WHAT CONSTITUTE A VARIATION IN CONSTRUCTION FROM LEGAL PERSPECTIVE

LIM CHENG SIM

UNIVERSITI TEKNOLOGI MALAYSIA

WHAT CONSTITUTE A VARIATION IN CONSTRUCTION FROM LEGAL PERSPECTIVE

LIM CHENG SIM

A dissertation submitted in fulfillment for the award of the degree of Master of Science in Construction Contract Management

Faculty of Built Environment Universiti Teknologi Malaysia

DECEMBER, 2007

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.

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 employers 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.

vi

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 Declaration Dedication Acknowledgement Abstract Abstrak Table of Contents List of Cases List of Tables List of Figure List of Abbreviations xiv

i ii iii iv v vi vii x xiii

xv

1 1.1 1.2 1.3 1.4 1.5 1.6

INTRODUCTION Background Study Problem Statement Objective of the Study Scope of the Study Significance of the Study Research Methodology 1.6.1 Stage 1: Initial Study and Finding the Research Topic, Objective, Scope and Outline 6 1 3 5 5 5 6

viii 1.6.2 Stage 2: Collecting Data and Research Design 1.6.3 1.6.4 1.7 Stage 3: Analyzing and Interpreting Data Stage 4: Writing-up 7 7 7 9

Organisation of the Report

VARIATION ORDER IN CONSTRUCTION PROJECT

2.1 2.2 2.3 2.4 2.5 2.6 2.7

Introduction Definition of Variation/Variation Order Reasons For Variations Reasons For Variation Clauses Types of Variation Factors Determining A Valid Variation Order Conclusion

11 11 15 21 23 25 32

PROVISION OF DEFINITION OF VARIATION AND RULES FOR VALUATION OF VARIATION IN LOCAL FORMS OF CONSTRUCTION CONTRACT

3.1 3.2

Introduction Definition of Variation 3.2.1 Provision of Definition of Variation in PAM 98 Form 3.2.2 Provision of Definition of Variation in PWD 203A Form 3.2.3 Provision of Definition of Variation in CIDB Form 2000 3.2.4 Comparison of Provisions for Definition of Variation in the Local Standard Forms of Contract

33 34

35

37

38

39

ix 3.3 Rules for Valuation of Variations 3.3.1 Provision of Rules for Valuation of Variation in PAM 98 Form 3.3.2 Provision of Rules for Valuation of Variation in PWD 203A Form 3.3.3 Provision of Rules for Valuation of Variation in CIDB Form 2000 3.3.4 Comparison of Provisions for Rules for Valuation of Variation in the Local Standard Forms of Contract 3.4 Conclusion 55 60 53 49 45 45

VARIATION IN CONSTRUCTION FROM LEGAL PERSPECTIVE 4.1 4.2 Introduction Variation In Construction From Legal Perspective 4.3 Conclusion 62 99 61

CONCLUSION AND RECOMMENDATIONS

5.1 5.2 5.3 5.4 5.5

Introduction Summary of Research Findings Problems Encountered During Research Further Research Conclusion

104 104 112 112 113

REFERENCES

114

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 Majestys Works & Public Buildings [1950] 1 All ER 208. 30

Stockport Metropolitan Borough Council v OReilly [1978] 1 Lloyds 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

xv

LIST OF ABBREVIATIONS

CIDB CIPAA FIDIC HGCR ICE ISM JCT PAM PWD RIBA SMM SO VO

Construction Industry Development Board Construction Industry Payment and Adjudication Act Federation Internationale de Inginieurs Conseils Housing Grants, Construction and Regeneration The Institution of Civil Engineers, UK The Institution of Surveyors, Malaysia Joint Contract Tribunal Persatuan Arkitek Malaysia Public Work Department Royal Institute of British Architects Standard Method of Measurement Superintending Officer Variation Order

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 employers 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
Murdoch,J. , Hughes, W.. Construction Contracts- Law and Management, Spon Press, London (2000), p.200.
1

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 3

Jeremy Hackett. Construction Claims: Current Practice And Case Management, (2000), p.116. See Stockport Metropolitan Borough Council v OReilly [1978] 1 Lloyds 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

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.

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. methodology. Figure 1.1 shows the research

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.

Stage 1

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

Fix the research topic

Fix the research objective, scope and prepare the research outline

Identify type of data needed and data sources

Stage 2
Data Collection

Research Design

Approach: Documentary Analysis Law Journals, e.g. Malayan Law Journal, Singapore law Report, Building Law Report, etc.

Stage 3

Data analysis & interpretation

Stage 4

Writing-up

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

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 Dictionary 10 .

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.)]

10

The New Webster Encyclopedic Dictionary of English Language. 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 contractors 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
Stephen Furst & Vivian Ramsey, Keating On Building Contracts, Seventh Edition, (2001), p.106. 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.
12 11

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 Rayas 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, employers requirements, contractors 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 PostCommencement 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.

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

20

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 indirectly 23 for the bulk of the variations. These can be summarized as:

Changes in the employers/users 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 design 24 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 PostCommencement 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 contractors 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 contractors 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 contractors control, e.g. discontinuance of product line/manufacture, redundancy, obsolescence, etc;

26 27

E.g. where Option Module D is used for the CIDB Form (2000 Edition), etc. 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.

I.N. Duncan Wallace Q.C., M.A. OXON. Hudsons Building And Engineering Contracts. (1995), p880.

28

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 seen 29 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/Engineers 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 architects 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/Engineers 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:

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 authoritys 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.

29

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. summarized as follows: While under the classification per nature, there are three main types of variation and these could be

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 PostCommencement Practice. (2003), p447 & p448.

32

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 PostCommencement 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 37

Russel v Sa Da Bandiera (Viscount) (1862) 13 cBNS 149; 32 LTCP 68; 7 LT 804. 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 employers or the contract administrators 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 Majestys 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:
Chow Kok Fong, Law and Practice of Construction Contract Claims (2nd Edn) at p77. W.Y. Chin. Contracts Administration And/Or Contractual Claims An Architects viewpoint. Seminar on Construction Management & Contractual Claims (1988: Kuala Lumpur).
40 39

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 contractors right for additional payment, the contractor can nevertheless recover without an order in writing if the additional work is outside the scope of contract. Corporation (1987). Thorn v London

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. Corporation (1919) A.C. 337 H.L. Brodie v Cardiff

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

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

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 Contractors 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 contractors 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 employers 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 contractors 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 contractors 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 architects 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 architects 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) (b) (c) (d) (e) an increase and/or decrease in the quantity of any part of the Works; 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),; a change in the character, quality and/or nature of any part of the Works; a change in the levels, elevations, layout and dimensions of any part of the Works; 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 Contractors 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 Contractors 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) (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. -

PWD 203A (Clause 24(b)) alteration/modification of the design/quality/quantity of the Works as shown upon the Contract Drawings/Bills of Quantities/Specifications..

CIDB 2000 (Clause 1.1-Variation) (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. addition to/omission from the Works (but not if the omitted work is to be carried out by the Employer or by another contractor). (e) the demolition/removal of any part of the Works/Equipment/ materials/goods no longer desired by the Employer/S.O.

(ii)

The addition/omission/substitution of any work.

the addition/omission/substitution of any work.

(b)

(iii)

(iv)

The alteration of the kind/standard of any material/goods to be used in the work. The removal from site of any work executed/materials/goods brought thereon for the purposes of the Works.

the alteration of the kind/ standard/any of the material/ goods to be used in the work. the removal from the site of any works/materials/goods executed/brought thereon for the purposes of the Works.

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

44

PAM 98 (Clause 11.1) (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.

PWD 203A (Clause 24) -

CIDB 2000 (Clause 1.1-Variation) (f) change in the Contractors 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. 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.

(g) (h)

(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.

Table 3.1: Comparison of Provisions for Definition of Variation in the Local Standard Forms of Contract (Contd)

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 27.8 46 ) 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,
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
45

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 follows 47 :

Clause 11.5 provides for the rules for valuation to be only applicable to variations as defined by Cluase 11.1, and to any contractors work ordered
Sundra Rajoo. The Malaysian Standard Form of Building Contract (The PAM 1998 Form) 2nd Edition. Malayan Law Journal Sdn Bhd 1999. p121&122.
47

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 daywork 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 SOs 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
Lim Chong Fong. The Malaysian PWD Form of Construction Contract. Sweet & Maxwell Asia 2004.
48

52 submit a quotation each time a variation instruction is issued. However, unless the Government (or the Superintending Officer with the Governments express authority) has accepted the Contractors 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 workmens 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 subclauses 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.
Kevin Reeves. Valuing Variations Read The Small Print. JUBM-Construction News and Views, Issue 3/2002, p5
49

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.

Kevin Reeves. Valuing Variations Read The Small Print. JUBM-Construction News and Views, Issue 3/2002, p6 51 Ibid.

50

59

Nature of Variation (In order of Application) Similar character and executed under similar conditions.

PAM 98 (Clause 11.5) Contract rates (11.5(i))

PWD 203A (Clause 25) Contract rates (25(b)(i))

CIDB 2000 (Clause 29.1) Contract rates (rates may be adjusted if the quantity is significantly changed*) (29.1(a)) Contract rates to be the basis with a fair allowance for differences (29.1(b))

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 so far may be reasonable failing which a fair valuation shall be made (25(b)(ii)) 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))

If above valuation rules do not apply.

Valuation at fair market rates (29.1(c))

If all else fails

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 contracts 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. interpretation. The term similar conditions is probably open to wider

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. constitute a variation in construction. The analysis of the selected court cases as follows show the perspectives of the court decision on what

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

63 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

64 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. appealed. The contractor then filed a bill against the company, the company demurred generally and the Master of Rolls allowed the demurrer, and the contractors

(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

66 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 engineers 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.

67 (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: _____________________________________________________________________

(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:

70 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 Halsburys 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. Josephs 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.

72 (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, MElroy & 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 employers 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.

73 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 engineers 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 engineers 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 engineers certificates were not written orders, and the claim was therefore excluded by the terms of the contract.

75 (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.

76 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. McAlpines 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) McDermotts 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 judges 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

plaintiffs rights to time and recompense were covered elsewhere in the contract where disruption and delay ensued due to reasons beyond the plaintiffs 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 contractors right to claim. If we were to uphold the judges 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 judges 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 contractors 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.

80 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 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.

82 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 governments 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:

85 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

86 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

87 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 arbitrators award in favour of the companys 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

88 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.

89 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

90 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 .

91 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 employers 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.

92 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.

93 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.

94 (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.

95 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.

96 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 Commissioners 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 Commissioners 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

97 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 Commissioners 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.

98 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 Commissioners 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

99 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

100 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 courts 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 writers 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.

101 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

102 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 contractors 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.

103 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.

104

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:-

105

Perspectives 1

Cases Sharpe v San Paulo Railway Company (1873) LR 8 Ch App 597

Issues Whether the contractors are to be paid for the extra works, when the quantities and drawings supplied to the contractors for tender were wrong.

Decision of the Courts Although the amount of the works to be executed might have been under-stated in the engineers specification, the contractors could not under the circumstances maintain any claim against the company on that ground.

Principles Applied - 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

106

Perspectives 2

Cases Blue Circle Industries PLC v Holland Dredging Company (UK) Ltd (1987) 37 B.L.R. 40.

Issues 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?

Decision of the Courts 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. The engineers certificates were not written orders, and the claim was therefore excluded by the terms of the contract.

Principles Applied - 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.

Tharsis Sulphur and Whether the Copper Company v contractors entitled to McElroy 1040 & Sons extra payment relying addition weight of girders was reflected in the interim certificates. (1878) 3 App Cas on the fact that the

- 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 (Contd)

107

Perspectives 4

Cases McAlpine Humberoak Ltd v McDermott International Inc. (No. 1) (1992) 58B.L.R. 1.

Issues Whether the considerable numbers of drawings issued effected cardinal changes to the contract thus they were not valid variation orders.

Decision of the Courts Allowing the appeal. The trial judges decision on frustration could not be supported in fact or in law.

Principles Applied - If a change makes fundamental alterations to the contractors 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.

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 (Contd)

108

Perspectives 6 Mitsui General Kong

Cases

Issues

Decision of the Courts

Principles Applied

Construction Whether the of Hong paid contract rates or 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, - Where the actual quantities of work as executed by the the contractors should contractor exceed the quantities shown against the be paid new rates. 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.

Co. Ltd v Attorney contractor should be Government new rates when the

[1987] 1 HKC 31.

Table 5.1: Tabulation for Principles of What constitute a variation in construction from legal perspective (Contd)

109

Perspectives 7

Cases

Issues 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.

Decision of the Courts Whatever working space required should be paid by the Ministry of Transport.

Principles Applied - When certain parts of the contract bills have not been prepared in accordance with the SMM, then the noncompliance 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.

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

Table 5.1: Tabulation for Principles of What constitute a variation in construction from legal perspective (Contd)

110

Perspectives 8

Cases Thorn v London Corporation (1876) 1 App Cas 120 (HL).

Issues 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.

Decision of the Courts The contractor for the work cannot sustain an action for damages, as upon a implied warranty that the plans and specification are accurate.

Principles Applied - 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 (Contd)

111

Perspectives 9

Cases Commissioner for Main Roads v Reed & Stuart Pty Ltd & Anor. [1974] ALJR 461.

Issues Whether the Commissioners 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.

Decision of the Courts 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.

Principles Applied - 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 (Contd)

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 employers consultant; the other 3 cases with the engineers 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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