Project variations pose challenges to clients and contractors and cause disputes down the line. Barry Hembling sets out six considerations to help navigate unforeseen changes.
News that Crossrail is facing a £500m cost overrun due, in part, to variations in scope and design is a reminder of the importance of managing changes on projects.
Here are some points to consider:
Be ready to explain
Employers often ask for cost and time assessments before changes are instructed.
As this is now an option in many standard form contracts, contractors should be ready to explain the impact of potential changes. Even when not requested, it is often better to manage expectations from the outset by regular reporting.
The cost of changes, or a mechanism to value them, should be agreed before any variations are instructed. Where costs are to be determined later, check that all changes have been correctly valued.
Although the contract pricing documents can be used to identify rates or prices for varied works, these will only be relevant to changes that involve work of a similar character, and/or those that are executed under similar conditions. If changes are different in character or are completed in more challenging circumstances, a higher rate could be justified.
When pricing varied works, include any clarifications at the time the price is given.
In a February 2018 case concerning variations, the court held that the contractor’s price was not fixed but subject to final remeasurement upon issue of finalised construction drawings. This has been made clear by the contractor in each change order.
Put it in writing
Disputes can easily arise where oral instructions have been issued, so these should be promptly reconfirmed in writing.
This is now a requirement in many standard form contracts and so good contract management is important. In the JCT 2016 design-and-build contract, for example, oral instructions may not be conclusive for 14 days and only following the contractor’s written confirmation (clause 3.7).
This effectively provides the employer with a chance to reconsider instructions previously given orally. Problems can arise where a contractor has acted on the oral instruction but where the employer decides not to confirm it. Read the contract carefully.
While following the contractual change procedure is preferable, failure to do so may not prevent post-completion adjustments.
In a case concerning the construction of a naval base, the contractor argued that as the parties had stopped implementing the agreed change procedure, the contractual target cost and maximum price arrangements should be disregarded, with the contractor being paid its actual costs plus profit.
The court rejected the contractor’s arguments and upheld the parties’ bargain. The mechanism for adjusting the target cost through changes could still be operated post-completion.
Careful when omitting
Changes do not just mean additions to scope; they can also include omissions.
There is no general entitlement to omit works unless the contract permits. Where there is a proposal for works to be omitted, check the contract first, as omitting works without entitlement could result in a claim for damages.
The most successful projects are those that keep changes to a minimum, but sometimes they are simply unavoidable. Variations present challenges to both employers and contractors and can be the cause of later disputes.
By properly managing the process and taking professional advice, risks from varied works can be minimised.
Barry Hembling is a partner in the construction and engineering team at Fladgate