Mathias Fabich

PORR Bau GmbH

Variation clauses & public procurement –
the contractor’s view
 PORR at a glance
• One of the leading construction companies
in Austria and Europe
• Tradition dating back more than 147 years
• Headquarter in Vienna, Austria
• Listed on the Vienna Stock Exchange
since 1869
• Run by shareholders
• More than 19,000 staff members
• production output € 3.9 bn
• Europe and Middle East
• FIDIC experience in Albania, Bosnia, Bulgaria, Croatia, Czech Republic, Hungary, Macedonia, Poland,
Qatar, Romania, Serbia, Slovakia, Turkey and UAE.
 Outline of the Presentation
• Introduction
• Procurement Rules: tender phase / execution phase
• Variation Clauses
• Possible Impact of Procurement Rules
• The Contractor’s responsibilities
• The cost and risk implications for tendering variations
• Summary
Procurement Rules: tender phase / execution phase
Contract Taking over
tender execution

• procurement • contract directly relevant

regulations for relation client/employer
apply directly to  includes client‘s right to
bidders vary the works
• all legislation must be
followed
 FIDIC variation clause 2017
Red Book 2017
Sub-Clause 13.1 Right to Vary
• The Contractor shall be bound by each Variation instructed
• shall execute the Variation without delay,
• unless the Contractor promptly gives a Notice that:
(a) the varied work was Unforeseeable having regard to the scope and nature of the
Works described in the Specification;
(b) the Contractor cannot readily obtain the Goods required for the Variation; or
(c) it will adversely affect the Contractor’s ability to comply with Sub-Clause 4.8 [Health and
Safety Obligations] and/or Sub-Clause 4.18 [Protection of the Environment].
 FIDIC variation clause 2017
Yellow Book 2017
Sub-Clause 13.1, allows for additional reasons for not complying:
(d) it will have an adverse impact on the achievement of the Schedule of Performance
Guarantees; or
(e) it may adversely affect the Contractor’s obligation to complete the Works so that
they shall be fit for the purpose(s) for which they are intended under Sub-Clause 4.1
[Contractor’s General Obligations].
 FIDIC variation clause 2017
13.1 Right to Vary (continued)
Each Variation may include:
(i) changes to the quantities of any item of work included in the Contract (however, such changes do
not necessarily constitute a Variation);
(ii) changes to the quality and other characteristics of any item of work;
(iii) changes to the levels, positions and/or dimensions of any part of the Works;
(iv) the omission of any work, unless it is to be carried out by others without the agreement of the
Parties;
(v) 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
(vi) changes to the sequence or timing of the execution of the Works.
 No duty on the Contractor to check for procurement regulations.
 FIDIC 2017 Guidance Notes
Typical PC to Clause 3

 if there are any limits this is the place to insert them

Engineer‘s & Employer‘s responsibilities
 EU DB 2016 contracts
GENERAL CONDITIONS FOR WORKS CONTRACTS FINANCED BY THE EUROPEAN
DEVELOPMENT FUND (EDF) OR THE EUROPEAN UNION
APPLICABLE TO "DB" (DESIGN AND BUILD) (WORKS) CONTRACTS

37.5. stipulates the rules for adjusting the prices (similar to those in FIDIC)

37.6. On receipt of the Administrative Order transmitting the agreed amendment, the Contractor shall carry out
the requested amendment according to the following principles:
...
b) The Contractor shall not delay the execution of the Administrative Order pending the granting of any
extension of time for completion or adjustment to the contract price.
 EBRD rules
Standard Tender Document STD dated 1 November 2017
Contract Data 3.1(b)(ii)
Variations resulting in an increase of the Accepted Contract Amount in excess of [insert related
figure] ____% shall require approval of the Employer.

Procurement Policy Rules Conditions of Contract 3.21

The contract shall clearly define…..price adjustment (where appropriate), liquidated damages
and bonuses, handling of changes and claims, force majeure, termination, settlement of
disputes and governing law.
 EBRD rules
Standard Tender Document STD dated 1 November 2017
Procurement Monitoring and Bank Review 3.32
The Bank’s ongoing review of the procurement and contract implementation processes will
focus on critical steps that are necessary to ensure eligibility of the contract for Bank financing, in
particular and changes and claims during execution of the contract.

Contract Administration 3.31

Change or variation orders made in accordance with the terms and conditions of the contract shall
be subject to the Bank’s review before a no objection can be given for disbursement.
 Procurement rules by WB
2.11 The contract shall clearly indicate the procedures to address
change orders or contract variations.
 Sub-Clause 12.3 Valuation of the Works
A new rate or price shall be appropriate for an item of work if:
(a) item is not identified, no rate or price for this item is Specified; and work is not of similar
character, or is not executed under similar conditions, as any item in the Contract;
(b)
(i) the measured quantity of the item is changed by more than 10%
(ii) this change for this item exceeds 0.01% of the Accepted Contract Amount,
(iii) this change in quantity directly changes the Cost per unit by more than 1%, and
(iv) item not specified as a “fixed rate item”
(c) the work is instructed under Clause 13 [Variations and Adjustments] and sub-paragraph
(a) or (b) above applies.
 Sub-Clause 12.3 Valuation of the Works
FIDIC2107 Cons, sub-Clause 12.3:
• Each new rate or price shall be derived from any relevant rates or prices
specified in the Bill of Quantities or other Schedule,
• with reasonable adjustments to take account
• If no specified rates or prices are relevant for the derivation of a new
rate or price, reasonable Cost together with the applicable percentage
for profit
• Profit as stated in Contract Data, if not stated 5%
 Procurement Directives 2014 Article 72
Article 72 para 1 of the Directive gives a list of modifications that may be introduced during the
execution of a contract:
(a) modifications, irrespective of their monetary value, that have been clearly provided in the initial procurement
documentation,
(b) additional works, services and supplies that have become necessary and where a change of contractor (i)
cannot be made for economic and technical reasons and which would (ii) would cause significant inconvenience
or substantial duplication of costs
(c) if following conditions are fulfilled: (i) modifications due to unforeseen circumstances, (ii) modification does
not alter the nature of the contract and (iii) increase in value < 50 %
(d) replacement of a contractor, or
(e) low value modifications and other non-substantial modifications.
 Procurement Directives 2014 Article 72
The Directive clarifies “substantial” modifications in para 4 of Article 72
(a) introduce conditions which, had they been part of the initial procurement procedure,
would have allowed for the admission of other candidates,
(b) change the economic balance,
(c) extend the scope of the contract or
(d) involve a new contractor replacing the one which was awarded the contract
 Procurement Directives 2014 Article 72
2. Furthermore, and without any need to verify whether the conditions set
out under points (a) to (d) of paragraph 4 are met, contracts may equally
be modified without a new procurement procedure in accordance with this
Directive being necessary where the value of the modification is below
both of the following values:
(i) the thresholds set out in Article 4; and
(ii) 10 % of the initial contract value for service and supply contracts and
below 15 % of the initial contract value for works contracts.
 Result of this analysis
• all regulations allow for variations
• especially the Directives 2014 impose limits
• Directives 2014 have the target to protect the other participants in the
market
 Cost implications for tendering variations
profit

off site overheads & costs

site installation costs & site overhead costs: employees for site management,
major equipment, not allocated of direct costs, surveyors, office rents,
site roads & maintenance,...

direct costs for the works:

labour, equipment, material
 Risk implications for tendering variations
• interface risks
• liabilty for defects
• design coordination
• time for completion
 Summary
• all regulations accept that variations may exist
• EU Directives 2014: complex; need clarification & guidance
• Variation clauses  responsibilities with Employer & Engineer for
compliance with procurement rules
• responsibilities for the contractor: (design &) build