The art of avoiding contract conflict

By Saifee M. Tarwala

Ultimately, almost every construction project will vary from its initial design, scope, and definition.

Hardly any project is executed as per the original contract scope prepared by architects and engineers; changes are inevitable due to factors such as technological advancements, statutory enforcement, geographical and geological considerations, and non-availability of specified materials.

Standard forms of contract typically include express provisions, giving engineers the power to amend orders when such changes become necessary (FIDIC Clause 51.1). This clause is designed to facilitate the smooth administration of works and contracts.

Nevertheless, it is important to remember that the spirit in which variations are permitted is to allow projects to proceed without the need to re-draw contracts.

It should be noted that no power to order variation is implied, and that the law regards variation as an agreement supported by consideration to alter some terms of the contract.

When it comes to valuations for variations, they are conducted mostly on the rates and prices stipulated in the bills of quantities (FIDIC Clause 52.1), which should be provided by the contractor when the work is of a similar nature, and is to be carried out in similar conditions. In a commercial sense, it does not matter how high or low those rates are. In short, once the contract has been signed, there exist no ‘too-high’ or ‘too-low’ rates; as a general rule, there are only ‘contract rates’. Rates do not become unreasonable by the execution of variation, as demonstrated in Henry Boot Construction v Alstom [2000].

Also, engineers are only permitted to omit works from the contractor’s scope if said works are not required. The power to order omissions cannot be used to take work away from one contractor, only to give it to another at a lower cost (FIDIC Clause 51.1).

Of course, when work is not mentioned in the bills of quantities, drawings, or specifications, conflict can arise. Silence does not mean that the contractor has an automatic right to claim for additional payment when an item is not present in any of the contract documents. Items that are not expressly mentioned in such documents, but that are necessary in order for the contractor to complete the agreed work, must be covered by the contract price. Specifications and bills of quantities are not intended to include ‘every nail’.

For instance, if a sub-contractor were to state that “the supply and fixing of a door is included”, but that “the supply and fixing of ironmongery is excluded”, a reasonable contractor would foresee that the door cannot be fixed without hinges (in this case, part of the excluded ironmongery). So, even if ironmongery is excluded, the sub-contractor is not entitled to claim variation for any items needed to fix doors.

FIDIC clauses also limit the variations that can be ordered. If the value of a contract increases or decreases by more than 15% of the net contract sum (excluding provisional sums and day works), the engineer or client can add or deduct a determined value from the contract sum upon consultation with the contractor. Of course, due regard must be paid to their site expenses and other general overheads. It is also worth noting that this 15% increase or decrease should not be mistaken for any particular item of work; it applies to the total contract sum at final completion.

Variations are often a source of dispute, and can lead to time-related and monetary costs. Engineers must prepare precise drawings, bills of quantities, and specifications at the tendering stage, and avoid ‘fine print’. Moreover, both engineers and contractors should leave as little as possible for the interpretation of other parties, outlining anything that is reasonably foreseeable.

Construction week