra works duly covered by Change Orders involving work items which are exactly the same or similar to
those in the original contract, the applicable unit prices of work items in the original contract shall be used.
2. For additional/extra works duly covered by Extra Works Orders involving new work items that are not in the original
contract, the unit prices will be based on the direct unit costs used in the original contract (e.g., unit cost of cement, rebars,
form lumber, labor rate, equipment rental, etc.). All new components of the new work item shall be fixed prices, provided
the same is acceptable to both the government and the contractor. The direct unit costs of new components must also be
based on the contractor’s estimate as validated by the Procuring Entity, in comparison with the construction price indices
issued by the NSO. The Procuring Entity must validate these prices through a documented canvass among three eligible
suppliers registered with the DPWH or PhilGEPS in accordance with existing rules and regulations. The direct cost of the
new work item must then be combined with the mark-up factor (i.e. taxes and profit) used by the contractor in his bid to
determine the unit price of the new work item.
The request for payment by the contractor for any extra work must be accompanied by a statement, with the approved supporting
forms, giving a detailed accounting and record of amount for which he claims payment. This request for payment must be included
in the contractor’s statement for progress payment.

Who are the parties involved in the issuance of a Variation Order?

The following parties are involved in the issuance of a Variation Order:

1. The PMO or end-user unit;

2. The contractor;
3. The Head of the Procuring Entity or his duly authorized representative.

https://www.coa.gov.ph/phocadownload/userupload/ABC-
Help/Updated_Guidelines_in_the_Audit_of_Procurement/Annex%207/section4-9.htm

Methodology: How is a Variation Order issued?

The following must be undertaken in issuing a Variation Order:

1. Within seven (7) calendar days after the contractor discovers that there is a need for variation order, the said contractor
must communicate the same to the Procuring Entity by giving it notice of the findings. Afterwards, the contractor has
twenty-eight (28) days to submit a full documentation of the variation order. Failure to provide either of such notices in
the time stipulated shall constitute a waiver by the contractor for any claim.
2. If the Project Engineer finds that a Change Order or Extra Work Order is justified, he/she must prepare the proposed order,
accompanied with the following:
a. Notices submitted by the contractor;
b. The plans to effect the adjustments;
c. The contractor’s computations as to the quantities of the additional works involved per item indicating the specific
stations where such works are needed, the date of his inspections and investigations thereon, and the log book
thereof; and
d. A detailed estimate of the unit cost of such items of work, together with his justifications for the need of such
Change Order of Extra Work Order

The project engineer then submits the same to the Regional Director or equivalent official of the office/agency/
corporation/LGU concerned.
3. The Regional Director or equivalent official concerned, upon receipt of the proposed Change Order or Extra Work Order
shall immediately instruct the technical staff of the Region to conduct an on-the-spot investigation to verify the need for
the work to be prosecuted. A report of such verification shall be submitted directly to the Regional Director or equivalent
official concerned.
 4. The Regional Director or equivalent official concerned, after being satisfied that such Change Order or Extra Work Order is
justified and necessary, shall review the estimated quantities and prices and forward the proposal with the supporting
documentation to the head of Procuring Entity for consideration.
5. If, after review of the plans, quantities and estimated unit cost of the items of the work involved, the proper office of the
Procuring Entity empowered to review and evaluate Change Orders or Extra Work Orders recommend approval thereof,
the Head of the Procuring Entity or his duly authorized representative, finding that the Change Order or Extra Work Order
is in order and covered by the CAF, shall approve the same.
6. Upon approval by the Head of the Procuring Entity or his duly authorized representative, the PMO or end-user unit shall
notify the contractor to proceed with the work/delivery of items in accordance with the amendment.
7. The PMO shall likewise post the Variation Order in the PhilGEPS and website of the Procuring Entity, if any.
8. The contractor shall proceed with the work/delivery of items in accordance with the amended contract.
The timeframe for the processing of Variation Orders from the preparation up to the approval by the Procuring Entity concerned
should not exceed thirty (30) calendar days.

https://www.coa.gov.ph/phocadownload/userupload/ABC-
Help/Updated_Guidelines_in_the_Audit_of_Procurement/Annex%207/section4-10.htm

What is Variation order?

Garrett Butt, Property Consultant Answered Jul 12 2014

A variation order is issued whenever there is a variation to the contracted works. This may include adding or omitting work,
increasing or decreasing the quantity of any work, changing the character or quality of any material or work, the order in which the
works proceed etc.
How and who values variation orders should be included in the contract documents. Not all variation orders require a
variation in the contract cost e.g. substitution of similar materials or a change in the colour of a material.
Variations can be requested by either the Contractor or Principal or come about as a result of conditions outside the control
of either party e.g. bad weather.
In construction projects the most disputed variation orders are extensions of time, particularly where concurrent delays (a
delay caused by the Contractor and a delay caused by the Principal both negatively affecting the critical path occur simultaneously)
are concerned as these often have significant cost attached.

Hosen Sarraf-Tehrani, Contracts Manager and Project Engineer in EPC projects Answered Apr 6, 2013
Any variation to the original Scope of Work is called Variation Order. It could have positive or negative time or cost impact.
In very rare cases it might have neither cost nor time impacts.
In some cases it is not easy to determine whether an order from the owner (or client) is a variation to the original Scope
of Work or a part of the original Work which is stated in the contract and its attachments or specifications.)
As soon as both parties (contractor and owner) agree that an order is a variation to the originally mutually agreed scope
of work, they need to find a way to calculate or estimate its cost and time impacts. The method to calculate or estimate cost and
time impacts are normally mentioned in the contract.
It might be necessarily essential to mention that even changing the specifications, execution methods could be considered
as variation order. Many construction specialists say as a rule of thumb anything beyond the contractor's control which might affect
cost and time delivery targets could be a variation order. To me it is not true and might mislead everyone.

Sadas Gounder Answered Jul 4, 2016

Q: What is Variation order?
A: In engineering contract/ construction field, a variation amendment requested generally, with respect to original contract between
contractor & client. The variation request is raised by party affected as per contract clauses which is necessitated due time, cost,
quality & quantity variations if any.
It is not uncommon in EPC or Turnkey contracts due to unexpected risks & uncertainties during contract implementation.
Thank you.

Kanika Kapoor, studied at Rajasthan, India Answered Oct 24, 2016

A Difference order is issued whenever there is a variation to the contracted works. This may include adding or omitting work,
mounting or decreasing the number of any work, varying the character or quality of any material or work, the order in which the
works proceed etc.
How and who values variation orders should be included in the contract documents. Not all variation orders require a variation in
the contract cost e.g. substitution of similar materials or a change in the colour of a material.
https://www.quora.com/What-is-Variation-order
Analysis of causes and impact of variation order on educational building projects
Luqman Oyekunle Oyewobi, Richard Jimoh, Bashir Olanrewaju Ganiyu, Abdullateef Adewale Shittu
Journal of Facilities Management
ISSN: 1472-5967 Publication date: 3 May 2016

Abstract
Purpose
Construction process is complex and traditionally fragmented; thus, it is almost impossible to have a project completed without
changes to the original plan or the construction process. The purpose of this study is to identify and examine the causes of variation
orders, ascertain their effects and establish the cost and time performance implication as a result of variation orders.

Design/methodology/approach
This study obtained information from 90 construction stakeholders on 30 completed educational building projects to ascertain the
causes and effects of variation orders on project delivery using questionnaire survey. In addition to this, a pro forma document was
designed to obtain the project characteristics, cost and time data from these 30 completed educational building projects. Factor
analysis was used to categorise the causes of variation orders, while severity index was used to examine their effects on project
delivery. The hypothesised statement was tested using paired t-statistics to examine whether a statistically significant difference
existed between variation orders, cost and time performance of the projects.

Findings
The study identified 13 main factors as causes of variation orders and the results revealed that the most frequent effects of
variations were increase in construction costs, time, client dissatisfaction, increase construction project rework and demolition and
project abandonment. The results also showed that variation orders had significant effects on both cost and scheduled performance
of the educational building projects with average cost and time escalation of 33.95 and 29.45 per cent of the original project cost
and time, respectively, for the entire projects studied, while average cost implication of variation orders is 23.79 per cent.

Practical implications
The findings in this study will be of assistance to government agencies and management of public works in higher institutions of
learning in managing variations in construction projects. The study will also add to the current literature on the impact of variation
orders on educational building projects in developing countries. Finally, it will create the much-needed awareness on the severity
and implication of change or variation orders on project delivery.

Originality/value
The study identified and examined the causes of variation orders, ascertained their effects and established the cost and time effects
of the causes of variation order on project performance. This will assist project initiators, contractors, consultants and other
stakeholders to fully appreciate and understand the significant effects of variation orders on project performance.
https://www.emerald.com/insight/content/doi/10.1108/JFM-01-2015-0001/full/html

What is The difference between Variation Orders , New Orders , and Claims ?
Question added by Rami Batikh , Project Civil Engineer - Head Of Civil Department , Jash Date Posted: 2015/07/07

Answer added by Kalaivani Sankar, Technical Support in Contracts Team , Joint Operations - Wafra
A Variation order is an agreement by two members of an agreement (contract) to modify the contract to add or subtract
work. (Positive / Negative Variation Order) A claim is a request by one party of the agreement for payment or other relief from some
change in the agreement that they believe if due them but the other party doesn't agree with. An unresolved claim can in time
result in legal action. It might also result in a Variation Order.
A "claim" can arise as a consequence of a variation - again depending on the form of contract. If the valuation rules for a
variation do not allow full recovery of the actual costs - for instance extra excavation being carried out in a bad weather period -
thus taking longer and costing more - then a formal claim may be required.

Answer added by sardar mardookhy, Head of portfolio management department , MCI

Variation Order is the same as change order some times for smaller amount change they use VO but as I know they are
the same, VOs are accepted by both parties or even in whole project , in some projects there is a CCB(change control board) which
they study and accept the changes proposed by change orders or variation orders,..
But Claims in contracts are arise by one party and if the opposite side was not happy wtth it, It is still valid and could be
referred to a legal action. in almost all contract the the way of arising claims are clear, It may happen that VOs after discussion have
been changed to claims.
New orders are new order which are required by one party,...

Answer added by Vinod Jetley, Assistant General Manager , State Bank of India
Owners, contractors and subcontractors know that claims and change orders are common parts of almost any construction
project. Yet these two terms refer to entirely different problems. Failure to keep those differences in mind can destroy the
contractor’s ability to be paid for its work.
 By making a claim, the contractor is demanding that the existing deal be enforced. The claim refers to the current
construction contract and demands that the owner do something it has already agreed to do. Presenting a change order for the
owner’s signature, on the other hand, is the contractor’s request for a new deal. The change order says nothing about whether
the owner is living up to the current contract.
What is confusing is that change orders and claims often occur together. Take the situation where the owner asks for
additional work. The contractor performs and the owner is slow to pay for the extras. What should the contractor do? The
contractor will typically submit a change order to increase the construction contract price by the amount of the extras. But what if
the owner doesn’t get around to signing the change order? Has the contractor made a claim for payment? No. All the contractor
has done is suggest the amendment by change order.
Here is the catch: most construction contracts impose time deadlines for submitting claims. The AIA construction contract
forms, for example, require claims to be made in writing within21 days after the claim arose. In our situation, the contractor could
lose its right to be paid if no claim is made within21 days after the extra work was started. Submitting the change order is not
sufficient - a claim needs to be made.
Change orders are not subject to the same deadlines as claims. Some construction contracts may impose no deadlines
whatsoever on change orders. After all, the owner and contractor can agree to change the deal anytime they want. Other
construction contracts impose stricter deadlines on change orders than on claims. Some contracts, for example, require change
orders to be written and signed before the change in work occurs. Under this kind of contract, our contractor would be late on
both its claim and its proposed change order!
Owners, contractors and subcontractors know that claims and change orders are common parts of almost any construction
project. Yet these two terms refer to entirely different problems. Failure to keep those differences in mind can destroy the
contractor’s ability to be paid for its work.

Answer added by Kaamila Tahseen, Change Management Team Manager , cognizant technology solutions
I am not expert in this, but still wanna give a try
New Order - might be a contract / agreement which wasnt agreed before
Variation Order - Which wasnt in scope prior when the order was agreed or descoping
Claim - might be Charge which is caused due to the variation in order

Answer added by Ahmad Sultan , Khatib & Aalami, (Consolidated Engineering Company) Project Thakher Touristic
We can conclude the difference between the as follows:
The variation order results from approved changes in the contract items between the owner and the contractor.
New order is the addition works not mentioned in the contract required from the owner and the contractor accept to do.
The claim is the contractor tool to raise his over cost or/and time extension resulted from owner/consultant instructions/ requests
that are out of scope or need rework.

Answer added by sheharyar ameen, Application Engineer (Export Sales & TSS) , KSB Pumps Company Limited
"Variation order" is add or subtract of work from the contract/agreement.
"New Order" is an addition of work, which is not mentioned in the contract/agreement.
"claim" is a request by one party of the agreement for payment.

Answer added by Gourab Mitra, Manager IT Project Program and Delivery Management(Full Time Contract/Consulting Role) ,
IXTEL(ixtel.com)
Expert opinion says,
A variation (sometimes referred to as a variation instruction, variation order or change order) is an alteration to the scope of works
in a construction contract in the form of an addition, substitution or omission from the original scope of works.
New order is quite self explanatory as the name suggests
A change order is an agreement by two members of an agreement (contract) to modify the contract to add or subtract work.

Answer added by Mohammed Asim Nehal, M Asim Nehal & Co , Chartered Accountants
Variation Orders are changes or additions in existing or on-going orders whereas New orders are fresh orders which has
no connectivity with existing or ongoing orders and
Claims are additional work done, it is a legitimate request for additional compensation on account of a change in the terms
of the contract.
https://specialties.bayt.com/en/specialties/q/209010/what-is-the-difference-between-variation-orders-new-orders-and-claims/

Variation and Variation Orders: Important Considerations

Posted on March 27, 2019March 27, 2019 by Adroit

Introduction
A variety of reasons may increase or decrease the amount of work required by a contract. These increases or decreases are either
directed or constructive. This article briefly describes each of these main categories of variation. It also outlines the potential
implications of variations and variation orders from the time and cost management perspectives.
In general, owners have the contractual right to make changes to the work outlined in the original contract. The terms variations,
modification, and changes are often used interchangeably.

Variation types

Since variations not only impact contract scope of work but also they potentially have time and cost implications, it is important to
identify various types of variations and recognize potential effect of each type of variation on contracts. Examples of the most
common variations include:

Changes in means and methods or material to be installed

Differing or unforeseen site conditions not envisioned in the original contract price
Modifications that change the planned work sequence as originally envisioned
Changes to the scope of work due to constructability issues or conflicts between work elements
Changes in plans and specifications
Corrections made due to errors or omissions
Modifications as a result of the actions or inactions of third-parties

Directed variations

A directed variation is issued when the owner specifically directs the contractor to make a change. This type of variation may or
may not affect the contract price. A directed variation that influences only the schedule is an example of a directed variation with
no effect on the contract price. As another example, a directed variation that impacts a project’s configuration, work sequence, or
space requirements may adversely influence labor and equipment productivity on-site. A directed variation with cost impact may
reduce or add the contract price. Directed variations are typically not complicated because the owner specifically directs the
contractor to make a change and as such, directed variations are easier to deal with.

Constructive variations

Constructive variations, on the other hand, occur as a result of non-owner-directed events that implicitly necessitate a variation.
Unlike directed variations, the owner does not specifically direct the contractor to make a change in case of a constructive variation.
Instead, as a result of non-owner-directed events or actions or inactions of the owner, the contractor is forced to modify the scope
specified in the contract or incur additional costs. Typically, constructive variations are not easy to recognize because they generally
occur due to non-owner-directed events or circumstances. In addition, in case of a constructive variation, the owner does not
typically have an explicit acknowledgment of a variation to the original scope of work set forth in the contract. Examples of the most
common types of constructive variations include:

Verbal communications that implicitly necessitate making changes

Deficient drawings or specifications
Ambiguity in architect-provided responses to information requests
Differing site conditions
Over-inspection
Implications

Although deductive variations exist, variations typically increase contract prices. This increase is due to increases to direct material,
labor, and equipment prices. Nevertheless, the impacts of variations are often not limited to direct costs. Variations often result in
the loss of efficiency and as such, the adverse effects of variations need to closely be examined to ensure their consequences are
fully evaluated.

Conclusion

It is important to identify variations in a timely manner, especially in case of constructive variations whose effects are not explicit
and readily recognizable. The reasons for each variation need to properly be identified and documented in proper tracking logs.
Moreover, the effects and implications of each variation need to properly be documented to ensure sufficient documentation and
historical records are readily accessible to substantiate contractual entitlements.

Author: Dr. Maryam Mirhadi, PMP, PSP | CEO and Principal Consultant
https://www.adroitprojectconsultants.com/2019/03/27/variation-and-variation-orders-important-considerations/

Benefits and Disadvantages of Variation Orders

Essay in Contract Law 02/02/18
Jurisdiction(s): Malaysia
Disclaimer: This work has been submitted by a student. This is not an example of the work produced by our Law Essay Writing
Service. You can view samples of our professional work here.
Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily
reflect the views of LawTeacher.

Definition of Variation:
A variation from the contract occurs where the actual work to be carried out changes, or where the circumstances in which the
work is to be carried out changes. The term “variation” also includes:

The addition, omission or substitution of any works.

The alteration of the kind or standard of materials or goods.

The removal from site of work, materials or goods that were formerly in accordance with the contract, but which has now been
changed.

Any changes to the provisions in the contract with regards to any limitation of working hours, any limitation of working space, access
and use of the site and the execution of work in any specific order.

Benefits:
Therefore, the standard forms of contract provide the variation clauses are enable the employer’s design team to vary the design
and specification. This is to avoid any problems that a contract would and in principle, have to be re-negotiated due to the changes
of specification of works.

The benefit of variation is also allow such changes to be made stated in the contract and also permit to any consequential to be
made in the contract sum.

Variation allows the constructive changes that allow changing on the mistake and error accidently occurred such as example in
correcting a discrepancy in the contract drawing and specification.

Besides, the benefit of variation is stated under clause 11.7 of PAM 2006. The contractor is entitled to claim for such additional
expenses for which he would not be paid under clause 11.6 of PAM 2006. It is allow the contractor claim back any direct loss and
expense incurred such as pro-rata rates, daywork rates, BQ rate, and fair market rate from the Variation Order (V.O) work and
requested by employer and Architect.

The benefit of variation order is one issued to improve the quality standard or degree of difficulty in a project.

Variation order also eliminates unnecessary cost from a project in order to optimise the client’s benefit against the resource input
by reducing the unnecessary costs.

Variation clause is tends to encourage clients to change their minds and embark on building projects without having properly
thinking on their project requirement.

Variation is allowing changes in any requirement of Local Authority. Like example, any amendment to the works regarding to the
regulation and by law and approved by local authority is allows variation in the construction works.

The benefit of variation order is to realize a balance between cost, function and quality required of a project to the satisfaction of
clients. Therefore, it will increase the value of the building.

The variation clause is allowing an employer to pursuit the aesthetic consideration in one project. Changing in new design on
variation work can enhance the aesthetic quality of the project and constructability of the work if compare to the original design.

Disadvantages:
The disadvantage of variation is that allows the Architect, or other designers to delay making decisions almost until the last possible
moment. This can be having serious repercussions on the planning of the project and in executing the works efficiently.

The disadvantages of variation occurred because the Architect or other designer is not taking seriously while preparing the drawing.
Therefore, those drawing cannot be finalised under tender stage and any error happen on the drawing can be put right in the
variation clause.

The variation orders contribute to construction cost overrun. The more the variation orders, the more that effect the overall of
construction costs.
It was revealed that various variation orders issued during the construction phases of a project will affected the project’s completion
time. The project may delay and contractor needs to reschedule his work programme due to the variation work happen.

The rate of variation work increase because the additional works carried out by contractor and additional charge to the delay works.

The variation work also brings inconvenience to the end user. No matter how much effort reduces the variation work in construction
industry, it is still happen and final account remains unresolved after the building was occupied.

When the variation order occurred, it will forced to the contractor re-measure the quantity works from the new drawing and
prepare a new amount for the new items.

The disadvantages of variation works is caused the contractor shall comply and complete the variation order that requested by the
Architect Instruction. If he did not follow it, the contractor may entitle in breach his contract.

The disadvantages of variation works will affect the quality of the work. This is because the contractors tend to compensate for the
losses by cutting corners incurred to variation order. Therefore, the productivity of work achieved by contractor will be poor or
lower.

When the variation orders occur, it can affect the safety and health condition. The reason is because of changing in the construction
method, materials and equipment may require the additional safety and health measures in the project.

The disadvantages of variation order will allow the dispute arisen between the parties of the particular contract. For example, a
misunderstanding may arise when the contractor refused to accept with the judgement of the consultant in term of fair valuation
of a variation order.

The disadvantages of variation works usually allow contractor claim higher profit than the really cost incurred. Thus, where a
contractor has secured a project on prices and terms which are profitable, he will have strong interest to argue that the additional
work should be constructed as a variation and valued according to the prices and rates stated in the contract.

The disadvantages of the variation clause is that the Architect will make not clear on his intention on paper such as contract
specification and drawing before the contract is signed because they know the variation clause will permit them to finalised their
intention during the term of contract.

The disadvantages of variation works is allow rework and demolition works. Some variation works may need to demolish the building
for changing the use of material and design for that particular works. Hence, it will increase the wastage of the product of works.
https://www.lawteacher.net/free-law-essays/contract-law/benefits-and-disadvantages-of-variation-orders-contract-law-
essay.php

Last edited 20 Mar 2019

Variations in construction contracts

Introduction
A variation (sometimes referred to as a variation instruction, variation order (VO) or change order), is an alteration to the scope of
works in a construction contract in the form of an addition, substitution or omission from the original scope of works.

Almost all construction projects vary from the original design, scope and definition. Whether small or large, construction projects
will inevitably depart from the original tender design, specifications and drawings prepared by the design team.

This can be because of technological advancement, statutory changes or enforcement, change in conditions, geological anomalies,
non-availability of specified materials, or simply because of the continued development of the design after the contract has been
awarded. In large civil engineering projects variations can be very significant, whereas on small building contracts they may be
relatively minor.

Variations may include:

Alterations to the design.

Alterations to quantities.
Alterations to quality.
Alterations to working conditions.
Alterations to the sequence of work.
Variations may also be deemed to occur if the contract documents do not properly describe the works actually required.
Variations may not (without the contractors consent):

Change the fundamental nature of the works.

Omit work so that it can be carried out by another contractor.
Be instructed after practical completion.
Require the contractor to carry out work that was the subject of a prime cost sum.
In legal terms, a variation is an agreement supported by consideration to alter some terms of the contract. No power to order
variation is implied, and so there must be express terms in contracts which give the power instruct variations. In the absence of
such express terms the contractor may reject instructions for variations without any legal consequences.

Standard forms of contract generally make express provisions for the contract administrator (generally the architect or engineer)
to instruct variations (for example, FIDIC Clause 51.1). Such provisions enable the continued, smooth administration of the works
without the need for another contract.

Variation instructions must be clear as to what is and is not included, and may propose the method of valuation.

Valuation of variations

Variations may give rise to additions or deductions from the contract sum. The valuation of variations may include not just the work
which the variation instruction describes, but other expenses that may result from the variation, such as the impact on other aspects
of the works. Variations may also (but not necessarily) require adjustment of the completion date.

Variations may be valued by:

Agreement between the contractor and the client.

The cost consultant.
A variation quotation prepared by the contractor and accepted by the client.
By some other method agreed by the contractor and the client.
Valuations of variations are often based on the rates and prices provided by the contractor in their tender, provided the work is of
a similar nature and carried out in similar conditions. This is true, even if it becomes apparent that the rates provided by the
contractor were higher or lower than otherwise available commercial rates.

The contractor's rates do not become reasonable or unreasonable by the execution of variations, as stipulated by the ruling in the
case of Henry Boot Construction Ltd v Alstom [1999].

If similar types of works to those instructed by a variation cannot be found in the drawings, specification or bills of quantities, then
fair valuation of the contractor's direct costs, overheads and profit is necessary.

However, NEC contracts do not value variations based on rates in the tender. Guidance on assessing compensation events states:

'Assessment of compensation events as they affect Prices is based on their effect on Defined Cost plus the Fee. This is different
from some standard forms of contract where variations are valued using the rates and prices in the contract as a basis. The reason
for this policy is that no compensation event for which a quotation is required is due to the fault of the Contractor or relates to a
matter which is at his risk under the contract. It is therefore appropriate to reimburse the Contractor his forecast additional costs
(or actual costs if the work has already been done) arising from the compensation event.'

In other words, the contractor can ignore their tender pricing and claim cost plus on variations. However, there may be
disagreements about items such as factory overheads and management which are very hard to evaluate. In addition, given the
complexity and length of the supply chain in major building works, getting forecast pricing from all the parties affected takes time,
often beyond the date by which the contract administrator has to make the decision as to whether or not to instruct the variation.

They may then have to decide whether or not to proceed with a variation based on estimates from the cost consultant which in due
course get replaced by the actual cost. It has been argued that this practicality defeats the some of the rationale of the NEC contracts
in relation to cost control and decision making.

Source of conflict

Conflict can arise when work is not mentioned in the bills of quantities, drawings or specifications. In common law this silence does
not mean the contractor has an automatic right to claim for extra payment. The client is not bound to pay for things that a
reasonable contractor must have understood were to be done but which happen to be omitted from the bills of quantities.

Where there are items that, whilst they are not expressly mentioned, are nonetheless required in order to complete the works,
then the contractor should have included them in their price. The bills of quantities and specification do not necessarily have to
include 'every nail to be punched in'. For example, in fixing GRC façades it is necessary to have steel supports, and a reasonably
experienced contractor must make provision for this in the contract price. Unless expressly excluded, such supports are not paid
for as a variation.

Conflict can also arise when a sub-contractor qualifies that, for example, 'Supply & Fixing of Door is included' but 'Supply & Fixing
of Ironmongery is excluded'. A reasonable sub-contractor should foresee that a door cannot be fixed without hinges – which is a
part of the ironmongery. So even if ironmongery is excluded, the sub-contractor cannot expect a variation for any of the items
required to fix the doors.

Also, under the pretext of variation, the contract administrator cannot change the nature of works. For example, if the contract
provides for secant pile shoring, they cannot ask for diaphragm wall shoring as it will entirely change the nature of the work.

Further, if the contract administrator omits work from contractor’s scope, such an omission must be genuine: that is, the work
omitted must be omitted from the contract entirely, it cannot be used to take work away from the contractor to give it to another
(for example, see FIDIC Clause 51.1). Similarly, the contract administrator is not empowered to order variations to help the
contractor if the contract works are proving too difficult or expensive for them.

Extension of time

Many construction contracts allow the construction period to be extended where there are delays that are not the contractor's
fault. This is described as an extension of time (EOT).

Variations may (but do not necessarily) constitute relevant events that can merit an extension of time and so adjustment of the
completion date. See Extension of time for more information.

Conclusion

Variations are often sources of dispute, either in valuing the variation, or agreeing whether part of the works constitute a variation
at all, and can cost a lot of time and money during the course of a contract. Whilst some variations are unavoidable, it is wise to
minimise potential variations and subsequent claims by ensuring that uncertainties are eliminated before awarding the contract.

This can be done by:

Undertaking thorough site investigations and condition surveys.

Ensuring that the project brief is comprehensive and is supported by stakeholders.
Ensuring that legislative requirements are properly integrated into the project.
Ensuring that risks are properly identified.
Ensuring that designs are properly coordinated before tender.
Ensuring the contract is unambiguous and explicit.
Ensuring the contractor's rates are clear.
Preparing concise drawings, bills of quantities and specifications, providing for all situations which are reasonably foreseeable.

https://www.designingbuildings.co.uk/wiki/Variations_in_construction_contracts