PAM Northern Chapter11 August 2018

VariationBy Lim Hock Siang

Q: What is the meaning of variation?

Chow Kok Fong, Law and Practice of Construction Contracts 4th Edition:

● “The term variation in construction contracts is used to describe a change in either in the quantity or quality of

the works which a contractor was originally contracted to do for a lump sum price. It embraces “additions” that

is, changes which involve the addition of new items of work to the contract as well as “omissions” or withdrawal

of items of work previously included in the contract.

● Modern construction contracts normally prescribe in some detail the process by which work may be varied. The

general approach is to require the architect or engineer to issue a formal instruction to vary the works. This may

be described as a variation order or change order. Once a change order has been issued, the contractor is

obliged to execute the varied work. The effect, therefore, is to give the employer, subject to certain limits, the

right to order changes to the works as opposed to situation where he has to enter into a fresh agreement with the

contractor each time some alteration to the work is contemplated.”

Cont’

Clause 11.1 of PAM 2006 provides that variation means the alteration or modification of the design, quality or quantity of the Works including:

a) the addition, omission or substitution of any work,

b) the alteration of the kind or standard of any materials and goods to be used in the Works,

c) the removal of the Site of any work executed or materials and goods brought thereon by the Contractor for the purposes of the Works other than work, materials and goods which are not in accordance with the Contract, and

d) any changes to the provisions in the Contract with regards to:-

i) any limitation of working hours,

ii) working space,

iii) access to or utilization of any specific part of the Site, and

iv) the execution and completion of the work in any specific order.

But exclude any changes intended to rectify any negligence, omission, default and/or breach of contract by the Contractor and such changes shall be executed by the Contractor entirely at his own costs.”

Q: What is the effect of variation orders on Contract Sum?

Typically, the contract price will be increased if the variation orders involves inter-alia the following :-

a) Architect instructions under Clause 11.4 for the expenditure of P.C. Sums and Provisional Sums.

b) Increase in the quantity of work under or the substitution of an existing item of work with work which is

more expensive based on the contractual terms of valuation under clause 11.1 (a).

c) Re-measured quantities in respect of Provisional Quantity under Clause 11.6 (f).

Q: Can a contractor claim for extras arising from error or mistake in the quantity stated in the Contract Bills as compared to the actual quantity required ?

Under PAM 2006,

a) Clause 12.1 on Measurement of Building Works provides that:-

“The quality and quantity of the work included in the Contract Sum shall be deemed to be those which are set out in the

Contract Bills and unless otherwise expressly stated, shall be prepared in accordance with the principles of the

Standard Method of Measurement of Building Works sanctioned by the Institution of Surveyors of Malaysia and

currently in force.”

b) Clause 12.2 on “Correction of Errors and Omissions” provides that:-

“Unless otherwise expressly provided, the contract sum is a Lump Sum Contract. Any errors in description, quantity or

omission of items in the Contract Bills shall not vitiate the Contract and shall be corrected by the Architect or

Consultant.”

Cont’

c) Clause 13.1 on “Contract Sum” provides that :-“The Contract Sum shall not be adjusted or altered in any way whatsoever, other than in accordance with the express provisions of the Contract. Any arithmetical errors or any errors in the prices and rates shall be corrected and/or rationalized by the Architect or Consultant without any change to the Contract Sum before the signing of the Contract.”

Under PAM 1998,

a) Clause 12.3 provides:-

“Any error in description, quantity or omission of items between the Contract Drawings and the Contract Bills shall not

vitiate this Contract but shall be corrected by the Architect.”

b) Clause 13.0 provides:-

“The Contract Sum shall not be adjusted or altered in any way whatsoever otherwise than in accordance with the express

provisions of the Conditions and subject to Clause 12.3 any error whether arithmetic or not in the computation of the

Contract Sum shall be deemed to have been accepted by the parties hereto.”

Q: Can the Contractor claim for variation arising from error or mistake in the price or rates entered in the Contract Bills?

● Clause 13.1 of PAM 2006

Q: Can a contractor claim variation if the contractor accidentally omit to price certain items in the Contract Bills?

● “Where the Contractor does not price an item or inserts a dash against any item in the Summary

of Tender, the value thereof will be deemed to be included in the rates contained elsewhere in

the Summary of Tender.”

● “All items in the Bill of Quantities shall be quoted. Item which is not quoted or priced deems to

be included in the Contract.”

● “Where any Preliminary Item or Clause is left unpriced, it shall be deemed that the cost of such

Preliminary Item or Clauses have been allowed for elsewhere within this Tender Document. No

subsequent claims arising out of expense and/or loss incurred against such unpriced

Preliminary Item or Clause shall be entertained.”

● MV Gleeson Ltd v Sleaford UDC

Q: Can a Contractor claim extras in respect of items of work not mentioned in the Contract Bills?

● Walker v Randwick Municipal Council

● Chittick v Taylor

Q: Can the Contractor claim variation arising from Deviation from SMM?

● “The SMM provides a uniform basis for measuring building works. It defines and lays down the

methods or formulae for actually measuring the quantities of different kind of building works

and in the process, sub-divide the building work into its component parts for purposes of

separate description and pricing in the bills of quantities.”

● Bryant v Birmingham Hospital

Q: Whether Discrepancy of Contract Documents may give rise to a claim for variation?

Q: Whether the Contractor is entitled to claim variation to remedy or replace material specified in contract due to defective manufacture?

- Marten Ltd. V McManus Childs Ltd- Gloucestershire County Council v Richardson

Q: Is the Contractor entitled to a claim for variation if the change of method of construction or sequence of construction was due to physical impossibility and not architect’s instructions?

- Yorkshire Water Authority v McAlpine

Q: Is the Contractor entitled to a variation claim arising from a change of method of construction or sequence of construction?

- Simplex Concrete Piles Ltd v St Pancras Borough Council

Q: Can unexpected or unforeseeable site conditions formed a valid basis to claim variation?

● “The tenderer shall be deemed to have inspected and examined the site and its surroundings and to have

satisfied himself before submitting his tender as to the nature of the ground and sub soil, the form and nature of

the site, the extent and nature of the work, materials and goods necessary for the completion of the works, the

means of communication with and access to site, the accommodation he may require and in general to have

obtained himself all necessary information as to risks, contingencies and all circumstances influencing and

affecting his tender.”

● Pearce v Hereford Corp

Cont’

FIDIC Red Book (based on a traditional built only contract) clause 4.10 provides :-

“to the extent which was practicable (taking account of cost and time), the contractor shall be deemed to have

obtained all necessary information as to risks, contingencies, and other circumstances which may influence or affect

the Tender of the Works …and to have been satisfied before submitting the Tender as to all relevant matters, including

(without limitation):

a) The form and nature of the site including sub surface conditions,

b) The hydrological and climatic conditions,

c) The extent and nature of the work and goods necessary for the execution and completion of the works and the

remedying of any defects,

d) The laws, procedures and labour practices of the country, and

e) The contractor’s requirements for access, accommodation, facilities, personnel, power, transport, water and other

services.”

Cont’

Under the JKR 203A,

• Clause 11.1 provides:-The contractor shall be deemed to have inspected and examined the site and its surroundings and to have satisfied himself before submitting his tender as to the following:-

a) The nature of the ground and sub soil,b) The form and nature of the site,c) The extent and nature of the work, materials and goods necessary for the completion of the works,d) The means of communication with and access to the site,e) The accommodation he may require, andf) In general to have obtained for himself all necessary information as to risks, contingencies and all circumstances influencing and affecting his tender.”

• Clause 11.2 provides:-

“Any information or document forwarded by the Government to the Contractor shall not relieve the Contractor of his obligations under the provisions of this clause.”

Q: Can the contractor claim variation if the information provided by the employer during tender turns out to be erroneous?

● Morrison Knudsen International v Commonwealth of Australia

● Dilingham Ltd v Downs

● Abigroup Contractors PL v Sydney Cathchment Authority

● Bacal Construction (Midland) Ltd v Northampton Development Corp

Q: Can the contractor sue the architect for misrepresentation arising from erroneous tender information?

● Hedley Byre v Heller

● Areson v Casson Beckman Rutley & Co.

● Pacific Associates Inc v Baxter

● Edgeworth Construction Ltd v F Lea & Associates

Q: Can a variation claim be made without a written instruction by the contract administrator?

● Clause 11.2 of PAM 2006 provides:-

“The Architect may issue an AI ordering a variation or sanctioning any variation made by the contractor….”

● Clause 2.2 provides that “All instructions issued by the Architect shall be in writing expressly

entitled “Architect’s Instructions”.

Cont’

• Clause 11.3 of PAM 2006 provides :-

“The Architect may issue instructions in writing requiring a variation at any

time before the issuance of the certificate of practical completion. Thereafter,

any AI requiring a variation must be necessitated by obligation or compliance

with the requirements of any Appropriate Authority and Service Provider.”

Service Provider is defined to mean “company to provide water, electricity, telephone,

sewerage and other related services.”

- Ch’ng Ghee Wend v Lee Khoon Eng

- Brodie v Cardif Corp

- Mitsui Construction v AG of Hong Kong

• Limits to the power to order variations – wrongful

omission vs genuine omission- Carr v JA Berriman.

• Cardinal Charge

• Assessment of Quantum Meruit Claim- Constain Civil Engineering Ltd v Zanen Dredging and Contracting

• Applicability of Contract Rates for Variation

Thank YouLim Hock SiangAdvocate & Solicitor

Partner of Presgrave & Matthews

Fellow of the Chartered Institute of Arbitrators, UK

LL.B. (Hons.)(Melb), B. Comm (Acconting & Finance)