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Analysis of Claims Based on Provisions in 4th Edition of FIDIC Contracts
Dr

C.S.Suryawanshi,

Sr

Techno

Legal

Consultant

Mumbai

Claims and Counter Claims in all Construction Contracts play an important role in the Contractual
relation ship between employer and contractor. Generally Claim is reckoned in practice as an
assertion for additional monies due to a party or for extension of time for completion. This
interpretation is construed from a wording of the Contractual provision. Arbitrations on the claim
matters are on its rise. Engineer arbitrators interpret the provisions of Standard Contract Forms in
the
traditional
way&
legal
personnel
interpret
in
the
legal
sense.
This paper discusses some of the principles as regards basis of claims and clarifies the provisions
pertaining to Variations as embodied in the present day Standard Contract Forms, of FIDIC.
Introduction
Typical sources of disputes and claims are worth noting, before we consider its Analysis.
Theoretically, any clause in the contract can become the basis of a claim. Indeed, it is a wonder

that contracts have not become much simpler on this account alone. However, we are governed by
explicit law, expressed by a profession whose major product is more words! Generally, disputes
may be identified as arising from any one of the following main groups:
1.

Changed conditions. Conditions different from that represented by the contract

documents, or known at the time of bidding for the work, such as different soil conditions, or
unknown obstructions etc.

2.

Additional work. Disputes over the pricing and timing of additional work required, or
even whether a piece of identified work is in the contract or not. Beware particularly of
omissions in the design documents, requiring changes to make a system work, especially if
they appear in a subtle way through the shop-drawing review and approval process. This is
always very embarrassing for the designers, who would like to see them incorporated for free!
Beware also of changes requested by the users (as distinct from the owners) of the project.

3.

Delays. These refer to delays strictly beyond the contractors control. They may be caused
by the owner directly, or by one of his agents. A prime example is failure to give access to the
site of the work in a timely way. Or equipment promised by the owner is not delivered on time.
More frequently, working drawings are not provided in time to suit the work, or shop drawings
are not reviewed in a timely manner.

4.

Contract time. Disputes over a contractors request for time extension on account of
changed conditions, required changes to the contract, or owner caused delays. Disputes may
also arise over instructions to accelerate the work. Such instructions may not necessarily be
explicit. For example, instructions to incorporate additional work without a corresponding time
extension especially if the work is on the critical path, is tantamount to an instruction to
accelerate in order to meet the contract completion date.

The construction contract is unique in that it seeks to provide for a specific remedy in the event of
any breach of the terms and conditions within its framework and/or for a contractual entitlement in
respect of specified events. Therefore, it is essential that the parties and those who represent
them fully comprehend the terms of the contract and the remedies available to them under it.
Claim
Curiously, for such a fundamental aspect of the contract, no express definition appears in the
typical standard form of construction contract and it is rare to find a definition of a claim in
reference texts or authorities on construction contracts. A claim is defined in The Oxford
Companion to Law as a general term for the assertion of a right to money, property, or to a
remedy. Strictly speaking then, whenever for example the contractor applies for his monthly
interim payment for the original scope of the works, or whenever for example the employer writes
to the contractor requiring him to remedy defective work, it would be a claim under this definition.
In construction contracts, in traditional way, a claim is generally taken in practice to be an
assertion for additional monies due to a party or for extension of the Time for Completion. This
interpretation of a claim is borne out by the wording of the contractual provisions relating to
claims. For example, clause 44 of the Fourth Edition of the Red Book provides for an entitlement to
an extension of the Time for Completion of the Works or any Section or part thereof (emphasis
added), albeit that the word claim appears nowhere in this clause; and sub-clause 53.1 includes
the words ..if the Contractor intends to claim any additional payment. . . (emphasis added).
However, nowhere is there a reference to an assertion for a declaration, although such a claim is
frequently
made.

Then it is clear that the form of contract seems to ignore claims arising from anything other than
the assertion for an entitlement to payment or time extension.
Counter Claim
A counterclaim is defined as an assertion made by a respondent party which can conveniently be
examined and disposed of in an action originally initiated by the claimant party. It is not
necessarily a defence, but a substantive claim against the claimant which could have grounded an
independent action. The concept of convenience referred to here signifies that the background of
the counterclaim is similar to that of the claim and results from the same set of facts and events.
For instance, a party might be precluded from bringing a counterclaim in arbitration either because
the claim is not subject to arbitration (i.e. arising from another contract or a different event) or by
virtue of the conditions prescribed by the contract initiating an entitlement to claim. Furthermore,
in the sense that the word is used, it would not include a defence where that defence does not
itself give rise to an actionable claim against the claimant.
Broad Basis of the Claims
In number of cases, Claims as we see to day arise from:
i.

documentation

ii.

in connection with execution of the work

iii.

concerning payment provisions

iv.

concerning time

v.

default, determination etc

vi.

Compound claims

Essentially, other than claims under statutory law, claims in construction contracts may be based
on legal concepts and non-legal concept. Therefore, if a claim is required to be categorised, and it
is suggested that it should be, the categorisation could be done in accordance with the following
five categories:
a.

A
claim
under
the
contract:
The first category relates to a claim under the contract between the parties based on the
grounds that should a certain event occur, then a claimant would be entitled to a remedy that
is specified under a particular provision of the contract, subject to the effect of the applicable
law. Such an event may be one of two types.
i.

First, it may be a specified event under the contract, which might or might not
occur, where in certain defined circumstances the employer or the contractor is entitled to
claim a designated remedy. For example, the contractor is entitled to claim an additional
payment under the Red Book for tests in accordance with the provisions of sub-clause
36.4.

ii.

Secondly, the specified event may be a breach of a particular provision in the

contract entitling a claimant to a designated remedy if the terms of such provision are not,
or are only partially, complied with. If the claim is successful, the particular provision in

the contract would apply and the remedy could be in the form of a payment of a sum of
money, or an extension of time, or some other benefit, or a combination of all three.
For example, it is stipulated in the Red Book that failure by the contractor to complete the
works on a specified date would entitle the employer to deduct liquidated damages at a
specified rate per day or week. In this connection, the provisions of the applicable law must be
taken into consideration, for instance whether such damages are in effect a penalty, and if so,
whether or not this can be treated as a valid claim.
b.

A
claim
arising
out
of
or
in
connection
with
the
contract:
The second category relates to a claim arising not under, but out of or in connection with, the
contract, where the remedy is not designated in the contract and the claimant needs to invoke
a provision of the applicable law to obtain a remedy. Therefore, if the claim is valid, the
remedy lies under the provisions of the applicable law of the contract, for example a claim for
a breach of contract. Under English law, the remedy for a breach of contract would be under
the principles governing damages, including those laid down in the Hadley v. Baxendale. The
remedy in this case may extend to consequential damages, if foreseeable at the time of
contracting, unless excluded by the contract. Furthermore, if the breach is of a serious nature,
the aggrieved party might be entitled to cancel the contract and, if the breach amounts to the
communication of an intention not to abide by the terms of the contract, such conduct could
amount to a repudiation which would be open to acceptance by the innocent party.
Furthermore, if the employer terminates the contract, the contractor might have a lien over
the works, depending on the terms of the contract, which would act as security for the
payment of any money owed to it arising from the work performed pursuant to the contract.
Another example of a claim arising in connection with the contract, but not under it, is where
one of the parties has misrepresented certain important facts in negotiations leading to the
formation of the contract. In such case, the other party may use this as a basis for cancelling
the contract or for claiming damages. However, the terms of the contract may exclude the
right to cancel for a serious breach or misrepresentation. If, however, such misrepresentation
constitutes fraud, the party making the representation would not be allowed to rely upon such
an exemption clause.

c.

A
claim
under
the
principles
of
the
applicable
law:
The third category relates to a claim arising under the application of the principles of the
applicable law, either by the parties to the contract or against third parties. This could lead to
a claim under the law of tort, or delict as it is referred to in some jurisdictions.
The law applicable to a claim in tort/delict is not necessarily the same as the governing law of
the contract. If the claim is successful, the remedy would typically be an award of general
damages, the amount being dependent upon the particular circumstances of the case.
Depending on the applicable law, the parties may have concurrent claims arising from the
contract and from tort/delict. Although the result will often be the same, the measurement of
the loss is, in principle, different. Complicated questions arise between contracting parties as
to the implementation of terms limiting the aggrieved partys entitlement to a claim brought in
tort/delict. This might even apply to rights of action to persons who are not privy to the
contract.
For example, a party might wish to bring a claim in tort/delict rather than in contract because

of time limitations; where there is an arbitration clause imposed by a contract; where there is
an insurance policy covering particular claims; or where notice provisions under the contract
affect the aggrieved partys entitlement to claim.
d.

A
claim
arising
out
of
the
principle
of
quantum
meruit:
The fourth category comprises claims where no contract exists between the parties, or if one
existed, it is deemed to be void. It is based on the principle that an individual has the right to
be paid a reasonable remuneration for work done. This is referred to in some legal systems as
quantum meruit or as much as one has earned and has been often equated to a claim for
undue enrichment. The principles of quantum meruit have also been applied to cases where
there is a contract in existence but the price is not stipulated; instead the contract expressly
provide that the amount to be paid will be based on a reasonable sum or the price will be
agreed from time to time. In Hudsons Building and Engineering Contracts, it is stated:
. . . quantum meruit is frequently employed . . . where a true contractual situation exists, in
the sense of a request to do work accompanied by an intention to pay for it, and so supported
by consideration, but where the price may not have been fixed at all, or with sufficient
precision, by the contract, so that a promise to pay a reasonable price requires to be implied
to
give
practical
effect
to
the
parties
intentions.
The case of Constable Hart & Co. Ltd v. Peter Lind & Co. Ltd is one example where the court
applied this principle. If the claim is successful, payment is assessed on the basis of a
reasonable recompense of the cost of the work carried out by the contractor and may,
although not necessarily, depending on the principles of the applicable law, include an element
of
overhead
and
profit.
Generally, the remedy for all the four categories of claims set out above would be sought
through an action in arbitration or litigation unless the claim is settled amicably. Such action
would usually necessitate the employment of lawyers and the outlay of large expenditure

e.

A
claim
for
ex
gratia
payment:
Finally there is the claim for an ex gratia payment (meaning out of kindness). Although claims
for ex gratia payments are not claims which arise by virtue of a contractual entitlement, they
are sometimes entertained by employers and engineers as a matter of expedience to avoid
arbitration or litigation and, indeed, to maintain the goodwill necessary to complete the project
successfully. There is no applicable legal basis for such payments, but rather some commercial
sense or benefit in reaching a settlement between the parties without acceptance of liability.

Only the first two categories of claim are considered here, i.e. those which are made under the
contract or which arise out of the contract, as the other categories of claim are beyond the
provisions of the Red Book.
An analysis of Variation Claims
Variation Claims under the contract are presented, in the first place, to the engineer who should
determine, impartially, the entitlement of the claimant in principle and in quantum. Such
determination, if unacceptable to either the employer or the contractor, may be opened up,
reviewed
or
revised
as
provided
in
Clause
67
(Settlement
of
Disputes).
(See sub- clause 2.6 of the Red Book).
A claim under the contract and based on its provisions

As previously stated, the Red Book regulates the rights and obligations of the parties to the
contract. Its provisions specify what should be done by the two parties or their agents and
servants and the consequence if what ought to be done is either not done, or if done, is not done
within
the
time
specified.
Claims will very often arise in a traditional construction contract because it is perhaps the only
contract where the price of the end result is defined before the process of production even starts.
Accordingly, in the competitive atmosphere of tendering which accompanies such a contract, little
or no margins are left for future unknowns in a long and complex period of construction.
Furthermore, as the rates and prices have to be based on certain assumptions which are, in turn,
based on the provisions of the Conditions of Contract, any change between what was assumed and
what
actually
happens
may
form
a
seed
for
a
claim.
As already stated, claims under this category may be divided into:
a.

claims as a result of certain anticipated and specified events and for which a remedy is
designated in the contract; and

b.

claims as a result of an event where a certain term of the contract is breached and for
which a remedy is designated in the contract.

Meaning of the term Access to Site

Access to Site may have a number of meanings in a construction contract. It may refer to the
means and availability of the approach to the Site area, whether by land, sea or air. It may also
mean the ability to occupy the site area. The second sense is usually referred to as possession of
the site, although terms such as access to site and use of site are also used. The first meaning
of
Access
to
Site
is
examined
below.
Access to the site in which the works are being constructed is necessary to allow transport and
delivery of materials, plant and equipment as well as to allow services and the workforce to reach
the site. In order to be effective the access must be suitable for the type of transport required and
must be available to the contractor at the appropriate time. Even if access is physically available
local permissions and custom clearances may be necessary to allow legal use of access.
Apportionment of Responsibility
The extent of any responsibility for providing the required access across adjacent property and
buildings, obtaining the necessary permissions and the apportionment of risk for events which
prevent the required access, will depend upon the terms of the contract. Generally, if it is
necessary for one party to cooperate in order for the other to carry out the work, then a term will
be implied (in the absence of express terms) requiring that party to do all that is necessary for him
to do to complete the works-London Borough of Merton v Leach (1988) 32BLR51. The extent of
the obligation to provide access and obtain permissions will depend upon the type of work
involved, the extent of possession and/or control of adjacent areas by that party and all the
circumstances. Even if a term is implied that such physical access is to be provided by one party,
the term may not extend to requiring that party to take responsibility for the adequacy of the
access for the transport of plant and equipment for the works.
General Case Law
Two decisions of the courts one Canadian and one English, demonstrate the principles involved in
apportioning
responsibility
for
providing
access
to
site.
In the Canadian case of Penvidic Contracting Co Ltd v International Nickel Co. of Canada Ltd

[1975]53 DLR 748 the contract involved the laying of track and top ballasting on a railroad.
Penvidic was the contractor and work was constantly delayed by the failure of other contractors to
properly grade and sub-ballast the right of way in front of its machinery. In addition the
International Nickel Co failed to obtain the necessary way leaves and permissions to cross various
hydro lines and highways. It was held that the extent of possession or access provided by an
Employer would vary with the nature of the work and the circumstances. In the case of a new
project the main contractor would normally be entitled to exclusive possession of the entire site in
the absence of express terms to the contrary. A term would normally be implied that the site
would be handed over within a reasonable time and, in most cases, with a sufficient uninterrupted
possession to allow the contractor to carry out his obligations by the method of his choice. It was
held that International Nickel Co had failed to do so and that this was a breach of contract entitling
Penvidic
to
damages.
In LRE Engineering Services Ltd v Otto Simon Carves Ltd [1981] 24BLR131 Simon Carves was the
contractor for building works at steelworks at Port Talbot. LRE were subcontractors and had
completed a very substantial proportion of the works when a steel strike broke out. The activities
of pickets at the site prevented LRE completing the work until some considerable time later,
causing them to incur considerable additional costs. LRE maintained that Simon Carves was in
breach of contract in that it had an absolute obligation to see that there was available entry to the
site at all times. This was not accepted. It was held instead that the term access had more than
one meaning in the relevant Clause 24. In one part of the clause it meant physical means of
access since that part also referred to the condition of the access. Another part of Clause 24
placed an obligation on Simon Carves to afford access to LRE. This meant that Simon Carves
undertook that at the relevant time there would be a physical means of access and also that LRE
would be given the opportunity to enter the site by means of that access. On this interpretation it
was held that there was no breach of contract. Simon Carves had provided LRE with the
opportunity of entering the site by the required means of access. The fact that they were
prevented from doing so was not a breach of contract.
Standard Forms
The standard forms generally expressly state the responsibilities for access to Site, in terms which
reflect the type of work envisaged and the expected use of the forms.
FIDIC 1998
The FIDIC Red, Orange and Yellow Forms 1999 place the main responsibility for access on the
Contractor and reflect the international and civil/mechanical type of works envisaged.
Clause 2.2 only requires the Employer to provide reasonable assistance, and then only at the
Contractors request, for the Contractors application for permits, licences or approvals including
clearance through customs and export of the Contractors Equipment when removed from Site.
Clause 4.13 makes the Contractor responsible for special and/or temporary rights of way including
those
for
Access
to
the
Site.
Under Clause 4.15 it is for the Contractor to satisfy himself as to the suitability and availability of
access to the Site, and is responsible for obtaining permissions to use the route and signs. Clause
4.15 expressly provides that the Employer does not guarantee the suitability or availability of
particular
access
routes.
The remedy in both of these types of claim is designated in the contract and the claim may include
the following:
a.

An assertion for financial compensation in respect of:

i.

variations which include alterations, additions and omissions, as well as a change

in any specified sequence or timing of construction of any part of the works;

ii.

measurement changes;

iii.

adverse physical conditions;

iv.

the employers risks;

v.

compliance with statutes, regulations, price fluctuations, currency and other

economic causes;

vi.
vii.

defects and unfulfilled obligations;

failure to commence, critical or non-critical delays, suspension of work, release
from performance, default and termination; and

viii.

other miscellaneous specified events.

b.

An assertion for an extension of the time for completion of the contract works

c.

An assertion for other benefit.

Variations
The nature of variations, the responsibility for them and their valuation are discussed in this
section.
Nature of variations
Although some claims can be avoided by proper planning and risk management, claims for
variations, as indeed claims in general are inevitable since it is practically impossible to foresee
every event that might occur during the construction period and to plan in advance for the
consequences of such events. If that concept is accepted, then it is necessary to incorporate into
the contract a mechanism for implementing changes which are found to be necessary or desirable
during the construction period. These changes are permitted to be made to the works but not to
the
contract.
Clauses 51 and 52 in the Red Book provide for such a requirement by authorising the engineer to
vary the works or any part thereof. They also regulate the rights and obligations of the parties in
the event of such variations. The wording of sub-clause 51.1 confines this authority to make
variations to the engineer. The first sentence of sub-clause 51.2 is in fact more specific in this
respect in that the contractor is prevented from making such a variation without an instruction
from the engineer. The engineers authority in this respect is extremely wide extending to the
form, quality or quantity of the Works or any part thereof. However, in the case of additional work,
such authority is explicitly restricted in paragraph (e) of sub-clause 51.1 to any kind necessary for
the completion of the Works. Accordingly, the engineers authority to add further work to the
contract is restricted so that it does not include work alien to the original concept of the contract or
work
which
is
not
necessary
for
its
completion.
An instruction is required from the engineer to the contractor to initiate a variation and such an
instruction is required to be in writing in accordance with sub-clause 2.5, or, if given orally, then it
should be confirmed in writing as provided for in that sub-clause. Some commentators have

suggested that a drawing may constitute an instruction in writing if it is issued showing a change
from previous drawings and the change may be defined as a variation. Of course, it would always
be preferable to issue the drawing accompanied by a specific communication as to the nature of
any contemplated variation. What is and what is not a variation is a major source of dispute in
many
projects
and
a
frequent
issue
in
arbitral
proceedings.
Sub-clause 51.1 also provides that the engineer may vary the works or any part thereof if for any
reason, other than it being necessary, and he finds it appropriate to:
a.

increase or decrease the quantity of any work included in the contract but an instruction
for such variation is not required if the actual quantities of the work envisaged at the time of
tendering prove, on remeasurement, to be different from those recorded in the bill of
quantities, see sub-clause 51.2. The effect of such a variation must then be taken into account
in determining whether or not the provisions of sub-clause 52.3 apply;

b.

omit such work provided it is not to be carried out by the employer or by another
contractor;

c.

change the character or quality or kind of any such work;

d.

change the levels, lines, position and dimensions of any part of the works;

e.

execute additional work of any kind necessary for the completion of the works;

f.

change any specified sequence or timing of construction of any part of the works. ~

Paragraph (f) of sub-clause 51.1 which is a new provision under the Fourth Edition assumes that
some specified sequence or timing of construction had already been made in the contract
documents. It adds a new dimension to the meaning of a variation from previous editions of the
Red Book in that it encompasses the timing of construction and its programme. Any change from
the specified sequence or timing stated in a programme submitted by the contractor under clause
14 and instructed by the engineer under clause 51 would therefore qualify as a variation. Such a
change may be in the form of a requirement to accelerate the work or to vary its timing.
Sub-clause 51.1 of the Red Book also provides that any variation instructed by the engineer should
not vitiate or invalidate the contract. It has been suggested that as a matter of business efficacy,
this provision must be subject to an implied limitation of reasonableness in so far as instructions
cannot stray outside the Contract. Extras, therefore, must not be of a certain value and type and
must not be instructed at a time which would render the contract inapplicable.
Responsibility for variations
The allocation of liability for the value of any variation instructed by the engineer is dependent
upon whether or not the necessity for it is due to some default of or breach of contract by the
contractor. Accordingly, any additional costs attributable to a variation necessitated by some
default of or breach of contract by the contractor are to be borne by him; see sub-clause 51.1.
Valuation of variations
Valuation of the variations referred to above is provided for under clause 52 of the Red Book which
provides the rules for such valuation. In essence, they are:
a.

Within 14 days of the date of an instruction to vary the works in accordance with clause
51, and before commencement of such work, a notice is required to be given either:

i.

by the contractor to the engineer of his intention to claim extra payment or a

varied rate or price; or

ii.

by the engineer to the contractor of his intention to vary a rate or price.

It is clear by including this notice requirement in the provison of clause 52.2 that a valid notice
of intention to claim is a condition precedent to any additional payment. The importance of this
condition can only be evaluated in the light of the provisions of the applicable law of the
contract. Furthermore, in general terms, the treatment of this topic under civil law jurisdictions
differs significantly from that under the common law. In England, the relevance of such notice
was highlighted by the Court of Appeal in 1965 in the Tersons case when it was held that a
notice need only indicate the intention to make a claim and identify in general terms the &
additional work to which the claim will relate. It is noteworthy that the wording of the clause in
question in that case is different from that in the Fourth Edition of the Red Book from the
point of view of the period within which it had to be served. The words of the clause in the
Tersons case were: as soon after the date of the order as is practicable, as against the period
of 14 days specified in the Red Book.
b.

c.

Such notice is not required to be given where the variation entails an instruction to omit
work.
Varied

work

is

valued

in

one

of

four

different

ways.

The first is where the variation is valued at the rates and prices set out in the contract if, in the
opinion of the engineer, these rates and prices are applicable to the items of varied work. In
considering the applicability of the rates and prices in the contract to the varied work, the
engineer would have to take into account the nature and amount of the varied work in addition
to, presumably, the preliminary items which may be affected, the time when the variation is
ordered, the method of its construction and its physical location compared with the other work
under the contract.
d.

The second way in which a variation may be valued is where there are no applicable rates
and prices in the contract, then the contract rates and prices are to be used as the basis for
valuation so far as may be reasonable.

e.

The third way in which a variation may be valued applies if the contract rates and prices
cannot be used as a basis for valuation; then the engineer is required to agree new suitable
rates and prices through the procedure of due consultation with the employer and the
contractor.
Where no agreement is reached between the engineer and the contractor, then the engineer is
required to fix such rates and prices as are, in his opinion, appropriate. Having done so, the
engineer is required to notify the contractor accordingly with a copy to the employer.
Whilst no time limit is imposed on such agreement on suitable rates or prices, or any
subsequent requirement to fix such rates or prices, in case of disagreement, the engineer is
required under sub-clause 52.1 to determine provisional rates or prices for the purposes of onaccount
payments
in
any
certificate
issued
under
clause
60.
Sub-clause 60.2 provides that the Engineer shall . . . certify. . . the amount of payment to the
Contractor which he considers due. ... It may, therefore, be taken that whatever is certified

under the monthly payment will have to incorporate properly assessed rates and prices for the
various items of work executed and incorporated in the monthly statements of the contractor
pursuant to sub-clause 60.1 to which the Contractor considers himself to be entitled.
Under the heading of applying new suitable rates or prices, sub-clause 52.2 provides for the
possibility of changing the rates or prices of items of the works, other than varied work. It
provides that if, in the opinion of the engineer, the nature or amount of any varied work
relative to that of the whole of the works, or to any part thereof, is such that the rate or price
contained in the contract for any item of the works, is rendered inappropriate or inapplicable,
then a suitable new rate or price is to be agreed upon between the engineer and the
contractor. This provision extends, therefore, to the rates or prices for any item of the works
and affects the rates or prices which are influenced by variations due to time delay, out of
sequence working, changes in the method of execution and to a large extent the preliminary
items of the bill of quantities, if any are included. For a proper adjustment of the rates and
prices of these items, if such adjustment is found to be necessary, reliable knowledge and
understanding
of
the
make-up
of
these
rates
and
prices
is
essential.
Once again, agreement on new suitable rates or prices is to be attempted under the provisions
of sub-clause 52.2 after due consultation by the engineer with the employer and the
contractor. In the event of disagreement, the engineer is required to fix such other rate or
price as is, in his opinion, appropriate in the particular case. The engineer is then required to
notify the contractor accordingly with a copy to the employer. As previously required under
sub-clause 52.1, until such time as rates or prices are agreed or fixed, the engineer should
determine provisional rates or prices to enable on-account payment to be included in any
certificate issued under clause 60.
f.

The fourth way in which a variation may be valued applies where it is to be found, on the
issue of the taking-over certificate for the whole of the works, that the value of varied work
together with all adjustments upon measurement of the estimated quantities is in excess of 15
per cent of the Effective Contract Price. The Effective Contract Price is defined in sub-clause
52.3 of the Red Book as the Contract Price, excluding Provisional Sums and allowance for
dayworks,
if
any.
Then, a sum is required to be added or deducted from the contract price as may be agreed
between the engineer and the contractor. There is no guidance in the Red Book as to how this
sum should be calculated. It is, however, apparent that the target of such adjustment is the
bill
of
preliminary
items
which
forms
part
of
the
contract
price.
On page 117 of the Guide, referred to in Reference at srl. no 12, there is reference to the
purpose of this sub-clause where it is explained that in preparing a tender, a contractor may
distribute his on-costs and profit in various ways,..., and an adjustment of these is necessary
where the amount of work under the contract is varied beyond the specified percentage. For
an accurate adjustment, however, it is imperative that the engineer should obtain details of
the contractors internal price make-up of these on-costs and profit items.

g.

Sub-clause 52.3, which deals with the situation where the value of variations exceeds 15
per cent of the effective contract price, defines the value of varied work and all adjustments
upon measurements of the estimated quantities in the following manner:
i.

varied work is defined in paragraph (a) of sub-clause 52.3 as all varied work
valued under sub-clauses 52.1 and 52.2. This definition removes the confusion which

existed in previous editions of the Red Book as to whether or not changes of quantity
arising from measurements, in accordance with clause 56, should be included in the
calculation of the value of the varied work. It is now clear that only varied work in
accordance with sub-clause 52.1 and 52.2 should be included;
ii.

all adjustments upon measurement of the estimated quantities is defined in

paragraph (b) of sub-clause 52.3 as those adjustments which are set out in the Bill of
Quantities, excluding Provisional Sums, day works and adjustments of price made under
Clause
70.
This definition also clarifies in precise terms the value of additions to or deductions from
the Effective Contract Price, or in other words from the Contract Price, excluding
Provisional Sums and allowance for dayworks, if any;

iii.

agreement between the engineer and contractor is once again based on the new
concept of due consultation by the engineer with the employer and the contractor. Where
no such agreement can be reached, the sum to be added to or deducted from the contract
price is required to be determined by the engineer having regard to the contractors site
and general overhead costs of the contract. The engineer, having determined such sum, is
required to notify the contractor accordingly with a copy to the employer;

iv.

finally, sub-clause 52.3 provides that the sum to be added to or deducted from the
contract price is to be based only on the amount by which such additions or deductions are
in excess of 15 per cent as fixed in sub-clause 52.3. This provision answers the question
which was left unanswered in the previous editions of the Red Book. It is now clear that
the adjustment to the contract price should be related only to the margin below or above
the 15%. Therefore, if for example, there is a reduction of 20% in the contract price due
to the valuation of variations under sub-clauses 52.1 and 52.2, the losses sustained by
the contractor due to this reduction should only be related to the margin between 20%
and 15 per cent, i.e., 5 per cent and not the whole of the 20 per cent.

h.

Sub-clause 52.4 deals with the situation where the engineer requires certain varied work
to be carried out on a daywork basis. Daywork is usually covered by a pro- visional sum in the
bill of quantities which may then be used for additional items for which no bill item is
applicable. Where such a provisional sum is included in the bill of quantities, a daywork
schedule of rates and prices is appended to the bill for pricing by the contractor. The procedure
for payment in respect of daywork is set out in sub-clause 52.4.

Therefore, in setting out comprehensively the manner in which variations are to be valued, the Red
Book provides a remedy in the form of financial compensation in the anticipated event of a change
to the works being instructed by the engineer, on behalf of the employer.
Conclusions
It is expected that the Arbitrators will find the above analysis useful in interpreting the provisions
than
searching
the
meaning
from
the
similar
Standard
Forms
of
Contracts.
Though other clauses of the contracts are equally important but this paper is confined to only such
clauses which are often a matter of debate before the Arbitrators and the Courts.
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NBMCW November 2010