by Dr  Chandana Jayalath

Changes are inevitable in any construction therefore the parties are provided a flexibility to make changes to the work under a typical contract changes clause. However, the ability for owner requested changes, even if provided in the contract, are not without limitations, restrictions as well as consequences.

A change in shape of the scheme, introduction of different materials, revised timing and sequence are all usually provided for by the variations clause. It will also usually include a mechanism for evaluating the financial effect of the variation and there is normally provision for adjusting the completion date. In the absence of such a clause the employer could be in a difficulty should a variation to the works be required. The contractor could either refuse to carry out the work or undertake the work or insist upon a fair valuation. There may be circumstances which could lead to additions or changes introduced by the employer which falls outside the variations clause. Contractors who find themselves with unattractive contract prices would find it to their advantage to be able to argue that a change introduced by the employer fell outside the variations clause thus leaving the way open to argue that payment for the change should be on a different basis.

The UK case of Blue Circle Industries v Holland Dredging Co (1987) is a classic case where works involved dredging in Larne Lough in Ireland to enable larger vessels to dock. The tender referred to the dredged material being deposited in areas approved by the public authorities, the intention being to discharge the material excavated in suitable areas in the Lough. An alternative plan was agreed to use the excavated material to form an artificial bird island. It was argued by the contractor that this was not a variation to the works within the confines of the contract but a separate contract in its own right. The decision in Thorn v Mayor and Commonalty of London a case heard way back in 1876 influenced the court. In this case it was held that if the additional or varied work were so peculiar, so unexpected and so different from what any person reckoned or calculated upon to such an extent that it is not contemplated by the contract then it would constitute a separate contract. The judge in the case considered that the construction of the bird island was wholly outside the scope of the original dredging contract and therefore constituted a separated contract.

Cardinal change is therefore a situation where a large number of changes are instructed which individually fall within the ambit of the variations clause but collectively have the effect of completely changing the scope of the works. This constitutes either abandonment or cardinal change and deals with the situation where the employer makes excessive changes to a project beyond what the parties reasonably could have anticipated at the time the contract is entered into. Amongst the factors in helping to decide are whether the changes have been excessive, the size, complexity and expected duration of the contract as well as the number of changes, how many changes were anticipate when the project started, the magnitude of the work involved in the changes and the length of time in which such changes were made.

There is no required intention on the part of the employer to abandon the contract by introducing excessive changes; this will often be implied as a result of constant interference. If the parties ignore the procedural provisions of the contract with regard to variations this could help influence the court into accepting that abandonment has occurred.

 

Not necessarily disgusted all the time however, contractors struggle over the potentially substantial increase of the original contract scope in some exceptional cases. Where a road project for instance having a smaller number of major cost significant items, such as excavation into embankment, asphalting and road ancillaries, may have taken 2 to 3 times additional scope by just adding a few mileages ahead. However the nature of the newly added scope might have gone off the methods of execution as planned. Since the total scope has been potentially substantial, the contractor’s pricing strategies, technical approaches, and resource allocations etc might also have gone away with it. Though at glance the same nature of works at moving segments along the same route, localities etc, and the contractor may well be having a genuine case to ask for a total rate revision. On the allegation that the original planned duration has been elongated by 2 to 3 times coupled with varied works in between and as a result, the contract prices have been outdated, the contractor claims for time extension, prolongation costs and rate revision of almost all the items.

On the other hand, the employer may contend that the contractor has been in a windfall where he would have otherwise kept his resources idle due to lack of continuity of work in severe competition around the market. Contractors claim that the employer is in a windfall where he avoided both time and cost on re-tendering and possible increase in contract prices with the new contractors that may have taken over the site with delay in commencement also. Employers find comfortable with the same contractor and the newly exploded scope can be procured under the disguise of variation clause.

As long as the parties mutually agree to share both pains and gains in the whole process, parties may wish to adjust their positions by allowing a reasonable contract price adjustment and the time to complete the works. However, there may be a restriction by law as far as the public money is involved in a project. Various limitations have been laid down in tender and financial regulations to govern the capacity of the employer to decide on fund allocations. One of the rules is that the employer reserves the right to issue variations under the contract subject to a limit of 20% of the original contract sum. It does not however capacitate the contractor to ask for a rate revision or any other adjustment in the contract price.

 

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