How are variations to the specification for engineering or construction works normally dealt with?
The owner is allowed to change the scope of the works provided that its variations do not exceed 20 percent of the total price of the works, that the associated costs are paid to the contractor and that the date for completion of the works is extended. If the variations exceed 20 percent, they have to be agreed between the parties. If the changes result in a decrease of cost or work, the contractor is entitled to the agreed price with deduction of the amount saved on expenses.
Variations requested by the contractor require the owner’s consent or acceptance and the owner will not be liable for any additional costs arising from variations if they are attributable to the contractor.
If the variations are necessary and are caused by a third party or due to technical requirements, parties must agree on the price and time for completion of works, otherwise the court will decide. The contractor may terminate the construction contract if the cost of the variations exceeds 20 percent of the total works price.
The additional works ordered by the owner must be the result of unpredictable circumstances and
The contractor is required to execute additional works unless he exercises the right to terminate the contract. The owner can also determine the reduction of the works scope. When, as result of variations, there is a decrease of more than 20 percent of the initial price, the contractor may terminate the contract.
Variations requested by the contractor require the owner’s consent. If those variations result in savings, the contractor is entitled to half of its value.
If a best-efforts obligation is assumed by the contractor, the client must prove that there has been recklessness, wilfulness or negligence in the contractor’s performance that caused the variation.
Precedents and doctrine provide that each party’s duty of performance is implicitly conditioned on there being no uncured material failure of performance by the other party. Minor or immaterial deviations from the contractual provisions don’t amount to failure of a condition to the other party’s duty to perform but must be compensated to the non-breaching party.
Contractual mechanisms for dealing with variations to the works vary depending on why the variation is requested:
A modification or alteration of the specification of an engineering or construction contract can only occur by contractual agreement between the parties. A change in the scope of the specification (for example where the extent of the works is increased or decreased) will commonly be contractually determined in engineering and construction contracts relating to major projects.
Where there is no contractual arrangement concerning a variation, and where the specification of an engineering or construction contract is unilaterally and to a major extent varied by the principal, Article 1794 of the Belgian Civil Code may apply. This article places an obligation on the principal in the event of a unilateral termination of a contract for the delivery of work, in order to compensate the contractor (ie the engineer or the contractor) for his expenses, his work and all that he could have earned if the contract had not been terminated.
In the context of a public contract, modifications are only permitted in so far as these are not material. A modification is material if:
(see in this regard articles 38/2 et seq. of the Royal Decree of 14 January 2013 on the general execution rules of public contracts).
Any changes to the specification for engineering or construction work should normally be concluded in writing in the form of an appendix to the original agreement. These changes must be approved by relevant administrative bodies through a re-issue of the relevant urban permit and construction permit, before any such changes can be actually be implemented.
The Brazilian Civil Code (article 625, III) allows the employer to modify the scope of work under a lump-sum agreement, provided that they pay the contractor for the variations.
A specific provision in the Brazilian Civil Code (article 619) stipulates that the employer will be obliged to pay the contractor for variations in the scope of work if the employer has always been present on the construction site through recurring visits and, therefore, could not have been unaware of such changes made by the contractor.
Since there are no detailed statutory provisions in this respect, the parties must establish the procedure for changing the scope of work (ie change order), defining the method of calculating the price under a change, such as the unit prices listed in the contract appendix for materials and services; the average price of third parties quotations; reimbursement of costs with a margin.
The parties may agree to limit change orders to a specified percentage of the work or to prohibit the employer from requesting a reduction in the work.
Regarding modifications made by the contractor, the Brazilian Civil Code (articles 615 and 621) states that the contractor is not allowed to modify the project without the employer’s consent, except supervisory or technical reasons, provided that carrying out the project in its original form would not be convenient or would cause excessive burden. Exceptions to this rule, which allows contractor’s variations, are those of insignificant value that do not result in aesthetics changes.
In case of significant variations that are no longer in line with the original design, the employer may have to obtain a new building permit.
Contractual mechanisms for dealing with variations to the works vary depending on why the variation is requested:
The way in which variations are dealt with varies from agreement to agreement. Construction agreements generally provide that any variations require employer approval. Variations are generally assessed on the basis of either agreed rates or government specified rates.
Modifications or variations to the specifications of engineering or construction works can be dealt with in different ways, depending on the circumstances, the parties and what is established in the contract between the parties. Some of the common ways of dealing with modifications are:
Contractual mechanisms for dealing with variations to the works vary depending on why the variation is requested:
In case of 'turnkey contracts', the agreed price includes all unforeseeable and surplus works, but the deficiency of works does not have an impact on the agreed price, unless the change of the scope of works has either been agreed by the contractual parties or has been caused by the client.
There are specific provisions which deal with these questions. In general, we can divide them into two groups: there can be changes on the part of the client and changes on the part of the contractor. The client is usually entitled to request variations to the project. This gives the contractor the right to claim reasonable increased expenses and additional time for completion. If there are changes on the contractor's part due to the contractor’s default such as errors, delays, defects etc, then, in most cases, the client is not obliged to provide additional payments or time. The contractor is liable for any damage and delays it causes to the project. Unavoidable events, however may suspend a contractor’s liability.
Under the general conditions in the standard construction contracts, AB 18 and ABT 18, the employer has the right to request variations to the works. The building contractor is entitled to undertake such alterations, unless the employer included special conditions, which justify that the performance of the work be undertaken by others. If the contractor is entitled to undertake alterations the contractor will also be entitled to additional payments and time.
If variations are made because of the contractor's error, delay or default, the contractor will not be entitled to additional time or payment.
Even when AB 18 and ABT 18 are not agreed between the parties, the provisions above are commonly found in most construction contracts.
The contractual mechanisms used to deal with variations to the works differ depending on why the variation is requested:
The scope of works and services to be provided by the contractor depends on the specifications (Leistungsverzeichnis) which usually give all necessary information.
In principle variations can be made in the scope of the performance set out in the specifications at any time. Agreements on supplementary performance or variations or follow-up orders (Nachträge) are of great practical importance. However, subsequent modifications to the scope of performance or to other circumstances may lead to a change in the contractor’s right to remuneration. Under the contracting rules for the Construction Contract Procedures Part B (VOB/B) the following five reasons may result in a contractor being entitled to demand additional remuneration:
In view of such potential additional claims, variations should be kept to a minimum by means of careful planning in advance.
All forms of standard contracts commonly used in Hong Kong provide for the architect/contract administrator to order variations. In general, instructions to the contractor to carry out works which fall within the scope of works as set out in the contract will not constitute a variation and are part of the contractor's contract price.
Most standard form contracts contain complex mechanisms for valuation of and payment for variations. The Agreement and Schedule of Conditions of Building Contract for Use in Hong Kong – Standard Form of Building Contract (Private Edition) (HKIS) provides for variations to be valued in accordance with the prices in the contracts bills (namely, bills of quantity) for "work of similar character executed under similar conditions". Therefore, as long as the varied works are similar to works which are priced in the contract bills, the prices (or rates) as contained in the contract bills must be used, even if the result would be unduly profitable or unprofitable for the contractor. This is because the rates or prices are agreed by the parties and they are not entitled to vary them unilaterally.
However, if the subject of variation is not within the scope of the bills of quantity, the parties may have to agree on the price of such works. Failing which, the price may be determined by a neutral third party who will then fix a reasonable and fair price for such works.
As a general rule, the employer may instruct the contractor and request variations to the construction works. If the requested variations affect the original technical specifications, the contractor may become entitled to additional fee(s) and extra time for completion.
Under most standard form contracts, the employer has the right to request variations to the works by way of instruction via the architect (under the RIAI form of building agreements), for which the building contractor is entitled to additional time and money.
Where variations are necessary due to the building contractor's error, omission, delay or default, the contractor is not usually entitled to additional time or money under the contract. The contractor is liable for any delay caused to the project by these variations.
Contractual mechanisms for dealing with variations to the works vary depending on the variation.
The contractor cannot vary the agreed technical specifications unless authorized by the client in writing. The client can request the removal of unauthorized variations. Even if the variations have been expressly authorized, if the price of the entire work is determined as a lump sum amount, the contractor cannot receive any consideration for the variations or additions, unless agreed otherwise.
Variations to the technical specifications can be made and the relevant costs determined by a judge if both:
In practice, these variations are only made due to changes in the law during the construction.
If the cost of the necessary variations exceeds one sixth of the agreed total price, the contractor can withdraw from the contract and receive, depending on the circumstances, a reasonable indemnity. The client can also terminate the contract if the variations are material. However, the parties often agree that the costs of the necessary variations are divided between the parties and that the contractor waives its right to terminate the contract if variation exceeds the above limit.
Variations ordered by the client cannot:
The parties of a private construction contract usually agree to depart from the above limitations.
Even if agreed as a lump sum, the contractor can request compensation for the extra costs arising from variations requested by the client.
The standard construction contract form includes a provision to deal with variations to the works and specifies which party may request variations:
It is possible to make variations to the works while they are being carried out, either at the instruction of the client, or - with the clients consent - at the instigation of the contractor. In the latter case, the design responsibility will, in principle, be borne by the contractor. Any addition to or reduction in cost as a consequence of these variations should be agreed on by the parties. Additional rules regarding these costs apply depending on the general conditions or legal regime which applies.
Throughout the contract works, the contractor may become entitled to “variations.” A variation to the contract works is an alteration to the scope of contract works in the form of an addition, substitution or omission from the original scope of works, and based on what the variation is, the value of variations will be added to, or deducted from, the contract price.
Throughout standard contracts, many items are expressly considered to be variations, including, for example, if the engineer suspends the work for a reason other than a default on the part of the contractor.
Standard form construction contracts usually contain provisions that guide the parties’ relationship in the event that a variation is required and matters such as variations, the formalities, valuation of the works and payment for the variation works would be covered thereunder.
Generally, where the variation is authorized by the employer, the contractor is usually entitled to claim payments for the variation and may request for an extension of time to carry out the variation works. Unauthorized variations by the contractor will amount to a breach of contract for which damages are recoverable by the employer.
Contractual mechanisms for dealing with variations to the works vary depending on the reasons for the requested variation:
Under most standard-form contracts, the employer has a right to ask for variations to the works, for which the building contractor is entitled to an extension of time and compensation for extra costs. However, there is normally a limit to the scope of variations the employer is entitled to ask for. The contractor will not normally be obliged to undertake variations that would result in additional costs that would exceed 15% of the contract price or undertake changes that are of a substantially different nature to the work that was originally agreed.
Where variations are necessary due to the building contractor's error, delay or default, the contractor is not usually entitled to additional time or money under the contract. He is liable for any delays caused to the project by these variations, and where the variation means that the work has not been carried out in accordance with the contract.
Contractual mechanisms for dealing with variations to the works vary depending on why the variation is requested. Most contracts will provide that the client has the right to request variations to the works, for which the building contractor is entitled to additional time and money. The building contractor is also entitled to raise reasonable objections to material changes. Where variations are necessary due to the building contractor's error, delay or default, the contractor is not usually entitled to additional time or money under the contract. The contractor is also liable for any delays caused to the project by these variations, and where the variation means that the work has not been carried out in accordance with the contract.
The Civil Code regulates private works contracts and, in relation to additional or complementary works, it states that the contractor may only perform such works with the consent of all involved parties and if the works are necessary for the completion of the original contract or if they result from unforeseeable circumstances. The contractor must notify the developer of the need for additional works and the parties must agree on the scope and the price of the additional works.
Regarding price adjustments, the Civil Code allows for price revisions if there are changes in the work scope or if the cost of labour and materials increases significantly beyond what was initially estimated. The parties may agree on the terms and conditions of price adjustments at the time of contracting. If no such agreement is reached, the developer must pay the contractor a fair price for the additional work. However, the price of the works cannot be increased in cases where the increase results from defects or omissions attributable to the contractor.
The Public Contracts Code in Portugal regulates the execution of additional or complementary works and states that they may be carried out under certain conditions, such as being necessary for the proper execution of the contract or resulting from unforeseeable circumstances. The contractor must submit a request for authorization to carry out such works, which will be evaluated by the developer.
In terms of price adjustments, the Public Contracts Code allows for variations in the initial contractual price under certain circumstances, such as changes in the scope of the work, unforeseeable circumstances or changes in applicable legislation. The developer may also agree to adjust the price if the contractor presents evidence of increased costs due to factors beyond their control. However, any price adjustments must be based on objective criteria and subject to the approval of the contracting entity.
Given the exceptional situation verified in the supply chains resulting from the global energy crisis, the COVID-19 disease pandemic and the war in Ukraine, and its consequential increases in the prices of raw materials, materials and labour, an extraordinary price review mechanism applicable to public works contracts was enacted which aims to adapt the form of price review that exists in the relevant contract to the actual and effective structure cost of the contract. This review mechanism is enshrined in the Decree-Law No. 36/2022, of 20 May 2022, and envisages accommodating the changes in the prices of materials, labour and equipment support (under the terms already defined in the Decree-Law No. 6/2004, of 6 January 2004).
This exceptional and temporary regime of extraordinary price revision depends on the contractor's initiative and was designed especially for public works contracts whose ordinary price revision is mandatory pursuant to the provisions of the article 382 of the Public Contracts Code. However, this regime applies also, with the necessary adaptations, to public contracts for the acquisition of goods and services.
In everything that is not expressly provided for in Decree-Law No. 36/2022, of 20 May 2022, are applicable the rules contained in the Decree-Law No. 6/2004, of 6 January 2004.
Normally variations to the specification for engineering or construction works may be requested by the engineer at any time prior to the issue of the completion minutes.
Such variations may include:
Where the engineer requests a variation the contractor must respond in writing as soon as practicable, either giving reasons why he cannot comply (if this is the case) or by submitting:
The engineer shall, as soon as practicable, approve, disapprove or make comments on the contractor’s response. Normally, each instruction to execute a variation, with any requirement for adjusting costs, is issued by the engineer to the contractor who then approves it.
Variations to the specification for engineering or construction works will affect the price.
If the contract for work is under the Civil Code, it has to be differentiated between a fixed price and a price on estimation. An increase of the fixed price can be pursued only with the consent of the client, otherwise it is entitled to withdraw from the contract. In the case of a price on estimation, the contractor shall inform the client of any substantial excess of the price (by at least 10 percent to 20 percent of the original price) in writing. If it neglects to do so, it is not entitled to the increased payment. After notification of a new increased price, the client is entitled to withdraw from the contract. The withdrawal has no effect on the obligation to pay the price works already carried out according to the price previously determined.
The Commercial Code distinguishes between quantitative and qualitative changes to the works, with the following effect on the price of the works:
The changes to the specification for engineering or construction works will most commonly be reflected in the contract for work or construction contract. Therefore, it is advisable to conclude an addendum to the contract for work in writing with precise specification of the variations.
The developer may request reasonable changes to the works at any time. After such a request, the contractor gives an estimate of the additional time and money involved in the variation and the developer is normally free to hire another contractor at a reduced price to carry out the works. In such cases it is very important to agree with the general contractor in advance any coordination fee to which it may be entitled should new contractors become involved in the works.
Where variations are necessary because of the building contractor's error, delay or default, the contractor is not usually entitled to any additional time or money under the contract. He is also liable for any delays caused to the project by these variations, or where the variation means that the work has not been carried out in accordance with the contract.
If the general contractor assumes responsibility for design, the obligation to adapt the works in the event of a change in the law is imposed on the contractor. Liability for this obligation is, in any case, usually capped.
Under the General Conditions for Contracts - AB 04 and ABT 06 - the contractor has a right and a duty to carry out alterations and additions to the construction works. Even if the alterations or the additional works are not prescribed by the employer, the contractor may be entitled to compensation for carrying out the work if the construction site or any other data is found to differ from what the employer has represented or from what the contractor has the right to assume.
Variations to the scope of the works can be made pursuant to the parties agreement in the construction contract.
The standard position is that the employer has the right to request variations to the works, for which the building contractor is entitled to additional time and money.
Where variations are necessary due to the building contractor’s error, delay or default, the contractor is not usually entitled to additional time or money under the contract. The contractor is also liable for any delays caused to the project by these variations, and where the variation means that the work has not been carried out in accordance with the contract.
The standard position is that the employer has the right to request variations to the works, for which the building contractor is entitled to additional time and money. The building contractor is also entitled to raise reasonable objections to material changes.
Where variations are necessary due to the building contractor's error, delay or default, the contractor is not usually entitled to additional time or money under the contract. The contractor is also liable for any delays caused to the project by these variations, and where the variation means that the work has not been carried out in accordance with the contract.
Under most standard form contracts, the employer has the right to request variations to the works, for which the building contractor is entitled to additional time and money. The building contractor is also entitled to raise reasonable objections to material changes.
Where variations are necessary due to the building contractor's error, delay or default, the contractor is not usually entitled to additional time or money under the contract. He is also liable for any delays caused to the project by these variations, and where the variation means that the work has not been carried out in accordance with the contract.
Generally, changes to the work can be made to the drawings and specifications by using one of three methods, as follows:
Construction contracts typically provide that the design professional may make minor changes in the work without change to the contract time or contract price. For example, the AIA A201 General Conditions of the Contract for Construction gives the architect the authority to order minor changes as long as those changes do not require adjustments to the contact price or contract time and are consistent with the contract documents. Changes meeting those criteria are binding on both owner and contractor.
If the change is more extensive than a minor change to the work, then the change can be made by a written amendment to the construction contract, known as a change order. A change order provides for variations in the work where the architect, owner, and contractor agree as to the scope of the changed work and any increase or decrease to the contract price or time. The compensation for changed work might be a lump sum agreed upon at the time the need for change in work arises, or unit prices already provided for in the construction contract, or the cost of the work plus a fee, which fee is a percentage set forth in the construction contract to be applied to the cost of the work. Generally, the architect prepares the written change order and all parties execute it. As stated in payment, the change order should set forth all of the details of the work, including the scope, cost, and time of the changed work.
If the parties cannot agree on the changed work, the owner may unilaterally order a change in the work by issuing a construction change directive signed only by the owner. The method of calculating the contractor’s compensation for changed work in the event the parties cannot reach agreement should be set forth in the contract and that calculation is then applied to the changed work should the need arise. For example, a common method of calculating compensation for changed work absent mutual agreement is to pay the contractor the cost of the work plus a percentage of such cost for profit and overhead. The AIA A201 General Conditions of the Contract for Construction uses that approach, providing that the contractor is entitled to the sum of the costs of the following: labor, equipment, material, supplies, supervision, premium for any additional insurance coverage required and additional field office costs. The contractor also is entitled to a percentage of the foregoing sum as compensation for profit and overhead.
Variations to specifications that far exceed the scope of the work are known as cardinal changes. A contractor cannot be forced to perform a cardinal change; rather, a cardinal change constitutes a breach of the contract. Whether a change is a cardinal change is decided on a case-by-case basis, but an example might be adding a fourth story to building that initially was to be three stories. The contractor generally cannot be forced to perform changed work that far exceeds the scope of the work.
Variations are normally dealt with in the construction contract agreed between the parties, which will prescribe the scope and nature of the allowable variations as well as the procedure to be adopted where a variation to the works is requested. Should the contract not address variations to the works, the parties would need to agree in writing, in keeping with the contract’s non-variation clause. To the extent that the variations are within the scope of any authorised plans or permits from the local authority or other such inspector, these variations will require the aforementioned persons’ approval.