Clause 13: Variations and Adjustments

Written by George Rosenberg 1

The Power to Vary and its Limitations foresee. It is thus difficult to see how any variation
at all could fail to be caught by this test.
While the process of ordering a variation has not
changed dramatically, the 2017 edition Two significant limitations now expressed for the
substantially clarifies the limits on (some may say first time allow the Contractor to object where the
“additionally limits”) the Engineer’s power to vary. variation may adversely affect its ability to meet
health and safety and environmental protection
Under the 1999 and all earlier editions, the power obligations.
to vary was expressed in open-ended terms and it
was left to the underlying law to say whether or not The final provision may also have unexpcted
this power was limited. Most legal systems do consequences. This is set out in Sub-paragraph
recognise that variations cannot depart 13.1(e) which allows the Contractor to object where
significantly from the original scope of the contract. the variation “may adversely affect the
Under English Law there is probably an implied Contractor’s obligation to complete the Works so
term, based on the concept of business efficacy, that they shall be fit for the purpose(s) for which
that instructions should be reasonable and not they are intended in accordance with Sub-Clause
stray ‘outside the Contract’. However, this was not 4.1 [Contractor’s General Obligations].”
spelled out and always left room for argument. Sub-Clause 4.1 imposes on the Contractor the
obligations:
In a change which will be welcome to Contractors
they are now given an express right to object when • To execute the Works in accordance with the
the varied work was “Unforeseeable having regard Contract. This would normally require
to the scope and nature of the Works described in obedience to VO’s, but Sub-Paragrpah 13.1(e)
the Employer’s Requirements.” This is a provision creates an exception.
that is capable of dramatically changing the concept
of what may be the subject of a Variation under the • To ensure that “when completed the Works
contract. “Unforeseeable” is defined in Sub-Clause shall be fit for the purposes for which they are
1.1.87 as “not reasonably foreseeable by an intended as defined and described in the
experienced contractor by the Base Date”. “Base Employer’s Requirements”.
Date” is the date 28 days before submission of
tender. Sub-Clause 13.1. (a) adds the additional The language here is different from that used in the
glossthat regard must be had to the scope and 1999 Edition and, in the context of Variations, this
nature ofthe Works as described in the Employer’s causes important consequences. The 1999 Edition
Requirements. required the Works, when completed to be fit for
the purposes “as defined in the Contract”. As a
While an experienced contractor will assume that Variation changed the effect of the Contract, the
there will be some variations during the course of fitness for purpose obligation adjusted accordingly.
the Works, he would have to be possessed of quite It can be seen that, under the 2017 edition a
extraordinary foresight to know what each one of Variation, would have to specifically amend the
these would be. By definition a variation is likely to Employer’s Requirements if it were intended to
be something which the Employer, advised impact the purpose for which the Works are
(hopefully) by an experienced engineer also did not

1
George Rosenberg is a Consultantat Corbett & Co. International Construction Lawyers Ltd. He can be contacted at [email protected]

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intended. In the absence of a change to the Objections by the Contractor
Employer’s Requirements, a change which affects
the ability of the Contractor to achieve the purpose There is also a new and clarified procedure for
intended as defined in the Employer’s objection by the Contractor. Unusually for the 2017
Requirements is a ground to refuse to comply with edition there are no clear time limits for this
the Variation instruction. process. The Contractor must give notice
“promptly” and the Engineer must also respond
Thus, where the Engineer is faced with an objection “promptly”.
under ground (e), one way of dealing with it would
be to vary the Employers’ Requirements so that the Some of the value for the Contractor is taken out of
Contractor, while carrying out the Variation, can the provision as the Engineer is given the option to
still comply with them. cancel, confirm or vary the instruction which will
then be treated as a Variation, even if it in fact
Sub-Clause 1.1.33 [Employer’s Requirements] continues to exceed the Engineer’s powers.
defines the term and includes the document
included in the Contract and “any additions and If the Engineer chooses to cancel, there is clearly no
modifications to such documents in accordance problem. If he chooses to vary and the Contractor
wih the Contract.” still finds there is an objection, there seems to be no
reason why the Contractor cannot again give notice.
However Sub-Clause 3.2 prevents the Engineer However, if the Engineer chooses to confirm the
from amending the Contract or “to relieve either instruction, this effectively means that it is rejecting
Party of any duty, obligation or responsibility the Contractor’s assertions. There will thus be a
under or in connection with the Contract.” dispute between the parties as to whether or not the
Contractor’s complaint is valid.
There is thus a question as to whether a Variation
can override Sub-Clause 3.2 by empowering the As the right to refuse is an absolute one, a brave
Engineer to vary the Employer’s Requirements Contractor might continue to refuse to perform the
(which in this case would have the effect of Variation. The safer course will be to continue and
relieving the Contractor of one of its obligations carry out the Variation instruction. In those
under the Contract.) circumstances the Contractor will certainly have
put the Engineer on notice that the Variation is
There is nothing in Sub-Clause 13 which says this likely to be costly and/or cause significant delay or
and it therefore has to be assumed that the that the adequacy of the final product will be
Engineer cannot amend the Employer’s adversely affected unless the Contractor makes
Requirements. other changes in order to achieve safety, its
guarantees or fitness for purpose obligations, for
In order to overcome this difficulty, the Employer the Cost of which it intends to claim.
will need to attempt to reach agreement with the
Contractor and enter a supplemental agreement. The additional cost may arguably be included as
This puts great bargaining power into the part of the valuation of the Variation (see below) or
Contractor's hands and may mean in practice that a may only be claimable on the basis of an allegation
variation which may require a change to the that the Engineer has exceeded his authority. It is
Employer’s Requirements is not possible. particularly important for the Contractor to take
care in these circumstances. As will be seen below,
the valuation of a Variation takes place without the
need for the Contractor to give a notice under
Clause 20.2. However, a claim for breach of

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contract does require a Clause 20.2 Notice. Thus, if The Process of Variation
a Contractor has given notice and the Engineer has
confirmed the instruction, the Contractor should The 1999 edition provided that VO’s could be
immediately give notice under Clause 20.2 commenced by either a direct instruction or by a
(repeating what it has said in its notice under the request for proposal followed by instruction. The
present Sub-Clause and adding any additional 2017 edition follows the same model.
relevant information) so as to set the basis for a
claim for additional payment and an extension of Valuation of Variations
time if the Engineer later declines or fails to include
the additional costs in its valuation of the VO. Following an instruction to vary, the Contractor is
required to provide details of his planned resources
Variation as an Instruction and methods, an execution programme and any
need to time extension and its proposal for
There is a linkage with Sub-Clause 3.5 [Engineer’s adjustment to the Contract Price.
Instructions]. This is because a Variation is one
form of instruction. 3.5 now contains a welcome Price Proposal – to be Taken into Account?
clarification (in this case probably more welcome to
the Employer than to the Contractor) of what the The obligation to submit a price proposal is set out
Contractor may do if he considers an instruction in Sub-Clause 13.3.1(c). This Sub-Clause is one of
which the Engineer does not call a Variation in fact the few in the contract which is said by Sub-Clause
amounts to a variation. In that case he must, 1.15(b) to leave open liability on the part of the
immediately and before commencing work, give Employer for loss of profit, loss of any contract or
notice to the Engineer and the Engineer has 7 days any indirect or consequential loss or damage. It
to confirm, reverse or vary the instruction. would seem therefore that the Contractor is entitled
to include such losses and damages in its proposal.
The requirement of “before commencing work”
may be hard to comply with in practice, particularly This is therefore one way in which a Contractor can
in the common situation where a co-operative seek compensation for a loss caused to it by an
Contractor begins work on an urgent Variation on Unforeseeable variation or by other abuse by the
the basis of a promise by the Engineer that a formal Engineer of its power to vary. However, the right
VO will follow. As with Cause 13.1, it is not clear goes further than that. As will be seen below the
what is to happen if the Engineer confirms an valuation methods open to the Engineer are very
instruction as not being a Variation when it should restrictive and do not, in some instances, allow it to
have been a Variation. take into account price increases which may have
occurred since the Tender. Even a legitimate VO
Where an instruction is not stated to be a Variation, may be costly to the Contractor in ways beyond the
Clause 3.5 also adds additional rights to objection direct cost of the work itself – for example if it
to those in Clause 13.1 – the Contractor can object means that it has to use resources which it would
on the basis that the instruction does not comply otherwise have been able to deploy more profitably
with applicable Laws or is technically impossible. elsewhere.
Quite why these grounds of objection are not
applied to Variations also is unclear. There will be If the Engineer is required to take the proposal into
some interesting arguments to come on the account in making its valuation, this opens the door
consequence of this omission from the limits on the to some very substantial claims from contractors.
power to vary. However, the remainder of Sub-Clause 13.3.1 does
not explicitly answer the question as to whether the

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Engineer is required to take account of costs, etc. days to give his determination. However, these 84
included in the proposal in its eventual evaluation. days may have expired before the Cost plus
The answer as to whether or not the Engineer has information necessary to make the determination is
this obligation is perhaps found again in Sub- available.
Clause 1.15(b). If a proposal does not create a
liability, why would there be a need to exclude it The Engineer may be faced with the impossible
from the general prohibition on imposing liability dilemma of whether to issue a determination
for loss of profit, etc.? It appears that the without the necessary information or to fail to
assumption is that the Employer will be required to make a determination at all. In either case the
take the proposal into account. issue may then become a dispute to be referred to
the DAAB. It is not clear whether the DAAB has the
Further support for this position comes from the power to take into account the Cost information
fact that Sub-Clause 13.3.1(c) is the only place which may have finally become available before it,
where the Contractor’s right to compensation in the in turn, is obliged to reach a decision. Indeed, in
case of an agreed omission is to be found and, if it the case of a major Variation it is quite possible that
were not to be taken into account in the valuation it the DAAB itself will not have enough information
would be meaningless. even assuming it can take into account the
information which has become available in the
Method of Valuation meantime. The same problem continues into the
arbitration process.
The 1999 edition was notably vague about how the
Engineer was to go about valuing the variation and These problems can be resolved by the Engineer by
this often led to argument. One approach under demands for further information before a decision
the 1999 (and earlier editions) would have been to is given or by agreement of the parties to extend the
assess the value using the tender as a comparator. time limits for determination. Time only starts to
Alternatively, the new work could have been valued run once all requested information has been
on the basis of Cost plus profit. The new edition received from the Contractor (a real incentive for
sets out two methodologies. One applies where the Contractor to respond promptly). However,
there is no schedule of rates and prices (not Engineers will need to be very alert to the need to
unusual in a D&B contract) and one where there is. demand full particulars of actual costs so as to
In the former case valuation is on a Cost plus basis. avoid time starting to run for their determinations.
In the latter the rates are to be used unless there is
no relevant item, in which Cost plus again applies. The Engineer is obliged to assess a provisional rate
for interim payments pending agreement or
The new valuation methodology where there are no determination. This is a new provision which is
rates and prices comes as a surprise as it ties the welcome and at least ensures that the Contractor
Engineer’s hands to a method which may will receive some of his entitlement.
substantially favour one party or the other when
tendered prices would previously have been used as In this situation, there is one specifically relevant
the basis. consequence of the new-found “neutrality” of the
Engineer in reaching determinations. Unlike the
The valuation of the variation is (as before) fixed by situation under the 1999 and previous editions, the
an Engineer’s Determination. This may have what valuation is no longer made by the Engineer acting
is probably an unintended consequence when Cost as agent of the Employer. Thus, for the first time,
plus has to be applied. Under the new time limits the Employer has equivalent rights to the
set out in Sub-clause 3.7 [Engineer’s Contractor to challenge a valuation of a variation
Determinations] the Engineer has a maximum 84 made by the Engineer.

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There is a provision of Clause 14 which might have As with the 1999 edition the Engineer is not
been better placed in Clause 13 and of which permitted to use a Variation Order to omit work
Engineers need to be aware. Clause 14.15(b) which is to be carried out by others. The new
provides that where a variation is valued the edition clarifies this by making it impermissible for
amount to be paid in different currencies must be work to be omitted where the intention is for the
specified and this must be done by reference to the Employer himself to carry out the same work.
expected currency proportions of the Cost of the
varied work. This is a sensible provision in There is now express provision for the parties to
principle but assumes that valuation can be done agree on the omission of work. In these
before the actual work has been carried out and circumstances the Contractor is entitled to propose
that all Variations are valued on Cost (which, as an amount of compensation for loss of profit or
noted above, they are not). other compensation for the omission. There is
some doubt as to what will happen if the Contractor
Notices fails to include such a proposal. Indeed, there is no
direction to the Engineer to consider this element
There is now no requirement for the Contractor to of the proposal. Rather unfortunately, where there
give notice under Clause 20.2 if it wishes to seek an is no agreement on the omission there is no express
extension of time consequent on a Variation. This right to propose such an amount. However, an
has always been the case for valuations but is now omission in order to carry out the works by
expressly stated for time as well. It should be someone else would be a deliberate breach of
noted, however, that this exemption from the contract and under Sub-Clause 1.15 is excluded
requirement to give notice does not apply to the from the general prohibition on claims for loss of
other provisions of Clause 13 (Provisional Sums, profit and indirect or consequential loss.
Daywork, Adjustments for Changes in Laws).
Variation by Request for Proposal
Under these latter provisions it may be arguable
that the Contractor is obliged to give notice, even in The 1999 edition gives the Engineer the option to
order to get its entitlement for cost adjustments. It ask for a proposal prior to instructing a variation.
is certainly required for applications for extensions The new procedure is spelt out more clearly but
of time. A trap for the unwary Contractor who may does not change the process significantly. As before
be lulled into a false sense of security by the lack of there is no general provision for compensation for
a need for such notice for Variations proper. the Contractor to be compensated for the (possibly
considerable) cost of preparing a proposal.
Prolongation and Disruption arising from
Variations However, there is now an exception to this in the
situation where the Engineer does not give consent
As with the 1999 edition there is no provision for to a proposal. Contractors should note that, unlike
compensation for prolongation or disruption costs the right to evaluation of payment, this right is not
arising from variations. It remains the case exempt from the requirement for a Sub-Clause 20.2
therefore that it is very arguable that in the absence Notice.
of specific provision, these costs will not be
compensable. Indeed, if there was any room for Value Engineering
argument under the earlier edition, this is now
removed by the prescriptive provisions about the Value engineering under the Yellow and Silver
way in which variations are to be valued. Books was thankless under the 1999 forms.
Under the Red Book, the Contractor could earn
Omissions 50% of the net benefit. Here all the forms leave it to

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the Special Provisions to set out any sharing of “the truncated by the time the Contractor takes to issue
benefit, costs and/or delay”. However even where his Clause 20.2 Notice. In the case of applications
these are set out the Engineer is not obliged to take for extensions of time, time may start at a different
them into account, only to “include consideration” point, so the Engineer’s time limits may expire on
of them when he issues a Variation. This is very different days.
vague language. If the Engineer’s “consideration”
leads it not to include any sharing in its ultimate Adjustments for Changes in Law
valuation there seems to be no basis for a change
either through the Sub-Clause 3.7 procedure or • As under the 1999 edition, the Contractor may
through a DAAB. be entitled to compensation in money or time
for the consequences of changes in law.
Provisional Sums
• The scope of what may be considered Changes
There is new provision allowing the Engineer to in Law is expanded beyond what was included
require the Contractor to produce quotations from in the 1999 Edition and now includes:
suppliers. - The Laws of the Country
- Not only judicial or government
Daywork interpretation of such Laws but also their
implementation.
The process for dealing with quotations is usefully - Permits, permissions, licenses or approval
spelled out in more detail. obtained by the Employer or the Contractor.
These are not limited to those of the
Daywork is described in the sub clause as a Country.
Variation and the cost consequences (though not
time) in cases of disagreement are, for the first • The last of these may be the most significant as
time, to be determined under Clause 3.7. it will extend to planning and environmental
requirements and may potentially apply to
Whereas the Contractor is entitled to have the value matters arising outside the Country. In
and time consequences of other variations addition, in an international project, the
determined under Clause 3.7 without the Contractor is as likely to be affected in another
requirement for a notice under Clause 20.2, there is country as in the country where the Works are
no such exception in the case of Dayworks. actually being performed – much of the
Contractors are going to have to be very careful to manufacture may be taking place off-shore and
ensure that they adapt to the new procedure by materials and labour may well be being
giving Clause 20.2 notices whenever they need to procured elsewhere and may be affected by
have dayworks valued and/or require an extension regulatory requirements off-shore. The
of time. application of this provision to such permits
licenses or approvals thus represents a
Sensibly (and in contrast to the procedure for other potentially significant change to the balance of
Variations), time for the Clause 3.7 determination risk.
starts to run from when any disputed dayworks are
completed and their value can easily be • It should be noted that permits obtained by the
determined. However, there is no special Employer are at the expense of the Contractor
provision dealing with the start of the 28-day (Clause 1.13(b)). Thus the Contractor will need
period for giving Notice under Clause 20.2. The to be vigilant to check whether a permit may be
effect appears to be that the Engineer’s time for the result of a change of law and the cost thus
considering any disputed valuations will be reimbursable.

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• In contrast to the 1999 edition, the Employer is
Article Author
now given the right (subject to a Clause 20.2
Notice) to recover any benefit which the George Rosenberg 2
Contractor may have received as a result of any
changes in Laws.

• Unlike in the case of Variations, there is no

waiver of the requirement to give Notice under
Clause 20.2 when seeking time or money
compensation.

• Finally, there is a new provision which enables

either the Contractor or the Engineer to trigger Email: [email protected]
a Variation where a change in Laws requires an
adjustment to the execution of the Works.
There is no fixed time limit for giving such
notice. The term used is “promptly”, but the
starting point for such “prompt” notice may be
subject to some controversy. Nothing is said
about what happens if a party fails to trigger
such a Variation and it may well be that the
general right for the Contractor to be
compensated in Cost and time for such changes
will mean that (subject to timely notices) the
Contractor will be entitled to compensation
even if it does not trigger a Variation.

Adjustment for Changes in Cost

The 1999 edition included detailed methodology for

the calculation of such changes. This is now
omitted, and the parties are expected to include
their methodology in a schedule to the Contract
(without which the right to adjustment will not
apply).

2
The contents of this article should not be treated as legal advice. Please
contact the lawyers at Corbett & Co before acting on or relying upon
anything stated in this article.

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