This document provides an overview of variation orders in construction projects. It defines variation orders and lists some common causes such as changes in scope by the client or inadequate project objectives. Variation orders can negatively impact a project's completion time and costs by resulting in delays, direct costs associated with affected tasks, and indirect costs. The document also summarizes a court case related to variation orders and unpaid claims. Finally, it outlines relevant clauses around variations from the PWD 203A and PAM 2018 construction contracts.
This document provides an overview of variation orders in construction projects. It defines variation orders and lists some common causes such as changes in scope by the client or inadequate project objectives. Variation orders can negatively impact a project's completion time and costs by resulting in delays, direct costs associated with affected tasks, and indirect costs. The document also summarizes a court case related to variation orders and unpaid claims. Finally, it outlines relevant clauses around variations from the PWD 203A and PAM 2018 construction contracts.
This document provides an overview of variation orders in construction projects. It defines variation orders and lists some common causes such as changes in scope by the client or inadequate project objectives. Variation orders can negatively impact a project's completion time and costs by resulting in delays, direct costs associated with affected tasks, and indirect costs. The document also summarizes a court case related to variation orders and unpaid claims. Finally, it outlines relevant clauses around variations from the PWD 203A and PAM 2018 construction contracts.
This document provides an overview of variation orders in construction projects. It defines variation orders and lists some common causes such as changes in scope by the client or inadequate project objectives. Variation orders can negatively impact a project's completion time and costs by resulting in delays, direct costs associated with affected tasks, and indirect costs. The document also summarizes a court case related to variation orders and unpaid claims. Finally, it outlines relevant clauses around variations from the PWD 203A and PAM 2018 construction contracts.
There are several definitions of variation according to the researcher's perception and suitability in this field of study. Noraziah Mohammad and Zabidi Hamzah (2019) points out in their latest publication that variation order refers to any changes to the planning, scope of work, and contract documents in a construction project or specification. The function of a variation in a contract is to empower architects or superintending officer to instruct changes to works involved in projects. According to Ismail Abdul Rahman (2014), Variation Order (VO) is a common phenomenon in construction projects, and it is inevitable. But the problem becomes worsen when variation affects the progress of works to be delayed and thus increasing in cost and time. Fundamentally, construction parties are only bound to perform what is stipulated in the contract. Unless there is a written terms or provision that requires alterations the contract, the contractor is not under any obligation and cannot be forced to carry out any additional works, and likewise the employer cannot omit any works agreed upon without breaching of contract except it is expressly provided for in the contract.
1.2 Causes of Variation
There are many causes to variation such as change of scope by client, inadequate project objectives and also the financial problem of employer. First of all, changes of scope by client seems to be one of the main causes in the construction project. This is because improper planning at the project definition during inception stage or lack of collaboration by the owner in the design phase. For example, the variation clause allows an owner to order extra work or make changes to the existing work, by altering, adding to, or deducting from the work, make adjustments to the contract price and performance time
Secondly, inadequate project objectives can cause variation in the
construction projects. Inadequate project objective may lead to consultants’ misinterpretation of actual requirements from client. Therefore, it limits the designers with the appropriate design that can result in variation works in the later stages of the construction process. This is because architect or engineer may change in design when there is error and for improvement in their design.
1 For instance, architect sometimes may provide a design that does not meet satisfaction of client and need to submit a design again which can cause variation works during construction.
Last but not least, another contributing factor to the variation works is conflicts among contract documents. Discrepancies among the contract document can result in contractor misinterpret the need of client. Thus, it is essential that the documents contained in contract documents shall be clear and precise. To give an illustration, the specifications described in the Bills of Quantities are different as the information stated in the drawings of Architect. In this situation, contractor is responsible to issue query list to the relevant consultants for clarification of information. Eventually, this causes a variation works to be executed and also affecting the project’s cost as well as duration.
1.3 Impacts of Variation
A.-R. K. and K. N. (2005) stated that variation order that arises during various stages in the construction project will negatively affect both the completion time and costs of the project. Contractors will be penalized if they exceed the original project delivery date that given by client and this penalty imposed is usually used to cover the damages suffered by the client regarding the prolonged delivery report. This is because even though variation works are issued in contract, but client still want the projects to be completed within the time as decided in the contract.
Furthermore, it is clear that most construction project will incur cost
overruns as a result of a variation order. Variation orders have both direct and indirect effect on cost. A. Stasis (2013) had identified the following direct cost associated with variation orders. The first one is time and material charges related to immediately affected tasks, next is recalculation of network increased time-related charges and overheads and other else. Besides that, this researcher also had identified the indirect cost which is the execution of work and making good on affected trades other than the actual variation order. The change in cash flow as a result of the effect on inflation and financial charges also is the indirect impact from the variation.
2 To sum up, variation also can impact the professional relations because there will be a dispute when there is variation order. This is because conflicts between construction parties may arise especially when the contractors are not quite satisfied with the determination of the variation by the client's consultant. The tension among parties when the contractor constantly pushes the client to settle claims for additional costs at the same time feeling that the reimbursement by client is inadequate. This can be very destructive to the relationship among the parties.
1.4 Clause in PWD 203A(Rev.1/2010) and PAM 2018
PWD 2010 PAM 2018
Clause 24.1 -24.3 Variation Clause 11.1 Definition of variation
Clause 25.1 -25.3 Valuation of Clause 11.2 No variation required by
Variation architect shall vitiate contract
Clause 11.3 Issues of variations after
practical completion
Clause 11.4 Architect’s instruction on
Prime Cost Sum and Provisional Sum
Clause 11.5 Valuation of variations
and Provisional Sums
Clause 11.6 Variation rules
Clause 11.7 Additional expense
caused by variation
Clause 11.8 Access to Contractor’s
books and documents
Clause 11.9 Variation and Additional
expenses added to contract sum
3 2.0 Summary of Case
The respondent/defendant (employer) entered into an agreement with
the appellant/plaintiff (contractor) to build roads and drains on pieces of land owned by the respondent. The agreement could not be completed within the stipulated time and the respondent terminated the agreement. The appellant filed their claim in the High Court against the respondent. The High Court judge held that, first the appellant contractor was only entitled to 5% and not 10% of the retention sum of RM127,944.41 which, calculation wise, came up to RM6,397.22 and second, the appellant was entitled to the unpaid balance under certificate No: 100/85 amounting to RM6,355.86 plus a further sum of RM6,355.
The High Court judge dismissed the claims for the following works done. First, work done but not assessed amounting to RM193,000 (quantum meruit). Second, work done under variation orders but not assessed which came up to RM83,538 (quantum meruit). The appellant appealed against the decision of the judge of the High Court on the following issues. The first issue, the refund of the balance of the 5% of the retention sum which amounted to RM6,397.22. The second issue, payment for work done but not certified by the engineer (quantum meruit). The third issue, payment for work done under variation orders amounting to RM83,538 but not assessed (quantum meruit).
In relation to the third issue, on the balance of probabilities, the appellant
failed to prove that he had performed the variation work and the appellant also failed to prove that the respondent had not made payment in respect of the variation work. There is also a delay on the appellant's side of non-compliance with the agreement requiring the appellant to give the respondent at least two days prior to their regular meeting in any month for extra payment due to performing variations on the contract and any delay will be construed against the appellant.
4 3.0 Analysis Based on PWD FORM 203A (Rev. 1/2010)
Plaintiff/ Appellant Main contractor (Syarikat Binaan Utara Jaya)
Defendant Employer (Koperasi Serbaguna Sungai Glugor Bhd)
In this analysis, we will focus on the issue regarding claim of plaintiff for work done under variation order which came up to RM 83,538. Based on the summary of case in 2.0, it can be summarised that plaintiff demanded the payment for variation order, but the High Court judge dismissed the claim. In regard to the claims under variation orders, plaintiff failed to prove two important evidence in this claim which is to prove that had carried out variation works instructed by S.O. and to prove that the respondent (employer) had not made payment for variation works.
In every standard form of contract, there will be a clause for variation to
define what activities included in variation because as mentioned before variation used to be inevitable in construction project. Referring to clause 24.2 in PWD 203A, variation is a change in contract document where the alteration of design, quantity and quality of works is necessary. The modification including addition, omission or substitution of work, change in standard of goods and materials to be used in works and removal from site for any works executed or materials on site.
This first reason plaintiff failed to claim is because plaintiff did not provide evidence that he had carried out variation works instructed by S.O. during contract period. According to clause 24.1 in PWD 203A, S.O. can issue instructions requiring a Variation in form of variation order. Although S.O. has the delegation to issue Variation Order, the instruction of S.O. must be in writing and issued to contractor for execution of variation works by following clause 5.3 in PWD 203A. In this situation, plaintiff as the main contractor in this contract failed to prove an evidence of S.O.’s instruction to require variation works in the form of Variation Order. Since the plaintiff executed variation works without receiving a formal instruction from the S.O. which is the engineer in this contract, the variation works conducted by the main contractor will not be taken into account as valid variation.
5 Secondly, plaintiff in this case also failed to prove that respondent (employer) had not made payment in respects of variation works. By referring to clause 25.1 PWD 203A, all the variations instructed in writing by S.O. in accordance with clause 24 PWD 203A shall be valued and measured by the S.O. It is clear that only valid and formal Variation Order will be evaluated by S.O. in order for the contractor to receive payments. Based on held of judge, the plaintiff is in seeking of a quantum meruit. Quantum meruit can be defined as a reasonable sum of money to be paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract. However in this case, the claim for quantum meruit without the certification by S.O. was considered as claim without basis as no evidence to support the plaintiff’s claim for the variation works done in respect to quantum meruit. Therefore, the claim demanded by plaintiff under this situation will not be paid for.
To sum up, the variation works that plaintiff had executed without a written order is not valid and had never been certified by the S.O. of this contract. Thus, the contractor as plaintiff in this contract is not entitled to the payment of said variation works.
6 4.0 Analysis Based on PAM CONTRACT 2018
Plaintiff / Appellant Main Contractor (Syarikat Binaan Utara Jaya)
Defendant Employer (Koperasi Serbaguna Sungai Glugor Berhad)
In this analysis, we will focus the third issue regarding claim of plaintiff for work done under variation order which came up to RM 83,538.00. Based on the summary of case in 2.0, plaintiff of these third issue failed to prove on a balance of probabilities that it had carried out the works in question or that the respondent had failed to make payment in respect of the variation works. In regard to the claims under variation order, plaintiff failed to prove two important evidence which is to prove that had carried out variation works instructed by S.O or architect and to prove that the respondent (employer) had not made payment for variation works.
In most of the cases, the contracts are signed with a definite timeframe of completion and the extent of this time target met is frequently seen as a major condition of project success. Usually, any standard form of building contract will contain a definition of a variation in terms of specific actions and activities. Persatuan Akitek Malaysia standard form of contract (PAM 2018) in clause 11 had define variation as an alteration or modification of the design, quality or quantity of the works as shown in the contract drawings and described by or referred to in the contract bills.
Evidently, the third issues arise whether the plaintiff done for extra work as variation order when there is no formal instruction to carry out such work. According to clause 11.2 of PAM Contract 2018 states that the architect will issue written instruction to order a variation in which the contractor will carry out the variation with due diligence and expedition. To elaborate, the extra works are not issued as S.O.’s or architect’s instruction to the plaintiff. In fact, the standard forms of building contracts provide that all variations or extra works have to be issued in written instruction by S.O. or architect to the contractor. If not, the plaintiff cannot recover his or her compensation for the extra works.
7 Besides that, plaintiff in this case failed to prove that the respondent (employer) had not made payment for variation works. According to PAM CONTRACT 2018, plaintiff (main contractor) should submit written notice to the architect in order to claim for additional expenses caused by variation, which is specifically provided under clause 11.7. To elaborate, plaintiff should submit written notice of its intention to claim for additional expenses together with an initial estimate duly supported by calculations within 28 days of any architect’s instruction. Clause 11.7 (b) had mentioned that if the contractor failed to submit within stated time, contractor is deemed to have waived its right to additional expenses. Obviously, the claim of variation order without written notice as evidence under this situation will not be paid for.
In short, the plaintiff managed to claim for extra works without S.O or architect’s instruction is not valid. All building contracts provide that no variations shall be admitted unless directed issued and verified by the contract administrator in written notice. If an extra work is done in response to a valid instruction under the scope of the contract based on the bills of quantities, it is a variation. However, if the project is based on drawings or specification rather than bills of quantities, the contractor has the implied duty to carry out the extra work. Therefore, the plaintiff is not entitled to claim for extra costs.
8 5.0 Conclusion
To conclude this case, when a contractor intends to claim for extra work must have an official variation order issued under specific contract in all construction contract form used in Malaysia. It was discovered that contrary to the view of most people that variation clause is for the employer, recent cases were able to prove that variation clauses were actually meant to strike a balance between the parties provided that each party is able to meet and perform its obligations.
There are variation rules stated in the PAM contract 2018 and PWD 203A (Rev.1 /2010) which have to be followed strictly, but unfortunately, these clauses were misused due to lack of understanding or unawareness of the parties involved in most cases. Therefore, it requires the parties to perfectly understand the rules of variation clause as well as its relation to the scope of works. Even when the contract conditions have been drafted effectively to embrace all aspects of the validity of a variation work, it will still be subject to common law principles to include the scope of change.
This report was able to show that some of the contractors were entitled to variation claims if they produce evidence for any instruction to order variation. Conclusively, it is believed that the variation clause has a very strong effect in favour of the employer, if he failed to abide by the terms in the contract by not checking his excesses, it will work against him. Therefore, this report is able to establish the fact that the variation clause is not working in favour of any party partially but in favour of any party who can substantiate its claims.
9 References
Media, A. (24 February, 2021). LAW.COM Legal Dictionary. Retrieved from Legal Terms and Definitions: https://dictionary.law.com/Default.aspx? selected=1692
Noraziah Mohammad, Z. H. (2019). A review of causes of variation order in the
construction of terrace housing projects in Malaysia. MATEC Web of Conferences 277. EDP Sciences.
Obagboye, O. H. (2019). Implications of Contractual Variation Orders on Building
Construction Projects. International Journal of Advanced Research in Science, Engineering and Technology, 10765-10773.
Standard Form of Contract Where Bills of Quantities Form Part of the Contract P.W.D Form 203A (Rev. 1/2010). (2010). Malaysia: Publics Work Department of Malaysia (PWD).
Syarikat Binaan Utara Jaya v Koperasi Serbaguna Sungai Glugor Bhd. (2009). Common Law Journal, 786-817.
