Water Resources Management InMalaysia – The Way Forward

By Ir. Harbans Singh K.S.1 and K. Sri Kandan2

Variation Claims -Pitfalls And Pratfalls*

B U L E T I N I N G E N I E U R 36

Engineering or construction contracts are complexboth in nature and the processes required to realisethe finished product. More often than not even if

carefully planned owing to the inherent characteristics ofsuch contracts it is inevitable that there will be changesto the scope of the contract as work progresses. Suchchanges may be necessitated by a number of factors, thatis, change in the user or employer’s requirement, reviewof design, changes in statutory requirements, productimprovements, etc. These changes may be initiated eitherby the employer 3 or by the contractor himself; the lattersituation arising more frequently in the so calledcontractor-designed “package deal” type of contracts 4.

It is a recognised fact that of late the local engineering orconstruction industry is plagued with a wide ranging arrayof claims. a notable example is one being attributed tothe so called “variation” species. An unofficial count putsvariation claims to account for almost 20 per cent of thetotal claims being tendered on a monetary basis duringthe last five years 5. This may just be the tip of the icebergas the figure alluded to above does not take intoconsideration similar claims involving the other industryplayers such as sub-contractors, suppliers, fabricators andthe like.

In view of the immense importance of the instant topic,this paper has been formulated to look at certain specificissues within the local context perhaps on an introductorybasis so as to serve as a catalyst for further investigation,honing and refinement. The paper does not attempt toencompass the entire ambit of the subject matter in handbut will rather delve into the various myths and pitfallsthat pock-mark the terrain of “variation claims” inparticular through the field-glass of two practitionerscoming from the two ends of the professional spectrum. 6

VARIATION CLAIMS: MAIN ISSUES

A detailed investigation of variation claims being pursuedby contractors reveals a remarkable consistency in the issuesin contention. These can be collated and listed under thefollowing categories 7:

� Establishment of the very fact of a variation 8 itself;� The validity of variation claims; “the contractual” and

“common law position”;� Status of “cardinal” changes;� Effects of “invalid omissions”;

� Measurement of varied work;� Valuation of variation orders;� Payment of varied work;� Miscellaneous issues. For example, varied work falling

outside the contractual scope, “quantum meruit”claims, effect of limitation on variation claims, theconcept of “constructive” changes, etc.

COMMON MYTHS

Accompanying the issues listed here above is thepreponderance of a host of commonly held beliefs ormore correctly “myths” that shroud this area of contractand seemingly gives it an aura of mystery anduncertainty. Contractors generally suffer from thefollowing misapprehensions or myths pertaining tovariation claims 9:

� That the employer is bound to pay for any change oradditional work whatsoever undertaken by thecontractor whether expressly directed or not;

� Where the scope of work is unclear or should therebe a discrepancy in the contract documents, thecontractor is automatically entitled to extras;

� In the event work is omitted, the contractor isautomatically entitled as of right to loss of profit;

� Prior to ordering extras, the employer 10 must obtainthe contractor’s agreement to the rates for valuingthe varied work;

* This article was presented at The Society of ConstructionLaw (SCL)’s inaugural International Construction Law andArbitration Conference held on 23 October 2004 in KualaLumpur.

1. Director, HSH Consult Sdn Bhd2. Senior Director, KPK Group of Companies.3. Normally through the office of the ‘Contract Administrator’.4. e.g. Turnkey, Design & Build/Design & Construct, EPCC, etc.5. See Ir Harbans Singh K S ‘Engineering & Construction

Contracts Management: Post-Contract Practice’ at Page 718.6. A Quantity Surveyor and an Engineer/Construction Lawyer.7. See ‘Valuation of Varied Work: A Commentary’ by Ir Harbans

Singh K S. Vol. 20 Sept. 2003 Bulletin Ingenieur, Page 32.8. or ‘Change’.9. See Ir Harbans Singh K S ‘Engineering & Construction

Contracts Management: Post-Contract Practice’ at Page452-457.

10. or the Contract Administrator on his behalf.

engin

eeri

ng &

law

� The contractor has a right to refuse to undertakevaried work if he so desires in particular if there isdisagreement as to the rates and time extensionsought;

� In the situation where varied work has beenundertaken, measured and valued by the contractadministrator but payment is not effected, thecontractor is automatically entitled to interest onthe amount due;

� The employer has no right to order and thecontractor is not obliged to carry out varied workin the defect liability period;

� The contractor has a right to call for a review ofmeasured and valued work involving variationseven after the final account has been prepared andthe final certificate issued 11; and

� The contractor has, in addition to the monetaryclaim for the varied work, a parallel right to claimfor extension of time 12 and direct loss and expense.

Looking from the employer’s point of view either dueto ignorance or lack of proper understanding of theposition vis-à-vis variations, a list of myths that afflictemployers include, inter alia, the following:

� The employer has an unfettered right to vary workunder the contract 13 and the contractor has a dutyof compliance to the same;

� The contractual requirements as to the proceduresgoverning the ordering, measurement, valuationand the payment of varied work are merelydirectory in nature and do not mandatorily bindthe employer in the same way as these do thecontractor;

� There are no “variations” in contracts based on firmBills of Quantities and for extras the use of thecorresponding BQ rates is mandatory irrespectiveof the quantum of the extras 14;

� For omissions, the contractor is not entitled to lossof profit or adjustment of rates unless the contractexpressly stipulates so;

� The employer can omit any work as he likes 15 andaward it to a third party of his choice during thecurrency of the original contract 16;

� For “package deal” types of contracts based on afirm price lump sum, there is no entitlement to thecontractor for variations;

� Unless there is an express formula for valuing variedwork, the final decision as to the rates to be employedis the prerogative of the employer, the contractor’sonly recourse in the event of disagreement is toarbitrate the matter;

� The employer has a right to restrict or limit thecontractor’s entitlements pursuant to a validvariation order 17;

� Where the contractual provisions are not clear, theemployer has an inherent right to order varied workto be undertaken in the Defect Liability Period andthe contractor is obliged to effect the same; and

� ‘Quantum meruit’ claims pertaining to varied workdo not fall within the contract administrator’s scope

of responsibility and therefore the contractor needsto pursue these either through arbitration 18 orlitigation.

Owing to the existence of the above-mentioned beliefsor fallacies over the good part of the last three decades,these have not only become institutionalised but in mostcases recognised as norms. The end result is that suchmyths have been concretised as accepted practice andgovern the day to day implementation of variationprocedures and claims. Coupled to this is a general lackof education vis-à-vis the subject in hand and theconsequential ignorance has exacerbated the situationresulting in the current unprofessional approaches takenin the industry at large.

To bring professionalism to the fore, it is incumbent forsuch myths to be extinguished and the prevailingshortcomings to be redressed lest the industry slipsfurther into the mire created by its own making. Herepractitioners, academics and authorities need to createawareness, demystify fallacies and further recognize goodpractices in contemporary project work; the instantconference being a good starting point.

PITFALLS AND PRATFALLS

The common areas of contention involving variationclaims can be narrowed down to the following stages ofa typical variation cycle, namely 19:

� Ordering of variations;� Measurement of variations undertaken;� Valuation of varied work; and� Payment for the variation ordered

As each stage proffers its own unique set of pitfalls andareas of concern, these will be examined in brief hereunderwith an aim of highlighting issues that need to beaddressed from the perspective of a practitioner.

11. Especially where the contract expressly stipulates that theFinal Certificate is not conclusive. See example Cl 30.8 PAM‘98 Form (With Quantities, Edn.).

12. or “acceleration costs” if asked to accelerate works in lieu ofextension of time.

13. Involving even the so called “cardinal changes”.14. See however Mitsui Construction Co. Ltd. v A.G. of Hong Kong

[1986] 33 BLR 1.15. So long as he follows the procedure stipulated in the contract.16. See Carr v J A Berriman Pty Ltd. [1953] 27 ALJR 273 and

Commissioner for Main Roads v Reed & Stuart Pty Ltd. & Anor[1974] ALJR 463.

17. For example denying him extension of time, extendedpreliminaries, etc.

18. Or other suitable dispute resolution forum.19. See also ‘Valuation of Varied Work: A Commentary’ by Ir.

Harbans Singh K S Vole.g. PAM ‘98 forms, CIDB forms, IEM forms, JKR/PWD forms,etc.

B U L E T I N I N G E N I E U R 37

engin

eeri

ng &

law

Ordering of Variations

Most if not all standard forms of conditions of contract20 contain elaborately drafted express provisions spellingout various procedural requirements encompassing theemployer’s right 21 to effect variation to the contract(entered between the employer and the contractor). Aclassic example is Clause 24 22 JKR form 203A (Rev.10/83) 23 which reads:

(a) The SO may at his absolute discretion issueinstructions requiring a variation and he mayconfirm in writing pursuant to Clause 5(c) hereofany oral instruction requiring a variation to theworks. No variation required by the SO orsubsequently confirmed by him shall vitiate thecontract;

(b) The term “variation” means the alteration ormodification of the design, quality or quantity ofthe works as shown upon the contract drawings,Bills of Quantities, and/or specification and includethe addition or substitution of any work, thealteration of the kind or standard of any of thematerials or goods to be used in the works and theremoval from the site of any work, materials orgoods executed or brought thereon by the contractorfor the purposes of the works other than work,materials or goods which are not in accordance withthis contract’.

Provisions similar in content and scope arise in the othercommon ‘Standard’ Forms used in this country. Theseinclude Clause 11.0 PAM ‘98 forms (with and withoutquantities Edn.), Clause 27 PWD form DB/T (2002 Edn),Clause 28 CIDB form (2000 Edn), Clause 23 IEM.CE1/89form and Clause 19 IEM.ME1/94 form.

A meticulous examination of these express provisionsimmediately crystallises the various areas ofmisconceptions and difficulties that practitioners face.These include:

� The employment of a contract administrator 24 asthe official initiator or originator of a variationinstruction automatically excludes the employerfrom the very conception of the variation process; afact little appreciated, especially by privateemployers who ultimately end up mal-administeringthe contract. Such an arrangement also mandates aproper delegation of power to the authorised person;a practice rarely seen in the industry, save for publicsector projects;

� The usage of phrases such as “the SO in his absolutediscretion” apparently shrouds the contractadministrator with an unfettered discretion to orderany variation which he deems necessary. Asdiscussed earlier, this is a myth as the contractadministrator’s exercise of this power is subject tolimitations imposed by the law, in particular thecommon law 25.

� The definition of a “variation” as expressly spelt outin these standard forms is rather vague andinexhaustive. Although catering for most of thecommonly occurring circumstances, it is seriouslydeficient in not encompassing novel and newsituations developing with the contemporary positionof the industry. A typical deficiency involves“omissions”. The provisions neither define this termspecifically nor delineate its extent without fallingfoul of the contractual limitation;

� The physical and additionally financial limits ofvariation work that can be properly ordered by thecontract administrator without breaching thecontract in any way are not stipulated 26. Thisuncertainty and unclarity have led to abuse inpractice and a growing body of variation claimspremised on the basis of “cardinal changes”; asituation that does not auger well for the industryas a whole; and

� The procedural aspects of ordering variations arenot clearly stipulated. Most, if not all standard forms,expressly provide that for such variations to becontractually valid these have to be either “inwriting” or reduced to “in writing”. Sadly, however,the term “in writing” is nowhere defined leaving itto lawyers and legal authorities to interpret its exactambit. With the contemporary practice of the useof new and novel means of communication involvinge-mail and/or text messaging 27, it has become amoot point as to whether these forms fit into thetraditional classification of “written”communication. Much certainty could be broughtinto this area of practice if a concerted attempt ismade to properly formulate and clarify these “rubber”phrases instead of being merely mechanicallyinserted in the contracts.

Measurement of Varied Works 28

Varied work has to be measured as a condition precedentto valuation and payment. The timing, methodologyand the parties responsible are either expressly stipulatedin the applicable express contractual provisions ormutually agreed to by the contracting parties. By andlarge, most if not all the standard forms of conditions ofcontract contain express stipulations pertaining to the

21. Exercised vicariously through the contract administrator.22. Entitled “Variation”.23. Where quantities form part of the contract.24. Variously described as the “SO”, “engineer”, “architect”, etc.25. See Commissioner For Main Roads v Reed & Stuart Pty.

Ltd. & Anor [1974] ALJR 463.26 Although, for example, in Public Works Contracts there are

Treasury Circulars imposing express limits, these are howevernot translated into the contract provisions.

27. Or as popularly known as “SMS”.28. For a more detailed discussion, see Ir Harbans Singh K S

‘Engineering & Construction Contracts Management: Post-Contract Practice’ at Pages 498 to 508.

B U L E T I N I N G E N I E U R 38

engin

eeri

ng &

law

issue of the measurement of varied works. A notableexample is Clause 25 29 of the JKR Form 203A (Rev. 10/83) which states:

‘(a) All variations authorised or subsequently confinedby the S O in writing in accordance with Clause 24hereof shall be measured and valued by the S O.…………….

(b) ……………………………..…(c) ……………………………..…(d) ………………………………..(e) The S.O. shall when he requires any parts of the

works to be measured give reasonable notice to thecontractor who shall attend or send a qualified agentto assist the S.O. or S.O.’s representative in makingsuch measurement and shall furnish all particularsrequired by the S.O. Should the contractor not attendor neglect or omit to send such agent them themeasurement made by the S.O. or approved by himshall be taken to be the correct measurement of thework. The contractor shall be supplied with a copyof the measured bill in respect of the said part orparts of the works.’

Express clauses to a similar effect but in varying draftingstyles are included in other ‘Standard’ forms. For exampleClause 11.4 PAM ‘98 forms (With & Without QuantitiesEdn.), Clause 24 IEM.CE1/89 form, Clause 30 CIDB form(2000 Edn.) and Clause 42 Putrajaya conditions ofcontract.

Although appearing at first blush to be rather straightforward and devoid of any areas of uncertainty, themeasurement stage exhibits its fair share of pitfalls,notable of these being:

� The express provisions assign the responsibility forinitiating, undertaking and completing themeasurement process to the contract administrator;the contractor being a mere participant in the processhis role being additionally confined as to a facilitatorand informant. Unless the contract administrator isan efficient and resourceful person, should heprocrastinate there is no express contractual sanctionthat the contractor can use to expedite themeasurement process. This is especially so wherethe measured

� work involves multi-disciplines. For examplearchitectural, civil works, M&E plant or systems,etc.; 30

� The contractual provisions recognise the need toemploy recognised methods for measuring the variedwork. For example SMM for building works 31 andCESMM for civil engineering works 32. Generally,this poses no problems for building or civilengineering works but the picture is to the contraryfor mechanical and electrical works where it appearsfor the moment there are no industry accepted normsfor the measurement process. Here, unless the partiesagree to a mutually acceptable methodology, themeasurement of the varied work remains arbitrary

and to the apparent whims and fancies of thecontract administrator, a fact readily testified to byM&E contractors having little contractual basis tochallenge such exercise of discretionary powers;

� Even for disciplines where internationally acceptedrules for measurement are specified and acceptedby the parties 33, in practice, there is a tendency forcontract administrators to deviate from the same.The end result is a consistent pattern of undermeasurement as contract administrators attempt toplay safe underpaying the contractor rather than overpaying; leaving to the final account stage for anyupwards adjustment. Once again, unless thecontractor can establish on a balance of probabilitiesa cause of action in negligent or fraudulent conducton the part of the contract administrator, he has norecourse but to bite the bullet and wait for the finalaccount to redress any under measurement.

Perhaps an interim adjudication stage may helpalleviate the instant area of contention; and

� Other areas of concern include the procedural stepsinvolving the contractor’s furnishing of informationto enable the measurements to proceed or hisomission to do so, the attendance by the variousparties at the measurement exercise and the eventualsigning off of the measurement records. Althoughmost express provisions empower the contractadministrator to proceed “ex-parte” in the event ofthe contractor’s default the actual realisation inpractice is not certain as it entails delays in theprocess with an attendant risk of challenges in thepost-measurement stage.

Valuation of Variation Orders 34

Once the varied work has been measured and the recordsthereof appropriately processed, the subsequent stageinvolves the carrying out of the necessary valuation ofthe work in question.

The general principles governing the valuation andreimbursement for varied work have been succinctlyexpounded in the following pronouncement of the LordChancellor in the landmark English case of Thorn vLondon Corporation 35:

29. Entitled ‘Measurement and Valuation of Works IncludingVariations’.

30. Inevitably requiring the input of the Quantity Surveyor,Engineers, etc.

31. As issued by the Institution of Surveyors Malaysia.32. As issued by CIDB, Malaysia or ICE (UK).33. E.g. for building works and civil engineering works.34. See also Valuation of Varied Work: A Commentary by Ir

Harbans Singh K S Vol. 20 Sept. 2003 Bulletin Ingenieur,Pages. 32-42.

35. (1876) 1 App. Cas (HL).

B U L E T I N I N G E N I E U R 39

engin

eeri

ng &

law

“Either the additional or varied work which was thusoccasioned is the kind of additional and varied workcontemplated by the contract or it is not. If it is thekind of additional or varied work contemplated by thecontract, he (the contractor) must be paid for it, andwill be paid for it, according to the prices regulated bythe contract. If on the other hand, it was additional orvaried work, so peculiar, so unexpected, and so differentfrom what any person reckoned or calculated upon,that it is not within the contract at all; then, it appearsto me, one of two courses might have been open tohim; he might have said: I entirely refuse to go on withthe contract – “Non hoec in foedera veni”: I neverintended to construct this work upon this new andunexpected footing. Or he might have said, I will goon with this but this is not the kind of extra workcontemplated by the contract and I do it, I must bepaid a “quantum meruit” for it.’

Hence, in analysng the general principles, it is necessaryto distinguish between varied work that is within thecontract and work that falls outside the ambit of thecontract.

To obviate the necessity of negotiating and mutuallyagreeing upon the rates to be used and the procedure tobe adopted every time work is varied, it is quite commonfor parties to agree upon the specific formulae to beemployed and include these in an express clause in thecontract itself. Examples of such clauses in the localstandard forms of conditions of contract include Clause29 36 CIDB Form (2000 Edn), Clause 24 37 IEM.CE1/89Form, Clause 19 38 IEM.ME1/94 Form, Clause 28 39 PWDForm DB/T (2002 Edn.), Clause 25 40 JKR Forms 203 &203A (Rev. 10/83), etc.

As an illustration, PAM ‘98 form (With Quantities Edn):Clause 11.0 41 stipulates:

‘11.4 Valuation of Variations and Provisional Sums

All variations required by the architect orsubsequently sanctioned by him in writing andall work executed by the contractor followinginstructions of the architect as to the expenditureof provisional sums included in the Contract Billsshall be measured and valued by the architect orthe quantity surveyor as instructed by thearchitect. The contractor shall be given theopportunity to be present at the time of suchmeasurement and may take such notes andmeasurements as he may require.

11.5 Rules for Valuation of Variations

The valuation of variations and of work executedby the contractor for which a provisional sum isincluded in the Contract Bills (other than for workfor which a tender has been accepted under clause27.8) 42 shall, unless otherwise agreed, be madein accordance with the following rules:

11.5(i) the price in the Contract Bills shall determinethe valuation of work of similar character executedunder similar conditions as work priced therein.

11.5(ii) Where work is of similar character to workincluded in the Contract Bills but may not beexecuted under similar conditions the rates in theContract Bills shall, as far as may be reasonable,be the basis of valuation, which shall include afair allowance for the difference in conditions.

11.5(iii) Where work cannot be properly measured andvalued the contractor shall be allowed day workrates at the prices prevailing as far as may bereasonably ascertained at the time that such workis carried out or at the day work rates stated inthe Contract Bills or if no such rates are includedat the actual prime cost to the contractor of hismaterials, transport and labour for the workconcerned plus fifteen per cent, which percentageshall include for the use of all ordinary plant,tools and scaffolding, supervision overheads andprofit. Provided that in any case vouchersspecifying the time spent daily upon the work,the worker’s names, the plant and the materialsemployed shall be delivered for verification to thearchitect or to the quantity surveyor as instructedby the architect not later than seven days afterthe work had been completed.

11.5(iv) The prices in the Contract Bills shall determinethe valuation of items omitted. If omissionssubstantially vary the conditions under which anyrevising items of work are carried out, the pricesof such remaining items shall be valued undersub-clause 11.5(ii).

11.5(v) Effect shall be given to measurement and valuationof all variations in interim certificates and byadjustment of the contract sum.

11.6 Valuation of Direct Loss and/or Expense

If the contractor applies to the architect in writingwithin a reasonable time of the event and thearchitect is of the opinion that a variation inrespect of work which has caused the contractordirect loss and/or expense for which he wouldnot be reimbursed under any provisions in theconditions, then the architect shall from time to

36. “Valuation of Variations”.37. Entitled ‘Measurement and Valuation of Works Including

Variations’.38. Called “Variations”.39. Called “Valuation of Variations”.40. Entitled “Measurement and Valuation of Works Including

Variations”.41. Entitled ‘Variations, Provisional and Prime Cost Sums’.42. Called ‘Contractor Shall Be Permitted to Tender for P.C. Sums’.

B U L E T I N I N G E N I E U R 40

engin

eeri

ng &

law

time ascertain the amount of such loss and/orexpense which amount shall be added to thecontract sum. If an interim certificate is issuedafter the date of ascertainment any such amountshall be added to the amount which wouldotherwise be stated to be due in the certificate.

11.7 Contractor to submit necessary details

The contractor shall in support of his applicationsubmit to the architect upon request such detailsof such loss and/or expense as are reasonablynecessary for such ascertainment under clause 11.6of this condition.’

Despite its seemingly innocuous appearance, valuation ofvaried work is a complex exercise often fraught withuncertainty, arguments and disputes. More often than notit seldom if ever involves objective principles and is proneto the subjective computational decisions of the valuer;not surprisingly therefore serving as a breeding ground foraltercations and subsequent claims. Among the areas ofdifficulty and disagreement include, inter alia, the following:

� The valuation procedure spelt out in most of thestandard forms is overly rigid and gives unrestrictedpower to the valuer 43 to fix the value he deems fitsubject to review (if necessary) by the arbitrator or thecourts. Unless the quantum involved is substantialjustifying the expense of determination by arbitrationor litigation, more often than not, the contractor is“coerced” into accepting whatever figure is decided bythe valuer. This appears inequitable especially for workwhich was originally not within the contractual scopeand for which the contractor has to expend additionaltime and financial resources;

� As for the measurement process, there is no intermediatedispute or disagreement resolution procedure for thevaluation stage. Perhaps the employment of anindependent third party expert determination forum suchas adjudication would restore a sense of balance andfairness pending final resolution at the end of the contractstage. This would certainly afford valuers a third party“fall back” position in areas of doubt or materialdisagreement and the benefit of expert opinion;

� The principal methods of valuation or formulae stipulatedin most standard forms are rather nebulous and difficultto implement in practice, especially where either ratesare missing in the contract or the scope of work varieddoes not easily fit into the “pigeon-holed” formulae.Use of phrases such as “fair valuation’ 44; reasonable“rates” etc. afford no guarantee or certainty to bothvaluers and claimants alike. Instead they act as catalystsfor disagreement and disputes;

� Guidance in the form of explanatory provisions incontracts and/or industry practice procedures is notproffered to practitioners to help implement the morecommonly prescribed formulae such as “use of adjustedrates’ 45, “market rates” 46, etc. leading to arbitraryimplementation in practice much to the detriment ofinterested parties;

� The common method of rationalisation of rates 47 priorto award of tenders is a much abused one sided, arm-twisting exercise where professionalism is sacrificed atthe expense of protecting the so called employer’sinterest. The end result is the linking of a contractdocument with rates not capable of practicalimplementation whereby claimants attempt tocircumvent with ingenious alternatives, inflated claimsand resort to extra-contractual means such as quantummeruit claims;

� Uncertainty and disagreement on the actual scope andimplementation in particular cases of the specificvaluation formulae laid out in the respective conditionsof contract leads to undue feet-dragging andprocrastination by employers and contractadministrators. Therefore, many a varied work remainsunpaid even towards the tail end of a contract 48 makingthe timely issue of the final certificate a rather impossibletask 49;

� Considerable confusion surrounds the valuation of workpertaining to package deal type of contracts. Though thegeneral approach on an international level points to theadoption of the “quotation method” 50, local practitionersappear either ignorant of this or by design refuse to applythe said formula, Instead, frequent use is made of theconventional formulae used in traditional generalcontracts 51. Even for public works contract, the tendencyis to use a variant of the “quotation” method 52, the exactambit of which is still shrouded in uncertainty. Unlessthe situation is rectified in the near future, the state ofaffairs would deteriorate further as more projects seem tobe awarded on the package deal basis; where the“quotation” method would be expected to prevail; and

� None of the standard forms prescribe in detail, thepossible formulae to be used to value defective workthat have been omitted by the employer under the socalled “diminution in value” category. The currentprevailing practice appears to leave such valuation tothe arbitrary discretion of the contract administrator.Perhaps, since such variations do not account for asignificant proportion of all varied work encounteredin a typical contract, this issue is not accorded muchimportance. But as projects increase in complexity anddefective work falling under the said category assumesa greater significance, it may be timely to clarify andamplify on this area of valuation to obviate possibledisputes and claims.

43. Who is for all intents and purposes the quantity surveyor orthe engineer.

44. The moot point is ‘fair to whom’ - the contractor or employer?45. Or where work is of a similar character and/or executed under

similar conditions.46. For M&E Works.47. Unit rates or BQ rates for variation purposes.48. e.g. at the final account and final certificate stage.49. Thereby delaying the final closing-off of a typical contract.50. See B Eggleston ‘The ICE Design and Construct Contract: A

Commentary’ at P71 & 72.51. E.g. “Fair valuation method’, ‘use of market rates’, etc.52. See Cl 28: PWD form DB/T (2002 Edn.).

B U L E T I N I N G E N I E U R 41

engin

eeri

ng &

law

Payments for Variations Ordered

Once the varied work has been executed and the contractadministrator has undertaken the necessary measurementand valuation, the contractor must be accordingly paid.This is usually effected by remunerating the contractorthrough the contractual formula agreed to by the parties,that is, by including such payments in the interim payments.Failure by the employer to reimburse the contractor for thework carried out or any unreasonable delay in effectingthe same is a breach on the former’s part with its attendantconsequences; a fact that must be borne in mind by boththe employer and the contract administrator.

It is rare for the standard forms of conditions of contractnot to stipulate the necessary requirements for the matterat hand. Common examples of such provisions include,inter alia, the following:

� Clause 29.3 53 of the CIDB form (2000 Edn) states:

“The superintending officer shall upon notifying thecontractor of the value of the variation pursuant toclause 29.2 give effect to the valuation of such variationin the following certificate issued by the superintendingofficer pursuant to clause 42” 54

� Sub-clause 11.5(v) of the PAM ‘98 forms (with andwithout quantities edns.) reads:

“Effect shall be given to measurement and valuationof all variations in interim certificates and by theadjustment of the contract sum”.

� Sub-clause 25(f) 55 of the JKR Form 203A (Rev. 10/83) stipulates:

“The amount to be allowed in respect of variations,as ascertained under the provisions of this conditionshall be added to or deducted from the contract sumas the case may be.”

Notwithstanding the above provisions, it is an acceptedfact that in many local contracts, employers and contractadministrators pay little or no heed to this important stageof the variation process, leaving contractors either beingnot paid in time or in extreme cases, not at all. Commonareas of complaints or claims include:

� A large number of employers and contractadministrators cite compliance with the employer’sinternal procedures 56 vis-à-vis approval of orderedvariations as a principal reason for not effectingpayment to the contractor. Contractually, unless suchprocedures are expressly stipulated as pre-conditionsin the contract between the parties, these are of nolegal consequence to the contractor’s entitlement tothe varied work undertaken. In such situations, theemployer may, prima facie, be in breach should he notadhere to the contractual provision regulating thepayment of varied work undertaken;

� Employer’s arbitrarily discounting or cutting down onthe quantum of work certified by the valuer and usingthis as a basis to further negotiate with the contractor;

� Valuers and/or contract administrators refusing toentertain the contractor’s claim for consequentialremedies pursuant to the varied work such as extensionof time, extended preliminaries, etc. or issuing variationorders subject to conditions denying or limiting theright of the contractor to claim extension of time,extended preliminaries, etc.; and

� Non-payment of interest and/or financing charges forvaried work undertaken and certified 57 but not valuedor paid due to reasons not directly attributable to thecontractor and/or not of his making. Many a timesthe delay ensues due to spurious grounds or attemptsby the contract administrators and/or the employer tocreate issues (where none existed before) in an attemptto delay payment.

Conclusion

Variation claims, while seen by many as merely part andparcel of the contractual process and its vicissitudes, is inreality a rather complex matter involving a thorough,understanding of not only the myths; fallacies and pitfallsbut a thorough understanding of the contractual provisions,principles and exercise of professional practice and procedureon the part of all parties associated with a constructioncontract.

Unless all industry players are prepared to play an activerole in resolving the issues raised in an amicable manner, itwill not be surprising if variation claims will remain at theforefront of disputes and claims making their way ultimatelyto arbitral tribunals or the corridors of justice.

REFERENCES

1. Davison, Peter ‘Evaluating Contract Claims’Blackwell Publishing.

2. Eggleston, B. ‘The ICE Design & ConstructContract: A Commentary’ Blackwell.

3. Harbans Singh K S ‘Engineering andConstruction Contract Management: Post-Commencement Practice’ Lexis-Nexis BusinessSolutions.

4. Harbans Singh K S ‘Valuation of Varied Work:A Commentary’ Vol. 20 Sept. 2003 BulletinIngenieur.

5. Knowles, R. ‘100 Contractual Problems and TheirSolutions’ Blackwell Science.

6. Robinson, Lavers, Tan & Chan ‘Construction Lawin Singapore and Malaysia’ [2nd Edn.]Butterworths.

53. Called “Inclusion of variations in interim certificate”.54. Entitled “Payment”.55. Labelled “Adjustment to contract sum”.56. Approval by a V.O. Committee or Board of Directors.57. Especially where are there no express provisions in the

contract permitting the same.

B U L E T I N I N G E N I E U R 42

BEM

engin

eeri

ng &

law