Monday, June 24, 2024
Monday, June 24, 2024
HomeContract Management‘Variations and Adjustments’ Clause in FIDIC Contracts

‘Variations and Adjustments’ Clause in FIDIC Contracts

- Advertisement -
- Advertisement -
- Advertisement -
- Advertisement -

Variations are inevitable in construction contracts. The reason of variations may be site conditions, change in requirements and specifications, change in design or change in actual soil/ rock conditions as compared to assumptions taken in the preliminary estimate. Sometimes, the client realize that he is going under budget and therefore he may wish to alter the design to save some costs of work. ‘Variation and Adjustments’ clause in FIDIC Contracts is incorporated to handle the changes in the scope of work due to variation.

Variation

Variations are also known as change orders. In construction works, any modification or change in the scope of work as agreed by both, the employer as well as the contractor, is termed as variation. This modification may be divided into three categories.

  1. Addition to the scope of work originally agreed, such as increase in quantities of work items, adding new item of work, etc.
  2. Omission to the scope of work originally agreed, such as reduction in quantities of work items, deletion of any existing item of work, etc.
  3. Substitution or alteration of work originally agreed.

Before proceeding for any change order, the consent of contractor should be taken.

Variations and Adjustments Clause (Clause 13) in FIDIC Conditions of Contract for Construction (FIDIC Red Book)

Clause 13 in the FIDIC Conditions refers to the provisions regarding variation and adjustment in contract.

Sub Clause 13.1, Right to Vary

Clause 13.1 is regarding ‘Right to Vary’. As per clause 13.1, Variations may be initiated by the Engineer under Sub-Clause 13.3 [Variation Procedure] at any time before the issue of the Taking-Over Certificate for the Works.

This clause also states that the contractor is bound by each variation instructed by the engineer under clause 13.3.1 [variation by instruction] and shall execute the variation without any delay, unless the contractor gives prompt notice that:

  1. the varied work was Unforeseeable
  2. The contractor cannot readily obtain the goods required for the variation, or
  3. It will adversely affect the contactor’s ability to comply with obligations regarding health & safety and environment as stipulated in Sub- Clause 4.8 and 4.18, respectively.

Sub Clause 13.2, Value Engineering

Clause 13.2 of the Conditions, stipulates the provisions regarding ‘Value Engineering’. This clause mentions that the Contractor at any time submit a proposal which will accelerate completion, reduce the cost of the work, improve efficiency or value or value to the Employer or otherwise be of benefit to the Employer.

The proposal shall be prepared at the cost of the Contractor.

If the Engineer gives his/her consent to the proposal, with or without comments, the Engineer shall then instruct a Variation. If a proposal under this Sub- Clause, to which the Engineer has given his consent, includes the design of part of the Permanent Works, then the Contractor shall design this part at his/ her own cost and sub- paragraphs (a) to (f) of Sub- Clause 4.1 [Contractor’s General Obligations] shall apply.

Sub- Clause 13.3, Variation Procedure

Clause 13.3 is about ‘Variation Procedure’. According to this clause, the variation shall be initiated by the Engineer in accordance of the following procedure:

13.3.1 Variation by Instruction

This Clause stipulates that the Engineer may instruct a Variation by giving a Notice (describing the required change and stating any requirements for the recording of Costs) to the Contractor in accordance with Sub-Clause 3.5.

The Contractor shall proceed with execution of variation within 28 days of receiving the instructions of the Engineer, submit to the engineer, following things:

  1. A description of the varied work
  2. A program for its execution and Contractor’s proposal, if any
  3. The Contractor’s proposal for adjustment to the Contract price by valuing the variation in accordance with clause 12 [Measurement and Valuation]

The Engineer shall then proceed under Sub-Clause 3.7 [Agreement or Determination] to agree or determine:

 (i) EOT, if any; and/or

(ii) the adjustment to the Contract Price (including valuation of the Variation in accordance with Clause 12 [Measurement and Valuation] using measured quantities of the varied work)

Read More: ABC Analysis, Its Importance and Advantages

13.3.2 Variation by Request for Proposal

Under this sub clause, it is stipulated that, the Engineer may request a proposal, before instructing a Variation, by giving a Notice (describing the proposed change) to the Contractor.

The Contractor shall respond to this Notice as soon as practicable, by either:

  1. Submitting a proposal
  2. Giving reasons, why the Contractor cannot comply

If the Contractor submits a proposal, the Engineer shall respond as soon as possible, stating his consent or otherwise.

If the Engineer gives consent to the proposal, with or without comments, the Engineer shall then instruct the Variation.

If the Engineer does not give consent to the proposal, with or without comments, and if the Contractor has incurred Cost as a result of submitting

it, the Contractor shall be entitled subject to Sub-Clause 20.2 [Claims For Payment and/or EOT] to payment of such Cost.

Sub- Clause 13.4, Provisional Sums

Sub- Clause, 13.5 Day Work

Sub- Clause 13.6, Adjustments for Changes in Laws

This clause stipulates the provision regarding adjustments for changes in Laws. According to this clause, the Contract Price shall be adjusted resulting from a change in:

  1. the Laws of the Country
  2. the judicial or official governmental interpretation or implementation of the Laws referred to in sub-paragraph (a) above;
  3. any permit, permission, license or approval obtained by the Employer or the Contractor under sub-paragraph (a) or (b),
  4. the requirements for any permit, permission, license and/or approval to be obtained by the Contractor

If the Contractor suffers delay and/or incurs an increase in Cost as a result of any change in Laws, the Contractor shall be entitled subject to Sub-Clause20.2 [Claims For Payment and/or EOT] to EOT and/or payment of such Cost.

If there is a decrease in Cost as a result of any change in Laws, the Employer shall be entitled subject to Sub-Clause 20.2 [Claims For Payment and/or EOT] to a reduction in the Contract Price.

If any adjustment to the execution of the Works becomes necessary as a result of any change in Laws:

     (i) the Contractor shall promptly give a Notice to the Engineer, or

     (ii) the Engineer shall promptly give a Notice to the Contractor (with

          detailed supporting particulars).

Thereafter, the Engineer shall either instruct a Variation under Sub-Clause 13.3.1 [Variation by Instruction] or request a proposal under Sub-Clause 13.3.2 [Variation by Request for Proposal].

Sub- Clause 13.7, Adjustments for Changes in Cost

The amounts payable to the Contractor shall be adjusted for rises or falls in the cost of labour, Goods and other inputs to the Works, by the addition or deduction of the amounts calculated in accordance with the Schedule(s) of cost indexation.

If the Contractor fails to complete the Works within the Time for Completion, adjustment of prices thereafter shall be made using either:

(a) each index or price applicable on the date 49 days before the expiry of the Time for Completion of the Works; or

(b) the current index or price;

whichever is more favourable to the Employer.

Summary

Variation clause empowers both the employer as well as contractor to make variations in the contract. In construction contracts, variation is inevitable most of the times due to various reasons mentioned above. The employer or engineer should be aware that the variation must be such that is does not make substantial alterations to the original scope of work and should not affect basic spirit of the bidding. If there are substantial changes required in the scope of work, then fresh bidding should be initiated by the employer. Both the contractor as well as engineer should strictly adhere to the procedure stipulated in the contract to make any variations in the contract, so that future potential disputes may be avoided.

References:

  1. FIDIC Conditions of Contract for Construction, Second Edition, 2017
  2. https://fidic.org/
  3. https://quantitysurveyorblog.medium.com/what-is-a-variation-change-order-under-fidic-1999-db56093e285b

Disclaimer

  1. The description of sub- clauses given in this article is only a part of the whole clause which is relevant to the Variation. For whole provision under the sub clauses refer to FIDIC Conditions of Contract for Construction, Second Edition, 2017
  2. The content of this article is only for education purpose and it cannot be used as a legal advice. For any legal issue a suitable professional may be consulted

- Advertisement -
Rajesh Pant
Rajesh Panthttps://managemententhusiast.com
My name is Rajesh Pant. I am M. Tech. (Civil Engineering) and M. B. A. (Infrastructure Management). I have gained knowledge of contract management, procurement & project management while I handled various infrastructure projects as Executive Engineer/ Procurement & Contract Management Expert in Govt. Sector. I also have exposure of handling projects financed by multi-lateral organizations like the World Bank Projects. During my MBA studies I developed interest in management concepts.
- Advertisment -

Most Popular