The scope of works a contractor completes under a building contract is often varied for many reasons. It may be that the principal needs to alter the building plans to meet a change in local government requirements or a change in the material specifications is required because certain materials are unavailable or found to be unsuitable or safe.
Whatever the reason, a principal must be aware that they cannot arbitrarily change the scope of works under the contract as they please. Under common law principles, there is no general right to order variations, and if the contract does not contain a power to do so, a principal may find himself or herself faced by a contractor that refuses to deviate from the original scope of work. An attempt to vary the scope of works where the contract does not permit this may amount to a breach.
From a contractor’s perspective, the contractor cannot just decide to use more expensive materials that are not within the contract specifications and expect to be paid extra to cover the cost. Similarly, if a contractor just decides to do work that is not within the reasonable contemplation of the parties and wholly outside the scope of the contract, they will not be able to charge extra for the work on the basis of a variation.
It is important therefore to be aware of what will be considered a variation, and what must be done to ensure the variation is permitted.
What is a Variation?
As a general rule, where something is outside the scope of work in the contract, it will be a variation. The contract should clearly define the scope of work and might include other ancillary documents such as specifications, plans or other schedules and drawings.
Generally, a contract will have prescriptive provisions surrounding variations. In most cases, the superintendent will oversee the procedure for requesting and approving variations. For example, in the Australian Standards Contract AS 4000, the superintendent is given a broad power to give directions to:
- Increase, decrease or omit any part of the work;
- Change the character or quality of the work;
- Change the levels, lines, positions or dimensions;
- Carry out additional work;
- Demolish or remove material or work the Principal no longer requires.
When considering what will amount to a variation, it is important to note that:
- A contractor is required to perform all work that can be considered “indispensably necessary” under the contract, even if the contract does not specify every single element that comprises those works. Such works will not amount to a variation.
- Where there is ongoing design development under a contract, any changes that are consequential to the design development (for example, the layout of a new floor requiring a change in the type of lighting used on the floor below), will not likely be a variation.
- Without clear and express wording in a contract, a principal cannot vary the scope of the contract where such variation would amount to a ‘fundamental change’ to the work or its value, for example by eliminating the bulk of the works.
- Without clear and express wording in a contract, a principal cannot vary works so as to remove one contractor in an attempt to engage another contractor to complete the same works. To do so would be to deprive one party the benefit under the contract.
What Are The Requirements?
The procedure for variations to the scope of works will differ across contracts. Some standard requirements are that the variations must:
- Be in writing, or made orally, and confirmed in writing as soon as possible;
- Specify the extra cost and/or time required to complete the works; and
- Be certified by the superintendent.
The contract may also require a period of notice to be given to a contractor regarding a proposed variation, and require they respond with a quotation, and any expectations of delay to the project.
The requirements may also vary depending on whether the superintendent instigates the variation, or a contractor is bringing a variation claim.
Pricing of variations can also be an area of difficulty and this is made easier where a contract specifies the process for doing so. For example, the AS 4000 contract specifies that variations are to be priced using the following order of precedence:
- Prior agreement;
- Applicable rates or prices in the Contract; and
- Where there are no applicable rates, reasonable rates or prices, which shall include a reasonable amount for profit and overheads.
Building disputes often arise out of variations to the scope of works under the contract. The arguments may be around whether the procedure under the contract was followed, whether certain parties were properly notified, or whether the variation has been fairly valued. But more often the issue surrounds whether a request is or is not a variation to the scope of works.
A principal may assert that the contract’s scope of works covers their request, and a contractor may say that it is not. Such disputes illustrate the importance of having a clearly defined scope of works.
It is important that both the principal and contractor follow the procedure as set out in their contract for making variations. Unless the scope, time and cost for a variation are agreed upon before the varied work being completed, there is a risk of dispute.
They key takeaway is to ensure that your building contract clearly describes what is and is not in the scope of works, and the steps required to make a variation. There should be clear procedures in place to ensure that all parties follow those steps.
Need help drafting a building contract, or need your building contract reviewed? We are here to help. Get in touch with our building and construction law team on 1300 544 755.
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