Variations

© University College of Estate Management 2018

Introduction
In this resource, we look at:
• the reasons why construction contracts contain variation provisions;
• the variation mechanisms found in some of the various standard form contracts;
• how variations are usually valued.
Why construction contracts contain variation
provisions
Why contracts contain variation provisions
• To understand why contracts need to contain express provisions giving the employer – or more
usually the architect/engineer – the power to order variations, it is necessary to consider two legal
principles, which in the absence of express terms to the contrary would seriously hamper the
administration of the contract.
• The first of these is the legal concept of a variation. The law regards a variation as an agreement
supported by consideration to alter some term of the contract. The key feature to note here is the need
for an agreement. So, unless the contract itself provides a power for the employer or his agent to
require a variation of the works as of right, the employer would be obliged to seek the agreement of
the contractor in every case.
• If, however, the work is varied in accordance with the contract provisions concerning variations, no
change in any term of the contract is involved, and the variation order need only comply with the
requirements of the contract to be valid.
• The Court summarised the position in the following terms in Abbey Developments Ltd v. PP Brickwork
[2003] EWHC 1987 (Technology). Lloyd J said at 45:
• ‘A contract for the execution of work confers on the contractor not only the duty to carry out the
work but the corresponding right to be able to complete the work which it contracted to carry out.
To take away or to vary the work is an intrusion into and an infringement of that right and is a
breach of contract […] hence, contracts contain provisions to enable the employer to vary the
work in order to achieve lawfully what could be achieved without breaking the contract or by a
separate further agreement with the contractor.’
Why contracts contain variation provisions
• The second common law principle that the variation provision is designed to overcome is the lack of
any implied authority on the part of the architect or engineer to vary the contract on behalf of the
employer: Stockport MBC v. O’Reilly [1978] 1 Lloyd’s Rep 595 at 601:
• ‘The architect is not the employer’s agent. He has no authority to vary the contract. Confronted
with such acts, the parties may either acquiesce, in which case the contract may be […] varied
and the acts cannot be complained of, or a party may protest and ignore them. But he cannot
saddle the employer with responsibility for them.’
• Therefore, in the absence of a variation provision in the contract, a contractor will not be entitled to
extra remuneration for any additional or varied work which he or she has done on the architect’s or
engineer’s instruction, unless he or she can show that the employer has agreed to pay for the
variation under a fresh, separate contract or that the employer has assented to the variation of the
original contract.
Why contracts contain variation provisions
• The general obligation of the contractor in a building contract is to complete the work specified in the
contract and also any work as may be reasonably inferred as necessary in order that the contract can
be completed: Re Nuttall and Lynton and Barnstaple Railway (1899) 82 LT 17 and Thorn v. London
Corporation (1876) 1 App Cas 120.
• The point is illustrated graphically by a non-building case: Re Shell Transport & Trading Co. and
Consolidated Petroleum Co. (1904) 20 TLR 517. Here, buyers of oil undertook to receive oil from the
sellers through their pipelines at the discharging berth they used on the Thames. The delivery tanker
was too large for the berth and dredging operations had to be carried out so that the tanker could
dock. It was held that on the true construction of the contract the buyers undertook to receive oil at
their berth, and if dredging operations were required, the cost of the dredging fell on the buyers
because it was an expense necessary to enable them to perform their contract.
• It follows from this that any instruction of the architect or engineer may lead to a conflict or dispute as
to whether the work ordered came within the terms of the contract (i.e. the work was expressly or
impliedly included in the original contract), or whether it was in fact a variation.
Why contracts contain variation provisions
• An instance of this is disputes to whether work described in bills of quantities or specifications includes
other ancillary works or processes without which the described work could not be completed.
• The reason the question is asked is that if the works are necessary for completion, they are not
variations and the contractor cannot claim payment for them: Williams v. Fitzmaurice (1858) 3 H&N
833; Sharpe v. San Paulo Brazilian Railway Company (1873) LR 8 Ch App 597.
• Moreover, the architect or engineer has no authority to issue as variations orders to do necessary
works, so the fact that an instruction has been issued ordering such works is not alone sufficient to
enable the contactor to claim additional payment: Simplex Concrete Piles Ltd v. Borough of St
Pancras (1958) 14 BLR 80.
• Related to this issue of necessary ancillary works is the question of work contingently necessary to
achieve completion. For instance, if unexpected technical problems have made the works more
difficult to carry out or have made necessary more or different work from what was expected, can that
be a variation?
Why contracts contain variation provisions
• Subject to any express terms of the contract, the answer is no: Thorn v. London Corporation (1876) 1
App Cas 120.
• An example can be seen in Re Nuttall and Lynton and Barnstaple Railway (1899) 82 LT 17. Nuttall
contracted to build a railway, including required earthworks, for a lump sum. A bill of quantities was
supplied which contained a disclaimer as to its accuracy. The specification provided that the contractor
was to satisfy himself of the nature of the soil and of all probable contingencies, and to take
responsibility for the complete execution of the works. The contractor was obliged to do far more
excavation than suggested by the bill of quantities and drawings and also encountered rock which
could only be removed by blasting. The contractor claimed for payment in respect of the extra
excavation and for the cost of removing the rock. It was held that the contractor could not receive
anything extra for the additional quantity of excavation or for the removal of the rock.
• Because of the common law position regarding variations and the contractor’s obligations as to
completion of the works, standard form contracts go to great lengths to define ‘variations’ in an effort to
get round the problem the common law position can cause to contract administration (and to also shift
some of the risk back to the employer in respect of ancillary and contingently necessary works, as
shall be seen).
Variation provisions in standard form contracts
JCT 2016
• Clause 3.14.1 gives the architect/contract administrator power to issue instructions requiring a
variation.
• Clause 5.1 of the JCT 2016 form with quantities defines a variation as:
‘.1 the alteration or modification of the design, quality or quantity of the Works including:
.1 the addition, omission or substitution of any work;
.2 the alteration of the kind or standard of any of the materials or goods to be used in the
Works;
.3 the removal from the site of any work executed or materials or Site Materials other than
work, materials or goods which are not in accordance with this Contract.
‘.2 the imposition by the Employer of any obligations or restrictions in regard to the following
matters or any addition to or alteration or omission of any such obligations or restrictions that
are so imposed or are imposed by the Contract Bills or the Employer’s Requirements in regard
to:
.1 access to the site or use of any specific parts of the site;
.2 limitations of working space;
.3 limitations of working hours; or
.4 the execution or completion of the work in any specific order.’
JCT 2016
• The first part of clause 5.1 is generously drawn and gives the architect/contract administrator a wide
(but not unfettered) discretion.
• The architect/contract administrator has no power to instruct any variations, whether by way of
additions, omissions or changes requiring the contractor to execute work clearly not contemplated by
the original contract: Sir Lindsay Parkinson & Co Ltd v. Commissioners of Works [1950] 1 All ER 208.
• The second part of clause 5.1 poses a number of difficulties for the incautious employer, as it enables
him to intervene in the way the project is run by the contractor and as a result exposes him to
significant cost risk.
• Clause 3.10.1 gives the contractor a right to make reasonable objection to an employer change to
obligations or restrictions, but the contractual scheme for variations as a whole serves to make this a
difficult thing for the contractor to make out in the face of a determined employer.
• This is because the contract provides for the variation to be valued and, therefore, the contractor
should be properly recompensed no matter what restrictions are imposed or altered by the employer.
JCT 2016
• Clause 3.10 requires the contractor forthwith to comply with any instruction issued by the architect
which is expressly empowered by the contract conditions.
• ‘Forthwith’ in this context imposes an obligation upon the contractor to carry out the work as soon as it
reasonably can: London Borough of Hillingdon v. Cutler [1967] 2 All ER 361.
• There are five exceptions to the obligation to comply forthwith with an architect’s instructions:
• The contractor need not comply with a clause 5.1.2 instruction (access and use of the site, etc.)
to the extent that it makes a reasonable objection (clause 3.10.1) – as noted previously.
• The contractor need not comply with an instruction relating to a Schedule 2 quotation until a
confirmed acceptance has been given (clause 3.10.2).
• Third, the contractor need not comply where it might affect the efficacy of the design of any
Contractor Designed Portion (clause·3.10.3).
• Fourth, in the case of a notification by the contractor under clause 2.23.2, the contractor need
not comply pending confirmation of the instruction.
• Fifth, in the case of a notification under Supplemental Provision 9, paragraph 9.4, the contractor
need not comply pending further instructions under that paragraph.
JCT 2016
• If the contractor believes that an instruction might be outside the powers of the architect, then the
contractor may ask the contract administrator to specify in writing the provisions of the contract under
which the instruction is given, and the architect/contract administrator must do this ‘forthwith’ (clause
3.13).
• The contractor must then either comply or issue a notice disputing the matter.
• If, however, the contractor chooses to accept the contract administrator’s reply and complies with the
instruction, then the employer is bound by the instruction.
• This is a good safeguard for the contractor, because it prevents the employer from later arguing that
the architect had no authority to issue the instruction.
NEC 4
• Clause 14.3 provides:
• ‘The Project Manager may give an instruction to the contractor which changes the Scope or Key
Date.’
• The ‘Scope’ is information which either specifies and describes the works or states any constraints on
how the contractor provides the works (clause 11.2(16)).
• NEC4 does not limit the ordinary meaning of the word ‘change’. Clause 14.3, therefore, embraces
additions to and omissions from the Scope as well as alterations to it.
• NEC4 provides that an instruction changing the Scope is a compensation event (clause 60.1(1)) and
requires the project manager to notify the contractor of this at the time the instruction is given (clause
61.1).
• The contractor is under an obligation to put the instruction into effect (clauses 27.3 and 61.1).
HKIA SFC 2005
• Clause 13.1 gives the architect power to issue instructions requiring a variation.
• Clause 1.6 defines a variation as:
• A change instructed by the Architect to the design, quality or quantity of the Works including:
• an alteration to the type, standard or quality of any of the materials or goods comprising
the Works;
• the addition, substitution or omission of any work; and
• the removal from the site of materials or goods and the demolition and removal of work
except where provided for in the contract or where the materials, goods or work are not in
accordance with clause 8.1.
• The imposition of an obligation or restriction instructed by the Architect regarding:
• access to the site or use of any parts of the site;
• limitation of working space;
• limitation of working hours; or
• the sequence of carrying out or completing works.
• or the addition or alteration to or omission of such alterations or restrictions imposed by the
contract.
HKIA SFC 2005
• It can be seen that these provisions are very similar to the provisions found in JCT 2011 and are
therefore subject to the same concerns and considerations.
• Clause 4.3.1 requires the contractor to comply as soon as practicable with any instruction issued by
the architect which he or she is expressly empowered to issue by the contract conditions. ‘Practicable’
in this context probably imposes an obligation upon the contractor to carry out the work as soon as it
is reasonably able to be done having regard to relevant circumstances.
• The contractor must comply with the instruction but if it purports to be a variation instruction and the
contractor believes it is not a valid variation he or she may raise the matter with the architect and if he
or she is not satisfied with the response received he or she may refer the matter for resolution under
clause 41 (Settlement of disputes).
• If the contractor believes that an instruction might be outside the powers of the architect, he or she
may within seven days of receipt refer the matter for resolution under clause 41.
• Because clause 4.1 makes it clear that the architect only has power to issue instructions he or she is
authorised to issue by the conditions of contract this challenge mechanism provides the contractor
with a valuable safeguard because he or she can use it to avoid the risk of the employer later claiming
that the architect had no authority to issue the instruction.
FIDIC Red Book (2017)
• Clause 13.1 gives the engineer power to initiate (i.e. instruct) variations. The contractor has a right of
objection on the grounds that:
• the varied work was unforeseeable having regard to the scope and nature of the works
described in the specification;
• it cannot obtain the goods required for the variation;
• it will adversely affect the contractor’s ability to comply with subclause 4.8 (health and safety
obligations] and/or subclause 4.18 (protection of the environment).
• Clause 1.1.86 defines a variation as ‘any change to the Works, which is instructed as a variation under
Clause 13’.
• However, this is not a comprehensive definition because instructions to co-operate under clause 4.6 or
to provide additional samples under clause 7.2 are also identified as variations.
• The engineer’s power under clause 13.1 is very broadly drawn because it is clear that he or she is not
limited to issuing instructions only in relation to the matters listed at (i) to (vi) in that clause – clause
13.1 states that each variation ‘may include’.
• It therefore appears that on a strict construction of clause 13, and unlike the JCT variation provision,
there is no restriction on the nature or scope of additional work that can be instructed as long as it is a
change to the works.
• The engineer is not permitted to amend the contract (clause 3.2). Thus it would appear clause 13.1
cannot be used to turn the works into something radically different from what the contractor is
expecting to construct, e.g. a canal into a railway.
FIDIC Red Book (2017)
• This fettering of the engineer’s power reflects the common law position.
• In civil law jurisdictions, where the FIDIC forms are most commonly used, the position appears to be
the same.
• Most civil codes oblige the contractor to produce the work promised.
• For example, Article 150 of the Qatari Civil Code provides:
• The subject matter of the obligation shall be expressly and diligently identified, otherwise the
contract shall be invalid.
• Where the obligation relates to some material object, such thing shall be identified in its kind,
quantity and quality.
• Moreover, Article 169.2 of the Qatari Civil Code provides that ‘where a contract must be construed, the
common intention of the parties shall be sought without restriction to the literal meaning of the words,
taking into account the nature of the transaction as well as the honesty and confidence that should
prevail between the parties in accordance with commercial custom’.
• Similarly, Article 887(2) of the UAE civil law states:
• ‘If any variation or addition is made to the plan with the consent of the employer, the existing
agreement with the contractor must be observed in connection with such variation or addition.’
• This would suggest that the engineer cannot instruct anything outside the original scope of the
contract.
FIDIC Red Book (2017)
• Variations can also arise on the initiative of the contractor.
• Clause 13.2 gives the contractor the power to submit to the engineer for consideration and approval a
written proposal with the purpose of:
• accelerating completion;
• reducing the cost to the employer of executing, maintaining or operating the works;
• improving the efficiency or value to the employer of the completed works; or
• giving some other benefit to the employer.
• This proposal has to include the contractor’s description of what is proposed, a programme for its
execution (including any impact on the current programme), and a proposal for the evaluation of the
works.
• If a proposal requiring a change in the permanent works is accepted, the engineer shall then proceed
to agree or determine under subclause 3.7 (agreement or determination).
FIDIC Red Book (2017)
• Clause 13.3 gives the engineer power to request a proposal from the contractor in relation to a
proposed variation.
• This proposal has to include:
• the contractor’s description of what is proposed;
• a programme for its execution (including any impact on the current programme), and;
• a proposal for the evaluation of the works.
• After receiving a proposal, the engineer must respond with approval, disapproval or comments.
Whether any such approval constitutes an instruction to proceed or not, will depend on the wording of
the approval.
• An instruction to proceed does not mean that the contractor’s price proposal is accepted.
• The variation shall be evaluated in accordance with clauses 3.7 and 12, unless the engineer instructs
or approves otherwise.
Limits on power to order variations
• Despite the different approaches adopted by these forms of contract, it is clear that each imposes a
limit on the power of the architect or engineer to order variations.
• A variation can only be a variation as defined by the contract if it relates to a change of the type
contemplated by the contract, i.e. it can require a change in the works but it cannot change the works
themselves.
• In Thorn v. London Corporation (1876) 1 App Cas 120 Lord Cairns distinguished between additional or
varied work that was contemplated by the contract, and work that was not. He described work not
contemplated by the contract as “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” and
held that such work would not fall within the variation clause.
• Similarly, it was held in Blue Circle Industries plc v. Holland Dredging Co. (UK) Ltd (1987) 37 BLR 40
that, in order for varied work instructed under the ICE form to constitute a variation, the instructed work
must bear some relationship to the works it varies. This it is submitted applies equally to the JCT,
NEC, Hong Kong and FIDIC forms.
• This approach safeguards the contractor, because it means that the character of the project for which
the contractor has contracted cannot be changed into something vastly different without agreement: R
v. Peto (1826) 1 Y & J Ex 37.
Additional work other than variations
• It is a question of fact in every case as to whether variations ordered by the architect or engineer are
of such a scale or nature as to fall outside the contemplation of the parties to the contract. It is,
however, tolerably clear that changes in quantities, where the contract contains a mechanism for the
valuation of variations, will not normally be sufficient to transform the contract into another contract or
distort its substance or identity: McAlpine Humberoak Ltd v. McDermott International Inc. [1992] 58
BLR 1.
• However, if the work instructed does fall outside the scope of the contract, then the contractor would
be entitled to be paid for it on a quantum meruit basis rather than at the rates and prices contained in
the contract, because the work is in reality the subject of a separate contract: Blue Circle Industries plc
v. Holland Dredging Co. (UK) Ltd (1987) 37 BLR 40.
• Quantum meruit means ‘as much as he has earned’. The law implies into a contract the right to be
paid a reasonable price where no price or remuneration has been fixed. This is sometimes referred to
as a contractual quantum meruit.
• Per Ward LJ In Clarke & Sons v. ACT Construction [2002] EWCA Civ 972 at 27:
• ‘[E]ven if there is no entire contract, and especially even if there is no “formal” contract, there
may still be an agreement to carry out work, the entire scope of which was not yet agreed, even
if a price has not been agreed. Provided there is an instruction to do work and an acceptance of
that instruction, then there is a contract and the law will imply into it an obligation to pay a
reasonable sum for that work….’
Additional work other than variations
• ‘Reasonable’ means reasonable in all the circumstances, and can mean:
• either a fair commercial rate for the services provided or the work carried out: The Saronikos
[1986] 2 Lloyd's Rep 277; Laserbore v. Morrison Biggs Wall (1993) CILL 896. The court may
take into account prices for similar work in a related contract: Banque Paribas v. Venaglass Ltd
(1994) C.I.L.L. 918; or
• remuneration based on cost incurred by the contractor: Serck Controls v. Drake and Scull
Engineering (2000) 73 Con LR 100; Sanjay Lachhani v. Destination Canada (UK) Ltd (1997) 13
Const LJ 279.
• In cases where there is no related contract, the assessment of a quantum meruit is usually based on
the cost incurred by the contractor: Serck Controls v. Drake and Scull Engineering (2000) 73 Con LR
100; ERDC Group Ltd v. Brunel University [2006] EWHC 687 (TCC). Whichever method is adopted:
• The contractor is entitled to an allowance for reasonable profit: Monk Construction v. Norwich
Union Life Assurance Society [1992] 62 BLR 107; Sanjay Lachhani v. Destination Canada (UK)
Ltd (1997) 13 Const LJ 279.
• The employer is not required to pay for delay or inefficiency on the part of the contractor or for
defective work: Sanjay Lachhani v. Destination Canada (UK) Ltd (1997) 13 Const LJ 279; Serck
Controls v. Drake and Scull Engineering (2000) 73 Con LR 100; ERDC Group Ltd v. Brunel
University [2006] EWHC 687 (TCC).
Additional work other than variations
• However, in cases where services are performed in the expectation that a contract would be
concluded but no such contract is concluded, the proper valuation of this non-contractual quantum
meruit is founded in the law of unjust enrichment for restitution of the value of the benefit received by
the defendant: Benedetti v. Sawiris and others [2013] UKSC 50.
• The award is normally to be assessed by reference to the objective market value of the services at the
time the benefit was received. The test to be applied when determining the objective market value is
the price which a reasonable person in the defendant's position would have had to pay for the services
in question.
• The question is what is the value of the services themselves, not of any end-product or subsequent
profit made by the defendant: Cobbe v. Yeoman's Row Management Ltd [2008] UKHL 55.
• The defendant is entitled to adduce evidence in order subjectively to devalue the benefit, thereby
proving either (1) that the defendant had in fact received no benefit at all or (2) that the defedant
valued the benefit at less than the market price.
• An example of the first type of subjective devaluation would be where the services were performed
incorrectly. An example of the second would be the defendant's buying power in a market ‘so that a
defendant who can invariably negotiate a better price for a product than any other buyer will be
allowed to say that this price reflects the “objective” value of the product to him, or in effect that there
is one market for him and another for everyone else’ (Goff and Jones 2011, paras 4–10).
Omissions
Omissions
• As with additions to the works, omissions therefrom are subject to limits.
• Omissions must be genuine; that is, the work omitted must be omitted from the contract entirely.
• The power to order omissions cannot be used to take the work away from the contractor to give it to
another (unless, of course, the contractor agrees, in which case that would be a variation to the
contract): Maidenhead Electrical Services v. Johnsons Control System (1996) 7 BLISS 7; Trustees of
the Stratfield Saye Estate v. AHL Construction [2004] EWHC 3286 (TCC).
• In Abbey Developments Ltd v. PP Brickwork [2003] EWHC 1987 (Technology), Judge Humphrey Lloyd
said at 50:
• ‘Provisions entitling (the employer) to vary the work […] have to be construed carefully so as not
to deprive the contractor of its contractual right to the opportunity to complete the works and
realise such profit as may then be made […] The test must therefore be whether the variations
clause is or is not wide enough to permit the change […] If, with the advantage of hindsight, it
turns out that the variation was not ordered for a purpose for which the power to vary was
intended, then there will be a breach of contract.’
Omissions
• The Australian case of Commissioner for Main Roads v. Reed and Stuart Ltd (1974) 131 CLR 378
illustrates the point neatly:
• The contractor’s rate for placing topsoil from spoil tips on site was 15 shillings per cubic yard.
• The rate for importing and placing topsoil was £3 per cubic yard.
• The amount of topsoil to be placed was 60,000 cubic yards, and in the event only 25,000 cubic
yards were available on site.
• The engineer omitted all but the 25,000 cubic yards available on site and made arrangements
with another contractor to supply and place topsoil.
• The court held the engineer was in breach of contract in failing to instruct the contractor to
import topsoil as he still intended to have topsoil placed.
• The underlying principle is that, without a clear contractual power to omit work in order to give it to
another, the employer is required to honour the basic bargain struck with the contractor, no matter how
bad hindsight shows it to be: Abbey Developments Ltd v. PP Brickwork [2003] EWHC 1987
(Technology); Trustees of the Stratfield Saye Estate v. AHL Construction [2004] EWHC 3286 (TCC).
Omissions
• This is not just the position in common law jurisdictions.
• One of the many features that distinguish civil law from the common law (in England and Wales) is an
implied duty of good faith on the part of parties to a contract – both in the performance of obligations,
and the exercising of rights provided for thereunder. See by way of example Article 246 (1) of the UAE
Federal Civil Code and Article 172(1) of the Qatari Civil Code.
• To omit work from a contract to give to another to carry out without the agreement of the contractor
would be viewed as an act of bad faith.
• The FIDIC Red Book deals with this via use of an express provision (clause 13.1 (d)) which makes it
clear that the engineer is not permitted to omit work in order to have it done by others.
• Interestingly, this provision differs from the similar provision in the previous (1987) version of the FIDIC
Red Book (clause 51 (b)) in that it does expressly prohibit the employer from omitting the works in
order to carry them out itself.
Omissions
• Where work has been wrongfully omitted that is a breach of contract.
• The measure of damages is loss of profit on the omitted work: Amec Building Ltd v. Cadmus
Investment Company (1996) 51 Con LR 105.
• Wrongful omission of work may also be a repudiatory breach, entitling the party in receipt of the
omission to treat the contract as at an end and claim damages.
Non-variations
Non-variations
• It is not unknown for contractors to seek instructions in respect of matters that are not on a proper
construction of the contract variations.
• For example, if the contractor has made a mistake in pricing of the bills of quantities on a JCT form of
contract, schedule of rates or the like, the contractor is obliged to stand by the price: M J Gleeson Ltd
v. Sleaford UDC (1953) HBC (12th edn), paras 5–014. It is not a matter for instruction under clause
2.15.
• In that case, the contractor omitted to price a substantial proportion of part of the bill of quantities, with
the result that his tendered sum was too low. There were, however, rates in other parts of the bills of
quantities for similar work. It was held that the contractor could recover nothing for the work in
question under the provision in the contract for rectification of errors (clause 2.14.1), because there
was no error or omission in the bills of quantities (only in the contractors pricing of them).
• This matter is now expressly covered by clause 4.2 of JCT 2016.
Non-variations
• In a similar vein, where there is a dispute as to whether or not work is included in the contract, and the
contractor refuses to carry out the work without it being the subject of a variation order, then the
employer can avoid paying for it.
• This is because, if the work is already in the contract, there will be no consideration for the promise by
the employer to pay for it: Sharpe v. San Paulo Brazilian Railway Company (1873) LR 8 Ch App 597.
• This applies equally in cases where the work is ordered explicitly as a variation under the relevant
provisions of the contract if, on proper construction of the contract, the work is included in the contract:
Charon (Finchley) v. Singer Sewing Machine Ltd (1968) 207 EG 140.
• In this case, the builder sought but was denied payment for vandalism repair work instructed by the
employer. It was held that the contractor’s duty of substantial performance of the contract included
everything that was necessary to restore the works to the contractual standard.
Non-variations
• If the contractor uses a better standard of materials or workmanship than specified in the contract, or
voluntarily does extra work, the contractor cannot claim additional payment: Wilmot v. Smith (1828) 3
C & P 453.
• This is the case even if the employer has assented to the change, unless the employer has expressly
agreed to pay more or ought to have known that additional expense might be incurred: Simplex
Concrete Piles Ltd v. Borough of St Pancras (1958) 14 BLR 80.
• Similarly, if the employer agrees to a change in the works to assist the contractor, then ordinarily the
contractor cannot claim additional payment: Tharsis Sulphur and Copper Co. v. McElroy (1878) 3 App
Cas 1040.
• However, it is not beyond the bounds of possibility that such a change might benefit the employer. For
example, if the contractor was experiencing difficulty in getting some complex weatherproofing detail
right, it might be in the employer’s long-term interest to instruct a change in the detail which
incidentally made things easier for the contractor.
• It is, therefore, not always possible to deduce the true nature of such an instruction.
Non-variations
• This approach is not the sole preserve of the common law.
• Civil codes usually contain provisions that deal with what this presentation terms as non-variations.
• For example, Article 709 of the Qatari Civil Code provides:
• “Under a lump sum contract to undertake works to an agreed plan, the contractor may not seek
any additional monies because of some alteration or addition to the plan, unless it can be
attributed to an act of the employer or the employer has authorised the change and has agreed
with the contractor its entitlement.”
• The UAE Federal Code, at Article 887, contains similar provisions.
Non-variations
• Sadly, it is not unknown for contractors, when facing problems on site due to either unexpected
difficulties or evidence of emerging defects due to poor workmanship, to seek ‘instructions’ from the
architect or engineer.
• For example, contractors will suggest that the words ‘such further drawings or details as are
reasonably necessary […] to enable the contractor to carry out and complete the works in accordance
with the conditions’, which appear in clause 2.12.1 of JCT 2016, entitle them to be given instructions
when unexpected difficulties occur.
• If the architect or engineer is lured into giving an ‘instruction’ that on the face of it complies with the
formalities required for a variation by the contract, when in reality all that is being given is permission
to depart from the contract, the effects from the employer’s point of view can be devastating, as the
case on the next slide shows.
Non-variations: Simplex Concrete Piles Ltd v.
Borough of St Pancras (1958) 14 BLR 80
• A contractor was engaged to design and execute driven piling works. He undertook that the piles
would satisfy certain tests. The contract, the then version of what is now the JCT 2016 form, provided
that the architect could issue variations instructions and that, if compliance with any instruction
involved the contractor in loss or expense beyond that provided for in the contract, the amount of such
loss and expense shall be added to the contract sum.
• Conditions were encountered which made it impractical to carry out the work in the way which had
been contracted for or to satisfy the tests. To get over the problem, the contractor suggested either a
change to bored piles, to be provided by a subcontractor, or some other method which they would
carry out themselves. The contractor submitted a price for each alternative to the architects asking for
‘his instructions and views as to the extra cost which will be involved’.
• The architect wrote that the employer was ‘prepared to accept your proposal that the piles […] should
be of the bored type in accordance with the quotations submitted by the subcontractors’. The
contractor carried out the work and claimed the extra cost involved. The contractor conceded that but
for the work sanctioned by the architect’s letter they would have been in breach of contract.
• It was held that, although the contractor would have had no defence to an action for breach of contract
when it became clear that their design was impracticable, the architect’s letter was an architect’s
instruction involving a variation, and the contractor was entitled to payment.
Non-variations
• Simplex is perhaps an example of the type of case where a power to do something was confused with
a duty to do that thing.
• An architect or engineer owes no duty to the contractor to issue instructions or other information other
than to give a sufficiently clear direction as to what it is the contractor is to build: Clayton v. Woodman
& Son (Builders) Ltd [1962] 2 QB 533.
• It is also sometimes the case that difficulties arise in respect of instructions given as to the contractor’s
method of working.
• As a general rule, the employer owes no duty to the contractor as regards the contractor’s method of
working: Clayton v. Woodman & Son (Builders) Ltd [1962] 2 QB 533. The contractor has the right to
carry out the work in any way, subject to any express provisions of the contract: AMF (International)
Ltd v. Magnet Bowling Ltd [1968] 1 WLR 1028.
• Where express provisions are used they usually relate to particular items of work. For example,
prohibitions against pouring concrete in certain weather conditions, periods for curing concrete before
striking formwork or requiring drainage pipes to be tested before backfilling. The purpose of such
provisions is the protection of the employer’s interest in the standard of the finished work.
Non-variations
• If an instruction is issued changing an express provision, that usually presents no difficulty as most
standard form contracts identify such a change as variation.
• However, it is often the case that a contract gives the contractor a choice between two or more
methods of providing the permanent works. For example, it could be his choice as to which of three
types of fill to use.
• If the architect or engineer issues an instruction stipulating which of those methods should be
followed, that will constitute a variation. This is because the contractor has had the choice removed
which previously existed and the contractor is entitled to be paid the difference between the cost of
following the original method and the cost of the method now required to be followed: English
Industrial Estates Corporation v. Kier Construction Ltd [1991] 56 BLR 93.
• This case was, however, slightly unusual in that the contractor’s method statement was a contract
document.
Non-variations
• Though contracts are frequently silent on the point, because of the contractor’s right to carry out the
work by any method the contractor might choose, they sometimes contain phrases like ‘to the
architect’s satisfaction’ or ‘to a method approved by the architect’.
• In such cases, the position appears to be that if the contractor and architect/engineer cannot agree
and the contractor has to modify his method of working to satisfy the architect/engineer or gain his
approval, that modification does not amount to a variation: Neodox Ltd v. Swinton & Pendlebury B C
(1958) 5 BLR 34.
• However, this will only be the case if the instruction is necessary for the production of a satisfactory
finished job and the contractor is not in a position to show that a cheaper course of action could have
been followed which would have been effective in producing a satisfactory result: Pearce (C J) & Co v.
Hereford B C (1968) 66 LGR 647.
• In this case, the contractor was required to comply with and adhere to the engineer’s instructions and
directions on any matter. He encountered difficulties on site and the engineer directed him as to how
to overcome them. The work done was the only practical way of dealing with the matter, and the
contractor admitted he would have done the same thing himself. It was held that even if there were
instructions under the relevant provision in the contract they would not create any financial liability for
the work on the part of the employer, because what had been done was in the nature of a joint
decision as to the best way of doing the work.
Non-variations
• It was also held in Pearce v. Hereford B C that there was no financial liability on the part of the
employer in any event, because the work that was carried out was work the contractor was bound to
do to complete the contract.
• However, in Yorkshire Water Authority v. Sir Alfred McAlpine & Son (Northern) Limited (1985) 32 BLR
114, it was held that when a method statement is part of the contract the contractor must follow it, and
if it proves impractical to do so the contractor may be entitled to a variation.
• Not all instructions in respect of methods of working relate to the physical aspects of the work. This is
particularly so in the case of subcontractors. So, where a subcontractor has been told of the
programme to which to work, an instruction changing that programme will not generally constitute a
variation.
• This is because the subcontractor is not entitled to work to a programme, and programmes are usually
not to be regarded as contractual documents: Kitsons Sheet Metal Ltd v. Matthew Hall Mechnical and
Electrical Engineers Ltd (1989) 47 BLR 82.
• Programmes are generally seen as aids to forward planning and flexibility must be expected,
especially on a project where there might be a large number of subcontractors, each seeking to rely
on an individual programme. (This is why extension of time and loss and expense provisions are so
important in subcontracts.)
Non-variations
• Similarly, in Strachan & Henshaw Ltd v. Stein Industrie (UK) Ltd & Another (1997) 13 CLJ 418, it was
held that the contractor’s relocation of site facilities further away from a particular subcontractor’s
place of work, which had the effect of decreasing the amount of productive working time of the
subcontractor’s employees, was not a variation of the contract. Here, the form of contract in use was
the MF/1 General Conditions which, by clause 27, defines a variation as ‘any alternation of the works
by way of addition, modification or omission’. Accordingly, because the instruction did not alter the
work to be done under the contract, it could not be a variation.
• The point to note here is that what is a variation is not necessarily the same for all standard forms.
• NEC4 is an example of this. Under that form, the accepted programme is a fundamental control
document and accordingly, many matters that affect it fall to be regarded as compensation events.
• Similarly, an instruction of the type considered in Strachan would potentially be a variation within the
scope of:
• clause 14.3 of NEC4
• clause 5.1.2 of JCT 2016
• clause 1.6 of the HKIA SFC 2005
• clause 13.1 of the FIDIC Red Book (2017).
Valuation of variations
Valuation of variations
• Most standard form contracts lay down a code for the valuation of variations. See, for example,
clauses 5.6–5.10 of JCT 2016, clauses 13.3-13.8 of the HKIA SFC 2005 and clauses 12.1-12.4 of the
FIDIC Red Book (2017).
• The general scheme of this code is hierarchical:
• If the work is the same as that in the original scheme, then bill or schedule rates should be used.
• If the work is similar to the original, then rates based on the original rates should be used.
• If no comparable work in original, then an agreed or reasonable rate can be used.
• If the work cannot be measured and valued, then daywork rates (i.e. prime cost) may be used.
• Under these schemes, it is also usual to see a longstop provision whereby if circumstances are such
that application of the above hierarchical approach is unreasonable, then a ‘fair valuation’ shall be
made (e.g. clause 5.10.1 of JCT 2016 and clause 12.3 of FIDIC (2017)).
Valuation of variations
• Disputes frequently arise under these provisions as to whether rates inserted in the bills of quantities
should be used or whether the contractor should be paid a ‘fair’ rate.
• This sometimes extends into disputes over whether the rates in a bill of quantities are so affected by a
variation as to render their use inapplicable, thereby bringing into play provisions such as clauses 5.9
and 5.10 of JCT 2016.
• For example, if the architect issues an instruction changing block walls to brick walls, the contractor
will be entitled to be paid for that variation as appropriate. By virtue of clause 5.9, the contractor will
also be entitled to additional payment because altered conditions may require the contractor to carry
out some of its other operations in a different order. The change in conditions must, however, be
substantial.
• The following illustrate some of the difficulties that arise in relation to valuation of variations and the
principles applied by the court.
Valuation of variations
• Galliford (UK) v. Aldi Stores (2000) 11 BLISS 7:
• An employer and builder negotiated a tender on the JCT Intermediate Form, in which a lump sum was
included to cover on-site disposal works. A rate of ‘nil’ was included in the bills against all items for
disposal off site of excavated material, both clean and contaminated.
• As the work progressed, it became clear that the extent of on-site contamination was greater
than billed and resulted in all excavated material having to be disposed of off site. The arbitrator
found an error in the bills in respect of the quantity of soil requiring disposal and that a variation
order should have been issued. The arbitrator then derived a rate from the contractor’s original
tender build-up used to negotiate the contract. This £36.10 cubic metre rate was used to value
the extra work.
• It was held that, though it was correct a variation order should have been issued, the arbitrator
was under a duty to value the variation under clause 3.7.3 (similar to JCT 2016 clause 5.6). The
arbitrator could only depart from the bill rates if there had been a change in conditions and/or a
significant change in quantities. There was no reason to make a fair valuation, so the arbitrator
should have used the nil rate, however unfair that was to the contractor.
• If one steps back, this is a common-sense position. The valuation rules do not say that the rates and
prices shall form the basis of valuation only if they are deemed to be reasonable rates.
Valuation of variations
• Henry Boot Construction Ltd v. Alstom Combined Cycles Ltd [2000] BLR 247.
• Henry Boot was carrying out works on a contract which incorporated the ICE 6th Edition form (which
has a hierarchical valuation scheme similar to that noted on an earlier slide).
• Instructions were issued that varied the work such that pipe trenches were made deeper, which made
the temporary works more expensive. The contractor and employer agreed a lump sum adjustment to
the contract price.
• A dispute arose as to the extent of work covered by the agreed lump sum adjustment. In resolving the
dispute in the contractor’s favour, the arbitrator found that the contractor had made a mistake in his
price. The arbitrator found that because the build-up was wrong, it was not reasonable to use rates
derived therefrom to value the similar works found to be extra on the proper construction of the
contract. Instead, he derived his own ‘fair rates’, which had the effect of reducing the contractor’s
claim by some £2 million.
• The contractor appealed, saying the arbitrator should have based his valuation on the original
valuation of the temporary works, the agreed lump sum. The court at first instance agreed with the
contractor; the employer appealed.
• It was held by the Court of Appeal that the arbitrator was wrong to ignore the lump sum on the ground
that it was unreasonable to use it. The question to be answered in every case is whether it is
reasonable to use the rates and prices in question, not whether those rates and prices are reasonable.
Valuation of variations
• The general rule is that there are no high or low, reasonable or unreasonable rates: there are only contract
rates. The general valuation scheme provided by contracts such as the JCT forms, the FIDIC Red Book and
the HKIA SFC 2005 does not enable the architect or engineer to open up or disregard contract rates on the
ground that they are wrong or mistaken.
• As Judge Humphrey Lloyd QC said at first instance in Henry Boot Construction v. Alstom Combined Cycles
(1999) 64 Con LR 32, in a judgment described as admirable in the Court of Appeal:
• ‘The words “executed under similar conditions” do not of course refer to economic or financial
conditions or considerations. Intrinsic profitability or otherwise of the rate or price is not therefore a
relevant consideration to be taken into account in the application of the principle set out in clause
52(1)(a) [i.e. the first item in the general scheme of the code of valuing variations referred to above].
The work is not executed under dissimilar conditions simply because the applicable rate may result in
the contractor being paid markedly more or less than that which might be regarded as “fair”, e.g. more
or less than actual or reasonable cost plus profit and overheads.
• ‘In my judgment, the same approach must apply to [the second item in the general scheme of the code
for valuing variations referred to above]. If the varied work is work of a dissimilar character or to be
executed under dissimilar conditions then the contract clearly maintains the principle that a valuation
ought to be made if there is a contract rate or price applicable or which could be used as the basis for
valuing the variation. The fact that the result of the use of the contract rate or price might not be
reasonable is as irrelevant as it is under the first principle […] (The) reason is simple: the contract rate
or price is already unreasonable before the variation is ordered; it is not made unreasonable by the
execution of the variation. The work “reasonable” in clause 52(1)(b) refers only to the extent to which it
is feasible to use a given contract rate or price as the basis for the valuation, irrespective of its amount
[…] To allow a variation falling within clause 52(1)(b) to be used as a pretext to unravel and correct
mistakes made by a contractor in the pricing of a contract would, in my judgment, be completely
inconsistent with the wording of such a contract and the philosophy to be derived from it.’
Valuation of variations
• He also recognised that this works both ways and later in the judgment said:
• ‘The object of the principle that rates and prices are sufficient for the purposes of (a valuation of
variations provision like that in the JCT forms) is also to enable the parties to know where they
stand […] it would be quite unacceptable if that expectation proved to be vitiated because […]
the valuation that would otherwise have been made on the basis of the (contract) rates and
prices could be upset and replaced by one more costly to the employer and favourable to the
contractor in order to extricate the latter from the consequences of his own misjudgment or other
slip. Similarly, a contractor who priced the contract intelligently on the basis that the change was
likely to be made would be justifiably irate if the engineer or arbitrator could operate (the) clause
[…] to cut back the valuation that would otherwise be made […] because it would produce an
untoward “windfall” gain for it would be one which the contractor had counted on making i.e. it
was not a “windfall” at all but part of the risks of contracting which produce thrills as well as
spills.’
Valuation of variations
• In an attempt to reduce the scope for conflict and dispute over the value of variations, many contracts
now contain provision for the value of the varied work to be agreed before issue of the instruction (e.g.
variation quotations under clause 5.3 and Schedule 2 of JCT 2016 or clause 13.3 of the FIDIC Red
Book (2017)).
• NEC4 goes further and in effect requires the value of all variations to be pre-agreed.
• The NEC4 process begins with the project manager issuing the instruction to the contractor and
instructing him or her to provide a quotation unless a quotation has already been submitted (clause
61.1). If the project manager decides that the effects of a compensation event are too uncertain to be
forecast reasonably, he or she states assumptions for the contractor to follow in his or her instruction
to the contractor to submit a quotation (clause 61.6).
• The contractor must submit his or her quotation (and any alterative quotation he or she might wish to
submit) within three weeks of the date of the project manager’s instruction (clause 62.3).
• The quotation must cover not only the price effects of the variation, but also any delay to the
completion date (clause 62.2). NEC4 reimburses the contractor his forecast additional costs (or actual
additional costs if work has already been done) arising from the compensation event (clause 63.1).
The rates and prices in the contract are not used.
• However, where NEC4 Option B (priced contract with bill of quantities) is used, rates and prices in the
bill may by agreement be used to assess a compensation event rather than forecast additional cost
(clause 63.13).
Valuation of variations
• What this means is that, unless it is agreed to use bill rates and prices, price adjustments are made
using the forecast cost of work. For example, if a brick wall is replaced by a block wall, the
compensation event is assessed as the difference in forecast cost between the brick wall and the
block wall. The original price for the brick wall is irrelevant for the purposes of the assessment.
• A delay to the completion date, if any, is assessed as the length of time that, due to the compensation
event, planned completion is forecast to be later than planned completion as shown on the accepted
programme (NEC4 clause 63.3).
• In respect of both price and time, the contractor’s forecast must include allowances for risk (NEC4
clause 63.4).
• When the project manager has received the contractor’s quotation, he or she must respond within two
weeks (NEC4 clause 62.3). The project manager has a number of options:
• Ask for a revised quotation (the contractor must be informed of the reasons for asking for a
revised quotation (NEC4 clause 62.4).
• Accept the quotation (in which case the prices and time for completion are adjusted in
accordance with the quotation).
• Notify the contractor that he or she will be making his or her own assessment under NEC4
clause 64. The project manager is allowed a three-week period in which to make the
assessment (NEC4 clause 64.3).
Valuation of variations
• If the project manager does not reply to a quotation or make an assessment within the periods
allowed, or such extended periods as might be agreed, the contractor may issue a notice to the project
manager to this effect. If the project manager does not reply to the notification within two weeks (his
reply presumably has to be one of the responses set out in clause 62.3), the contractor’s notification is
treated as acceptance of the contractor’s quotation by the project manager (clauses 62.6 and 64.4).
• A particular feature of the NEC4 procedure is that the assessment of a compensation event is not
revised if the forecast(s) on which it is based turn out to have been wrong (clause 65.2), unless any
presumptions on which the contractor might have been asked to base his quotation are later found to
have been wrong (clause 61.6).
• The Schedule 2 quotation procedure in JCT 2016 for pre-agreeing the consequences of variation is
superficially similar to the procedure under NEC4, but differs from it in two fundamental respects:
• It is discretionary rather than mandatory.
• The contractor is not obliged to give effect to the instruction until the quotation is accepted
(clauses 3.10.2 and 5.3.2).
Cases
Abbey Developments Ltd v. PP Brickwork [2003] EWHC 1987 (Technology).
Amec Building Ltd v Cadmus Investment Company (1996) 51 Con LR 105.
AMF (International) Ltd v. Magnet Bowling Ltd [1968] 1 WLR 1028.
Blue Circle Industries plc v. Holland Dredging Co. (UK) Ltd (1987) 37 BLR 40.
Charon (Finchley) v. Singer Sewing Machine Ltd (1968) 207 EG 140.
Clarke & Sons v. ACT Construction [2002] EWCA Civ 972.
Clayton v. Woodman & Son (Builders) Ltd [1962] 2 QB 533.
Commissioner for Main Roads v. Reed and Stuart Ltd (1974) 131 CLR 378.
Costain Civil Engineering v. Zanen Dredging and Contracting (1996) 85 BLR 77.
English Industrial Estates Corporation v. Kier Construction Ltd [1991] 56 BLR 93.
ERDC Group Ltd v. Brunel University [2006] EWHC 687 (TCC).
Henry Boot Construction v. Alstom Combined Cycles (1999) 64 Con LR 32.
Henry Boot Construction Ltd v. Alstom Combined Cycles Ltd [2000] BLR 247.
Kitsons Sheet Metal Ltd v. Matthew Hall Mechnical and Electrical Engineers Ltd (1989) 47 BLR 82.
Laserbore v. Morrison Biggs Wall (1993) CILL 896.
Cases
London Borough of Hillingdon v. Cutler (1967) 2 All ER 361.
M J Gleeson Ltd v. Sleaford UDC (1953) HBC (12th edn), Paras 5–014.
Maidenhead Electrical Services v. Johnsons Control System (1996) 7 BLISS 7.
McAlpine Humberoak Ltd v. McDermott International Inc. [1992] 58 BLR 1.
Monk Construction v. Norwich Union Life Assurance Society [1992] 62 BLR 107.
Neodox Ltd v. Swinton & Pendlebury B C (1958) 5 BLR 34.
Pearce (C J) & Co. v. Hereford B C (1968) 66 LGR 647.
R v. Peto (1826) 1 Y & J Ex 37.
Re Nuttall and Lynton and Barnstaple Railway (1899) 82 LT 17.
Re Shell Transport & Trading Co. and Consolidated Petroleum Co. (1904) 20 TLR 517.
Sanjay Lachhani v. Destination Canada (UK) Ltd (1997) 13 Const LJ 279.
Serck Controls v. Drake and Scull Engineering (2000) 73 Con LR 100.
Sharpe v. San Paulo Brazilian Railway Company (1873) LR 8 Ch App 597.
Simplex Concrete Piles Ltd v. Borough of St Pancras (1958) 14 BLR 80.
Cases
Sir Lindsay Parkinson & Co. Ltd v. Commissioners of Works [1950] 1 All ER 208.
Stockport MBC v. O’Reilly [1978] 1 Lloyd’s Rep 595.
Strachan & Henshaw Ltd v. Stein Industrie (UK) Ltd & Another (1997) 13 CLJ 418.
Tharsis Sulphur and Copper Co. v. McElroy (1878) 3 App Cas 1040.
The Saronikos [1986] 2 Lloyd’s Rep 277.
Thorn v. London Corporation (1876) 1 App Cas 120.
Trustees of the Stratfield Saye Estate v. AHL Construction [2004] EWHC 3286 (TCC).
Weldon Plant Ltd v. The Commission for the New Towns (2000) BLR 496.
Williams v. Fitzmaurice (1858) 3 H&N 833.
Wilmot v. Smith (1828) 3 C & P 453.
Yorkshire Water Authority v. Sir Alfred McAlpine & Son (Northern) Limited (1985) 32 BLR 114.
References and further reading
References
FIDIC (2017) Conditions of Contract for Construction: for Building and Engineering Works Designed by
the Employer (the Red Book) (2nd edn), Geneva: International Federation of Consulting Engineers.
Goff and Jones (2011) The Law of Unjust Enrichment (8th edn), London: Sweet and Maxwell.
HKIA (2005) The Agreement & Schedule of Conditions of Building Contract for use in the Hong Kong
Special Administrative Region (Standard Form of Building Contract Private Edition – With Quantities
2005 Edition), Hong Kong: The Hong Kong Institute of Architects.
JCT (2016) Standard Building Contract With Quantities (JCT SBC/Q 2016), London: Sweet & Maxwell.
NEC4 (2017) Engineering and Construction Contract (ECC), London: ICE Publishing.

Further reading
RICS (2010) Valuing Change (1st edn) (GN 58/2010) [guidance note], Coventry: RICS.