CHAPTER EGHIT

VARIATION ORDER IN
CONSTRUCTION PROJECTS

BY :-Abebe D.
MAY
2015

Introduction

In some literatures, variation order is

referred or named as change order.
VO is any modification to the contractual
guidance provided to the contractor by
the
Employer
or
Employer's
representative (Arain & Pheng, 2005b).
VO
involve
additions,
omissions,
alterations and substitutions in terms of
quality, quantity and schedule of works.
VO cannot be avoided completely
VO may arise from changes in the minds
of parties involved in the contract
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 Not all the Consultant's instructions

constitute variation orders
VO do not change the scope of work,
in fact, the requirement of the VO
must be within the original scope of
work. Changes that are outside the
scope
of
work
require
a
supplementary agreement.
VO are issued by the Consultant and
must be given in writing or oral
instruction should be subsequently
confirmed in writing. Since the
contractor is not bound to comply
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 According to FIDIC Harmonised Edition (2006),VO

may include:
1. Changes to the quantities of any item of work
included in the Contract,
2. Changes to the quality and other characteristics
of any item of work,
3. Changes
to
the
levels,
positions
dimensions of any part of the Works,

and/or

4. Omission of any work unless it is to be carried

out by others,
5. Any additional work, Plant, Materials or services
necessary for the Permanent Works, including
any associated Tests on Completion, boreholes
and other testing and exploratory work, or
6.

Changes to the sequence or timing of the

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execution of the Works.

 According
to
MoWUD
General
Conditions
of
Contract
(1994),
Variation Order may include:
a) Increase or decrease the quantity of any
work included in the Contract,
b) Omit any such work,
c) Change the character or quality or kind of
any such work,
d) Change the levels, lines, position and
dimensions of any part of the Works, and
e) Execute additional work of any kind
necessary for completion of the Works
and no such variation shall in any way
vitiate or invalidate the Contract, but the
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Though the contract defines what

constitutes VO, some typical
examples of VO include, but are not
limited to:

The resolution of ambiguities, conflicts, errors,

or omissions within the contract documents;
New or unanticipated requirements imposed by
third parties, such as permitting agencies,
railroads, and utility companies;
Unforeseen environmental issues;
Design changes;
Material
shortages
(under
certain
circumstances);
Value engineering;
Safety-related changes; and
Alterations to the duration or sequence of work
activities.
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Summery Of Contractual Changes

Design Changes
Schedule Changes
Price and Cost Changes
Resequencing of Design &
Construction Activities
Material Substitution
Modification to Construction
Methods

 Classification of Variation Order in Construction

Projects
Arain & Pheng (2005b) distinguished two types
of variation orders, namely: beneficial and
detrimental variation orders.
This classification is focuses on employers side
A. Beneficial variation orders
. Is one issued to improve the quality standard,
reduce cost, schedule, or degree of difficulty in
a project.
. Is a VO initiated for value analysis purposes to
realise
a
balance
between
the
cost,
functionality and durability aspects of a project
to the satisfaction of Employers.
. A beneficial variation is initiated in the spirit of
adding value to the project.
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 Generally, a VO is beneficial if it is initiated

to enhance the Employer's value. Among
others, the Employer's value system
elements include:
Time,
capital cost,
operating cost,
environment,
exchange or resale,
aesthetic/esteem and
fitness for the purpose
A beneficial variation:
Eliminates unnecessary costs from a project.
Optimise the Employer's benefits against the
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resource input by eliminating unnecessary costs.

B. Detrimental variation orders

A detrimental VO is one that negatively
impacts the Employer's value or project
performance (Arain & Pheng, 2005b).
The Employer who is experiencing
financial problems may require the
substitution
of
quality
standard
expensive materials to substandard
cheap materials.
For example, on a construction project
situated in a salty environment, steel
window frames result in steel oxidation
if selected in lieu of timber or
aluminium frames
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 However, In Oracle White Paper (2009)

titled

as

Practices

Change
for

Management

Best

Engineering

and

the

Construction Industry,
VO is categorized as

Directed
Constructive and
Cardinal changes.
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A. Directed Changes
Directed changes are

changes that are

directed by the owner and are, therefore,

understood by the owner to be a change to
the contract.
Subject always to the specific requirements
of the contract, examples of directed
changes include:
Addition or deletion of work ;
Revision to material specifications;
Revision to project phasing;
Change to site access or hours of operation ;
Change to contract duration
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B. Constructive Changes
Constructive changes typically result
from the actions or inactions of the
owner (i.e. Employer), and usually
are not intended or recognized by the
owner to be a change. Subject to the
specific requirements of the contract,
constructive changes might include: Failure to disclose material
information (superior knowledge);
Impossibility
or
impracticality
of
performing the work as designed
(constructability);
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 Imposition of joint occupancy or

use
of
the
project
before
completion;
Slow turnaround of submittals
and requests for information ;
Untimely inspections
Constructive changes are usually
more difficult to recognize than
directed changes and, therefore,
often become the basis for a
dispute, or in the worst case, a
formal claim.
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C. Cardinal Changes

A cardinal change is a change that has the

effect of making the work to be performed
fundamentally different from the work the
parties agreed to when the contract was bid
and awarded.
A cardinal change is typically viewed as a
breach of contract by the owner and a
contractor is not obligated to proceed with a
cardinal change if directed to do so by the
owner
An example of a cardinal change might be an
owners instruction to remove asbestos or
other hazardous materials found on the project
when the contract documents identified no
such materials and did not provide for their
removal.
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Causes of VO in Construction Projects

The causes of variation order may vary from
project to project.
The following may be the causes of variation
orders in Construction Projects:
Omissions or discrepancies (inconsistencies) in
the design;
Conflict discovered between the contract
documents;
Inadequate working drawings;
Inconsistency between drawings and site
conditions;
citation of inadequate specification;
ambiguous design details which are difficult to
interpret;
Delay or Acceleration.
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 Insufficient site investigation by the Consultant;

Different underground condition or underground
seepage after excavation;
Suspension of work by the Employer;
Termination for convenience, when owner can
terminate project prior to its completion or delete
major portions of the work;
Termination for cause or default of the Contractor
generally due to poor or non performance by the
contractor;
Safety considerations
Natural incident such as heavy rainfall, landslides,
flooding and failure of temporary form of work or
earth-retaining shields
Change of work rules/regulation;
Changes of decision making authority during the
course of construction may be due to politics, general
election, early occupation of the newly built facility17or

 Effects
of
VO
on
Construction
Projects
performance:
Variation orders affect project performance as
they adversely affect productivity and project
costs.

The following may be the effects of

Variation Order on Construction Projects
performance:

Disputes between Employer and contractor ;

Cost overruns;
Additional payment for contractor;
Reduced Construction productivity of the Project;
Influencing labour activity through the entire
project;
Time overruns (i.e. delay);
Rework ;
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CONTD
Demolition;
Rate and/or price adjustment;
Quality degradation;
Health and safety; and
Relationships between the project team .

Factors influencing the occurrence of

variation orders;
The nature of the works,
The complexity of the project and
The procurement method.
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CONTD

The extent to which an activity is

impacted by Variation order
depends on a number of factors:
Timing of the change(at early stage
or at later stage),
Extent of the change (whether
small or large),
Re-works,
Re-ordering,
Job relocation, etc.
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Contd

Why a clause permitting

variation of works is an
essential feature of any
construction Contract? ???

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Because
A clause permitting variation of works is an
essential feature of any construction Contract
because without it the contractor is not bound
to execute additional work or to make
omissions or changes.
The advantage of the variation clause is that it
allows the architect or other designers to delay
making some decisions almost until the last
possible moment.
The variation clause tends to encourage
Employers to change their minds and embark
on construction projects without having
properly
thought
through
their
project
requirements (i.e. functionality, durability and
optimality).
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The VO Process
Identification: Owner should notifies contractor
of a planned or potential change
Evaluation: The owner must decide whether to
adopt the change or not. If discovered after the
fact, it should be estimated.
Approval: When both parties agreed to the
change, a change order approval form is issued
Incorporation: Once a change order is approved
by the owner, it is issued to the contractor to
modify the terms of the original agreements.
Payment: Change work should be identified and
listed separately on progress estimates and
invoices.
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Managing VO in construction projects:

The role of Consultant in managing
Variation order in Construction Projects as
follows:
Advising the Employer on technical, legal
and financial matters.
Issuing a Variation Order, where deemed
necessary, for improvement purposes.
Focusing more effort during the design
phase because this would contribute
greatly
to
the
reduction
of
the
occurrence of variation orders during the
construction phase.
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Contd
The role of Contractor in managing Variation
order in Construction Projects:
Advising the consultant to issue a variation
order when technical problem is discovered;
Discovering
an
obvious
discrepancy,
omission, error, or conflict in the contract
document and request that the Consultant
reviews that problem, discuss the additional
costs to correct the situation, agree on a
price, and authorise the variation order;
Proposing alternative construction methods
where the contractor's experience shows
that the proposed technology will not fulfil
the desired fitness and function of a design:
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 The role of Employer in managing Variation order

in Construction Projects
Spending more time and money on the design
phase of the Project or work;
Direct costs associated with VO in Construction
projects:
I. resources used including labor, material, and
plant to carry out the actual variation orders;
II. increase in overheads-related charges and
professional fees;
III. cost of resources that were used to carry out
the aborted or substituted works;
IV. cost of demolition of aborted or substituted
works; and
V. Cost for resources lying idle before the ordered
task restart

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Indirect costs associated with

Variation order in Construction
projects:
I. change in cash flow;
II. loss of productivity;
III.cost
for
redesign
and
administration of variation order;
IV.Litigation-related costs in case
disputes arise due to variation
orders.

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Valuations of Variation Order on Construction Projects

The valuation of variation orders, while seen as an

administrative step in the remuneration of changes
effected to the contract, is in reality a rather complex
matter
involving
a
thorough
understanding
of
contractual provisions, costing principles and an
exercise of fair judgment on the part of the valuers
(Harbans, 2003).
The valuation of variation orders may be in the form of:
Rates where contracted rates are adopted, where the varied works
are of similar character and extent and executed under similar
conditions to items in the contract bills (Wainwright & Wood, 1983;
JBCC, 2005);
Day works which consist of the payment of executed works on a basis
calculating the prime cost of works including materials, labour, plant
hire and transport plus a percentage addition as agreed between
parties to the contract (Harbans, 2003);
Quotation where contractors submit a quotation to effect the work
contained in a variation order; and
Quantum merits is a miscellaneous method where negotiated or
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agreed rates or payment are made on a reasonable sum (Harbans,

CASE
A painting subcontractor requested extra
compensation from the projects general
contractor for applying prime cost to
structural steel that was supposed to be
factory primed. The general contractor
requested that the owners contract manager
issue a backcharge to the steel supplier for
the painting contracts increased expense.
While filling out the the backcharge form, the
contract manager suddenly realized that the
steel in question had not been purchased by
the owner, but was bought by the general
contractor under a recent change order to
furnish and erect leave-out steel
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. CONTD
Since the steel vendor was
selected
by
the
general
contractor, the owner has no
reason to invoke a backcharge.
The general contractor was told
to handle its own problem
without involving the owner.

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What do you
observe

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Thank
you!!!
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QUIZZ
List and described five steeps of
the variation order Process ?

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