When is a variation a variation? Michael Sergeant, author of a new book on the subject, explains the legal minefield.
When the parties to a contract turn their attention to resolving a variation account at the end of a project, they will often be able to negotiate away those items where the only difference between them relates to how the variation should be valued. What are typically more difficult to resolve are disputes “on principle”. These involve disagreement as to whether the work in question is a variation, or whether it is part of the contracted scope of works the contractor was obliged to undertake.
This issue is common due to the nature of construction works, while the way the construction “product” is described in a contract is complex and can often be uncertain.
The description of the works, such as specifications, drawings and pricing, will be established in a set of technical documents. Typically, there will not only be contradictions between these documents, but contradictions within the documents themselves. There may also be gaps in the scope as well as ambiguities in technical descriptions. To cap it off, the technical scope may involve works that simply cannot be built – for example, by specifying equipment that can no longer be purchased.
How are the parties supposed to make sense of this morass of contradictory information and work out what precisely the original contract scope is, and therefore what is extra?
"The dividing line between what is implicitly required and what is an intentional gap in the contractor’s scope can often be unclear."
The first thing the parties will often do in this situation is to look at the contract interpretation clause setting out a priority of documents. This may, for example, say that the specification takes priority over the drawings (for example JCT clause 2.15). However, this does not mean that a description of works in a higher priority document trumps anything in the lower priority document.
The way the courts (and adjudicators) interpret contracts is much more subtle. They will look at the whole of the contract to see if the documents can be construed together to resolve ambiguities. Ultimately, they will try to determine what the common intention of the parties was.
There are hundreds of published judgments in which the case between the parties depends on the interpretation of the conflicting contractual provisions and ambiguities. These cases will often provide useful precedents for parties seeking to make sense of contradictions in the scope. For example, such precedents have found that handwritten words in a contract document will be given more weight than typed words. Or that a document specifically produced for a contract will be given more weight than a set of pre-printed conditions.
A contract scope will normally not describe the works to the last detail. For example, a drawing may show a door but not the hinges that will attach it to the frame. The courts will treat such “extra” work as implicitly necessary to achieve the scope. But the dividing line between what is implicitly required and what is an intentional gap in the contractor’s scope is often unclear. A drawing may show an aperture in a wall but no door. But is it implicit that a door needed to be installed – perhaps the employer wanted a walk-through, or planned to use a different contractor for this work?
The obligations of the contractor in relation to how it builds the works may add an additional layer of complexity. For example, a design and build contractor may be obliged to correct deficiencies in the scope to ensure that the design works. This may mean the contractor has an obligation to change the scope to deliver works that are fit for purpose. This may not then constitute a variation under the contract. What amounts to a variation may therefore depend on the contractor’s design responsibility, which may depend, in turn, on whether there are performance guarantees or a simple “reasonable skill and care” obligation.
The most significant disputes about the entitlement to be paid for a variation will typically turn on the issues described above rather than disagreements about the applicable rate.
Construction Contract Variations by Michael Sergeant and Max Wieliczko, both partners in the construction team at law firm Holman Fenwick Willan, is published by Informa
