Understanding VARIATIONS in Construction Contracts: as per FIDIC 1987 Red Book (4th Edition).

In the realm of construction, the term "variation" encompasses changes made to the predefined scope of works within a project (a "variation" refers to any change made to the original scope of work). These alterations can take various forms, ranging from adjustments in the quantity or quality of specific tasks to modifications in project specifications or the introduction of entirely new elements not initially included in the original project plan. Variations may arise due to shifts in client requirements, unforeseen site conditions, technical feasibility concerns, design enhancements, or even external factors such as shifts in government regulations.

Effectively managing variations is crucial to ensuring that construction projects remain on track, meeting client expectations, and staying within the bounds of contractual agreements. It involves documenting and evaluating these changes, determining their impact on project costs and schedules, and reaching a consensus on how to address them within the framework of the construction contract.

The process of handling variations is a fundamental aspect of construction project management, as it helps maintain project clarity and transparency while accommodating evolving project needs. This article delves deeper into the topic, providing a more detailed and thorough exploration of the variations in construction.

Variation as per 1987 FIDIC Red Book (4th Edition).

These variations can involve increasing or decreasing the quantity of work, changing the quality or character of work, altering dimensions or positions, executing additional work, or modifying the sequencing and timing of construction. The ability to handle variations efficiently is essential in construction projects, as they often arise due to evolving client requirements, technical constraints, or other factors.

Let's explore each type of variation as in FIDIC 1987 sub-clauses along with an example for better understanding.

1. FIDIC 1987 Clause 51.1 [Variations]

This clause likely pertains to the Engineer's authority to issue instructions for variations and alterations in the scope of work. It outlines the conditions under which the Engineer can direct changes to the contract.

(a) Increase or Decrease in Quantity: This type of variation involves changing the amount of work included in the original contract. For example, if a client decides to expand a residential building project by adding an extra floor after the construction has started, it constitutes an increase in quantity. Conversely, if the client decides to reduce the number of rooms in the project, it would be a decrease in quantity.

(b) Omission of Work: Omitting work means removing certain elements of the project from the original scope. But, not if the omitted work is to be carried out by the Employer or by another contractor. An example of this could be if the client initially planned for a swimming pool in a residential project but later decides to eliminate it due to budget constraints.

(c) Change in Character or Quality: This type of variation involves altering the specifications or standards for the work. For instance, if a client originally specified standard quality materials for a building's flooring but later decides to upgrade to premium quality materials, it results in a change in character or quality of work.

(d) Alteration of Levels, Lines, Positions, and Dimensions: This variation pertains to changing the elevations, alignments, or physical positions of project components. For example, if during construction, it's discovered that the foundation of a structure needs to be adjusted to accommodate unforeseen geological conditions, it necessitates an alteration in levels and dimensions.

(e) Execution of Additional Work: Additional work variations involve work that was not initially part of the contract but is deemed necessary for project completion. Suppose a client decides to add landscaping to the project midway through construction; this would require executing additional work.

(f) Changes in Sequence or Timing: This type of variation relates to modifying the planned sequence or timing for specific construction activities. For example, if a client wants to expedite the construction of a building's exterior cladding before the interior finishes due to weather concerns, it would necessitate a change in the specified sequence or timing.

2. FIDIC 1987 Clause 5.2 [Priority of Contract Documents]

This clause typically deals with the responsibility of the contractor to execute the works as per the contract and drawings. It often addresses compliance with local laws, regulations, and permits.

3. FIDIC 1987 Clause 7.1 [Supplementary Drawings and Instructions]

This clause generally covers the contractor's obligations regarding the commencement of work, including when and how the works should begin. It may specify the notice that the contractor must provide to the Engineer or Employer before starting the works.

4. FIDIC 1987 Clause 13.1 [Work to be in Accordance with Contract]

This clause commonly addresses suspension and termination of the contract. It outlines the circumstances under which the contract can be suspended or terminated, and the procedures to be followed in such cases.

5. FIDIC 1987 Clause 18.1 [Boreholes and Explaratory Excavation]

This clause typically pertains to the role of the Engineer, including their authority and responsibilities in administering the contract. It often defines the Engineer's duties regarding decision-making, valuations, and dispute resolution.

"varied works" also typically refer to changes or variations in the scope of work under the contract. Here's what each of these clauses represents.

1. FIDIC 1987 Clause 20.3 [Loss or Damage Due to Employer's Risks]

This clause deals with the financial aspects of varied works. It outlines the process for determining the value of additional work (varied works) and whether it results in additional payment to the contractor or savings in the contract price. It provides a mechanism for assessing and adjusting the contract price when there are changes to the scope of work.

2. FIDIC 1987 17.1 [Setting-out]

This sub-clause deals with claims by the contractor. When there are varied works or other contract-related disputes, this clause provides a framework for the contractor to make claims for additional time or money due to these changes or disputes. It specifies the procedures for making claims and how they should be handled.

3. FIDIC 1987 31.2 [Facilities for Other Contractors]

This clause is related to the financial aspects of varied works. It establishes the procedures for providing evidence to support claims for interim or additional payments due to variations in the scope of work. It outlines the documentation and information that should be provided to substantiate these claims.

4. FIDIC 1987 49.3 [Cost of Remedying Defects]

This clause pertains to the final payment under the contract. When there are varied works or other disputes affecting the final contract price, this clause outlines the procedures for determining the final payment amount. It covers issues related to making the final payment to the contractor.

5. FIDIC 1987 65.3 Damage to [Works by Special Risks]

This clause addresses situations where parts of the work may be omitted or substituted. Omissions and substitutions can be considered types of varied works. This clause typically outlines the procedures and approvals required for making such changes and the associated cost and time implications.

In essence, these clauses in the FIDIC 1987 Red Book provide the framework for handling issues related to varied works, claims, payments, and modifications to the contract scope. They are important in managing changes and variations that may occur during the course of a construction project. However, it's essential to refer to the specific terms and conditions of your contract for precise details and procedures related to these clauses.

In all these cases, it's essential to have a clear process in place for documenting, evaluating, and approving variations to ensure that they are properly managed and do not disrupt the project's overall progress and budget.

Change Management (Variations) Process.

Here is a comprehensive explanation of each step in the Construction Change Management (Variations) Process.

1. Cost and Time Impact Assessment: When a potential variation is identified, the first step is to assess its impact on both cost and time. This involves an initial analysis to estimate the additional or reduced costs that the variation will incur and the potential delay it may cause to the project schedule. This step is crucial for understanding the ramifications of the proposed change.

2. Request Approval from the Client: After the impact assessment, the contractor typically submits a formal request for approval to the client. This request outlines the details of the proposed variation, including the reasons for the change, expected cost implications, and potential schedule adjustments. The client then reviews the request to determine whether it aligns with the project's objectives and contractual terms.

3. Contractor Can Propose Value Engineering Savings: In some cases, the contractor might not only identify changes that increase costs but also propose value engineering options to reduce costs or enhance project value. These proposals can be part of the variation process, with potential cost savings shared between the parties if accepted.

4. Issue Engineer Instruction (EI): If the client approves the proposed variation, an Engineer Instruction (EI) is issued by the client's engineer or architect. The EI formally communicates the change in project scope and instructs the contractor to proceed with the variation. The EI typically contains detailed information regarding the change's scope and any specific conditions.

5. Contractor to Submit Impact Assessment: Once the EI is issued, it is the contractor's responsibility to prepare a detailed impact assessment. This assessment provides a comprehensive breakdown of the variation's effects, including adjustments to the project schedule, updated cost estimates, and other relevant information.

6. Review by Engineer's Representative: The engineer's representative, who acts on behalf of the client or engineer, reviews the contractor's impact assessment. They assess the accuracy and validity of the information provided by the contractor, ensuring that the proposed costs and time impacts are reasonable and justifiable.

7. Review and Approval by the Engineer: Following the engineer's representative's review, the engineer or architect representing the client conducts their evaluation of the impact assessment. They consider the proposed variation's implications, assessing whether it aligns with the project's contractual and technical requirements. If the engineer approves the variation, it can proceed to the final step.

8. Engineer Prepares Variation Order and Signed by Both Parties: The engineer's representative then prepares a formal Variation Order documenting the approved change in detail. This document is signed by both the client and the contractor, formalizing their agreement on the variation. It is a legally binding document that becomes part of the contract and ensures all parties are aware of and committed to the scope change.

Throughout this process, clear and effective communication is essential to prevent misunderstandings and disputes, as variations can significantly impact a construction project's time, cost, and overall success. Proper documentation, adherence to contract terms, and transparent collaboration between all parties are key to a successful Construction Change Management (Variations) Process.

Special courtesy >>> Chandika Dassanayaka MRICS, MAIQS, CQS, MCIOB, AIQSSL, FQSi, MIIE (SL)