Australian Construction Law Newsletter
NPWC/NBCC "No Dispute" Paper 8 - Variations
1. Introduction
1.1. The terms of reference for the JWP in respect of
variations were as follows:
examine the BritishProperty Federation (BPF)
system and recommend which ofits concepts
should be adopted in Australia;
• propose guidelines for contractual arrange-
ments for variations.
1.2. Most variations to the project directed by a Principal
can be classified into two basic types, namely:
Type (i) variations, caused by inadequate, incomplete or
ambiguous documentation; and
Type (ii) variations, caused by changes or additions to
project requirements.
1.3. Variations may also bedirected to overcomedefective
materials or work. This special category ofvariation may
be appropriate in circumstances where it is not realistic to
remove and reconstruct defective materials or work.
Procedures for dealing with such variations are discussed
in Section 8 of this paper. The term "variation" is usually
thought of as applying to matters described as Type (i) or
Type (ii) variations. Accordingly, unless the context
indicates otherwise, the term "variation" in this paper
refers only to Type (i) andlor Type (ii) variations and does
not apply to variations to overcome defective materials or
work.
1.4. As well as the Type (i) and Type (ii) classifications
described above, variations can also be classified as either
"urgent" or "non-urgent". An "urgent" variation is a
variation instructed after the commencement of the lead
time necessary to allow the variation to be planned, and to
allow the part of the Works affected by the variation to be
re-planned, so that the variation can be carried out in an
orderly manner and in proper trade sequence with the other
project work. Generally, the price for an "urgent" vari-
ation cannot be established before the variation work is
performed.
1.5. Variations, and particularly urgentvariations, disrupt
the orderly performance of the Works, demand a dispro-
portionate amount ofmanagementtime andresources, and
thereby affect the effective managementofprojectquality,
cost and time. The proper valuation of variations is often
a complex matter,. particularly if the . variation affects
critical activities or resources. The indirect cost of a
variation may not be apparent until the later stages of a
project.
1.6. The Risk Allocation Model described in Paper 1 -
"Risk Allocation", indicates that the Contractor is entitled
to full compensation for performing variations instructed
by the Principal, or variations necessary as a result of
problems with design andlor documentation for which the
,Principal is responsible. However, the subtle nature of
certain of the factors that affect the performance of con-
struction works means that it is sometimes difficult for the
Contractorto identify and substantiate its proper entitle-
ment.
Issue #15 47
1.7. Contractual provisions should not assist the Principal
avoid the consequences of its variation requirements. On
the otherhand, a Principal should be given the opportunity
to mitigate the extent of its liability. Timely communica-
tion regarding variations is necessary to allow the effective
cost management of projects. (See Paper 5 - "Cost Man-
agement".)
1.8. The above observations indicate that variations, and
particularly "urgent" variations, benefit neither party,
despite the traditional belief that Contractors make their
profits from variations. Itis in the interests ofall parties for
the number and extent of variations to be kept to a mini-
mum.
1.9. This response to the JWP' s terms of reference is set
out under the following headings:
• Variations under the British Property Federa-
tion (BPF) system;
• Guidelines for minimising the incidence of
variations;
Procedural requirements for dealing with
v"ariations;
• Guidelines for minimising the cost of vari-
ations;
Valuation of variations;
Disputes regarding variations;
Variations in respect of defective materials
and work;
• Summary of Findings.
2. Variations Under The BritiSh Property Federation
(BPF) System
2.1. Under the BPF system, detail design development is
normally the responsibility of the Contractor, Le. the
Contract is based on the Principal's performance require-
ments and specifications, except where the Principal has
particular construction requirements. The Contractor
usually employs specialist consultants to carry out the
detailed design on its behalf. In this respect, the BPF
system mirrors certain aspects of detail design and con-
struction contract strategy (see Paper 11 - "Alternative
Contract Strategies").
2.2. The procedures for raising and processing variation
orders under the BPF system are set out in Section 5.5 of
the BPF Manual. As the Contractor is usually responsible
for the detailed design! documentation, the procedures are
framed to cater predominately for Type (ii) variations.
Under the BPF system, one point control of variations is
exercised through the Client's Representative, (the Princi-
pal), and the value of a variation should be agreed or
determinedprior to authorising the work. The BPF system
provides for a bonus payment to the Contractor of50% of
any saving resulting from a Contractor-originated vari-
ation.
2.3. The procedures for raising a variation order under the
BPF system ate described in Section 5.5 (pp 54 - 56) ofthe
Manual of the BPF System. The general thrustoftheBPF
Australian Construction Law Newsletter
variation procedures are appropriate for non-urgent Type
(ii) variations, but are inappropriate for Type (i) variations
and urgent Type (ii) variations.
3. Guidelines For Minimising The Incidence Of
Variations
3.1. The incidence of variations can be reduced by:
preparation of a carefully considered, objec-
tive, performance-orientated Principal's
brief;
careful preparation and co-ordination ofdetail
design and documentation;
one-point control of variations;
elimination or minimum use of provisional
sum items.
3.2. Ensure that all Principal requirements are fulfilled by
the design and documentation, that the Principal is ac-
quainted with all planning solutions and in agreement with
same, and that the Principal is made fully aware of the
adverse cost and time implications ofvariations during the
construction stage.
3.3. Aim for the highest standard of accuracy and ade-
quacy in design and documentation. Ensure that sufficient
time (and adequate fees) are allocated to the design/ docu-
mentation process for anomalies to be resolved prior to
construction. The design and documentation process
should be the subject of a formal Quality Assurance
system.
3.4. Ensure that the detail design and documentation is
described in objective terminology. Objective specifica-
tions are an essential requirement for the implementation
of quality assurance systems. Subjective specifications
cause uncertainty and misunderstandings, which lead to
inefficiency, delay, disruption and increased costs.
3.5. Ensure effective communication between the design
and construction teams. Continuity of involvement of the
design team throughout the construction stage of the
project can significantly reduce the incidence of unneces-
sary variations, delays and disruption.
3.6. In general, the designer should not be the Principal's
Contract administrator, because of the tendency for the
designer to amplify its requirements as the construction
proceeds. However, if the roles are combined for a
particular project, the designer/contract administrator
should take care to avoid ordering variations in this man-
ner. The contract administrator should be aware that an
instruction to "clarify" requirements may be a variation.
3.7. When properly priced, "last minute" and "multiple"
variations are expensive, after taking account ofthe result-
ing delay and disruption to the orderly performance of the
project. Type (ii) variations should not be ordered without
careful consideration of their viability. Variations which
are not viable or essential should not be implemented. In
certain instances it may be more appropriate to defer a
proposed modification until after the project has reached
Practical Completion.
3.8.0nepointofcontrolandresponsibilityfortheauthori-
Issue #15 48
sation of variations should be vested with the member of
the project team responsible for managing the interface
between the design team and the construction team.
3.9. Any amended drawing, specification or other docu-
ment issued during the construction period should have all
changes highlighted and the document given an amend-
ment revision number.
3.10. Ensure that an alleged variation is in fact a variation,
and is not work already covered by the Contract.
4. Procedural Requirements For Dealing With
Variations
4.1. Clearly definedprocedures for dealing with variations
should be established, and all members of the project team
made fully aware of their respective roles, in order to
ensure that the system operates smoothly. It is of prime
importance that variations receive prompt attention by all
parties, particularly variations which affect critical activi-
ties or resources.
4.2. Type (i) variations relate to the correction ofproblems
with the design andlor documentation. The Principal has
no option but to instruct such variations. Type (i) vari-
ations should be identified and instructed at the earliest
possible time.
4.3. Procedures for dealing with Type (i) variations should
include the following steps:
(i) When an ambiguity, error, omission, discrep-
ancy, inconsistency or other fault is found in
the documents, it should promptly be made
known to the member of the project team
responsible for the authorisation ofvariations
(the authorised person).
(ii) Where necessary, the authorisedperson should
promptly discuss the most appropriate rem-
edy for the fault with the relevant members of
the design team and the construction team.
(iii) As soon as practicable after notification of the
fault, the authorised person should issue a
Variation Order to the Contractor correcting
the fault and directing that the work proceed in
accordance with the instruction.
(iv) As soon as practicable after receipt of the
Variation Order, the Contractor should advise
the authorised person ifthe Variation Order is
likely to result in an increase in price or time
andlor affect the interface with the work of
other contractors.
(v) Where possible, the parties should agree a price
and, if relevant, an extension of time for such
Variation Order before the variation is carried
out.
(vi) If pre-agreement of price andlor time for the
variation is notpossible, the Contractorshould
submit the readily identifiable costs and de-
lays resulting from the VariatioD. Order as
soon as practicable (say not later than 28 days)
after performance of the variation work.
(vii)The valuation of most variations should be
capable of being finalised in step (vi) above.
However, for certain variations there will be
Australian Construction Law Newsletter
other less easily identifiable costs and delays
caused as result of, say, the ripple effect ofthe
Variation Order, or the cumulative effect of
many such matters. Details of such costs and
delays should be submittedprogressively, and
again as soon as practicable. Contract proce-
dures should ensure that a Contractor does not
delay in submitting readily identifiable costs
and delays (step (vi) above) merely because
there may be an ongoing ripple effect. If the
Contractor considers that there will be indirect
costs and delays associated with the variation,
this should be advised to the Principal at the
time of submitting the statement of readily
identifiable costs and delays.
(viii)Payment and extension of time for the vari-
ation work should be resolved promptly (and
progressively, ifnecessary) and incorporated
into the contract payment and administration
systems.
4.4. The disruptive nature of "urgent" variations cause
impact cost and delays that often cannot be ascertained at
the time of performing the variation. Attempts to pre-
agreed a price for an "urgent" Type (ii) variation would
probably cause additional delays and disruption to the
project, because of the time that would necessarily be
required to pre-agreed a price for the proposed variation.
In many instances it would not be practical to quote an all
inclusive price for the ripple effects that may be caused be
the "urgent" variation.
4.5. Procedures for dealing with "urgent" Type (ii) vari-
ations should include the following steps:
(i) The originatorofthe proposedvariation should
clearly define the proposed variation.
(ii) The authorised person should discuss the
proposed variation with the relevantmem-
bers of the design team and the construction
team to establish what would be the most
appropriate manner of implementing the
proposed variation so as to minimise delay
and disruption to the project. The Contrac-
tor should be asked to provide a non-binding
budget estimate of cost and time of the pro-
posedvariation. This analysis ofthe proposed
variation should be carried out as quickly as
practicable so as not to exacerbate the likely
delay and disruption to the project that would
be caused by the proposed variation.
(iii) If the proposed variation is to proceed, a
variation order is issued.
(iv) The Contractor should submit the readily
identifiable costs and delays resulting from
the variation order as soon as practicable (say,
not later than 28 days) after the perform-
ance of the work.
(v) Other less easily identifiable costs and delays
should be submitted progressively and
again as soon as practicable. The comments in
step (vi) of Type (i) variations also apply to
urgent Type (ii) variations.
(vi) Resolve payment and extensions of time
promptly.
Issue #15 49
4.6. The general principles and procedures set out in Sec-
tion 5.5 of the BPF System Manual should be considered
for "non-urgent" Type (ii) variations.
4.7. Procedures for dealing with "non-urgent" Type (ii)
variations should include the following steps:
(i) The originator of a proposed variation should
clearly define the proposed change and
arrange for a budget estimate to be prepared;
(ii) If the proposed variation appears viable and
appropriate, the variation design is finalised;
(iii) A firm price for the proposed variation is
requested from Contractor within stated time
period. Where possible, such price should
include all indirect costs related to the vari-
ation and should state the impact (if any) on
Contract time;
(iv) Price submitted by Contractor. Where appli-
cable the quotation should state the latest date
for acceptance of the variation quotation;
(v) Price and time scrutinised, negotiated and
agreed or determined. Where necessary ob-
tain Principal's approval for expenditure;
(vi) If variation is to proceed, a variation order is
issued;
(vii) Variation undertaken and paid for.
4.8. The procedural requirements for dealing with all vari-
ations should include:
(i) A realistic budget allowance should be in-
cluded in the project budget for variations, but
this allowance should not be stated in the
Contract.
(ii) For the purposes of facilitating effective com-
munication between the parties, the Contrac-
tor should promptly notify the Principal if it
considers that a Principal' s instructionconsti-
tutes a variation, so as to give the Principal the
opportunity to amend its instruction, or to
enable it to keep appropriate records. Whilst
the Contractor should make every endeavour
to comply with this requirement, failure to
comply should not constitute a bar to its enti-
tlement to payment or time for the perform-
ance of the varied work. In this regard, the
Principal is reasonably deemed to be aware of
the Contract design and documentation for
which it is responsible, and whether or not an
instruction to the Contractor varies such de-
sign or documentation. It is not reasonable
that a construction Contractor be penalised by
barring provisions if it reasonably overlooks
or fails to recognise immediately the signifi-
cance of such a Principal's instruction.
(iii) The Contract procedures for the valuation of
Variations should recognise that, whilst the
readily identifiable direct costs of performing
a variation should be established within a
reasonable specified time after the perform-
ance of a variation, the indirect delay and
disruption ripple effect may not be capable of
being ascertained at that time.
(iv) If a CORtractor unreasonably delays in notify-
ing the Principal that it considersaPrincipal's
Australian Construction Law Newsletter
instruction to be a variation or unreasonably
delays in submitting a valuation of variation,
the Principal should be entitled to are m -
edy against the Contractor. (See Paper 9 -
"Claims", and Paper 10 - "Dispute Resolu-
tion,,).
(v) The Contract provisions should provide an
appropriate balance between the legitimate
requirements of the Principal for prompt no-
tice and valuation ofvariations, and the legiti-
mate requirement ofthe Contractor for proper
compensation for the performance of vari-
ations.
(vi) A nominated member of the project team
should have the responsibility for co-ordi-
nating all functions of the variation process
and for ensuring that all procedures are com-
plied with, reports submitted and authorisa-
tions obtained.
(vii)Contract administration procedures should be
accompanied by an effective cost monitor-
ing and reporting format to the Principal. The
following data should be included with re-
spect to variations:
• The budget allowance for Type (i)
variations and costs committed to
date;
The progressive value of Type (ii)
variations and the budget for ,them.
(viii)The project budget and program should be
regularly monitored and if necessary updated
to reflect the effect of variations and other
delaying events on the performance of the
Project.
(ix) The indirectdelay and disruption ripple effect
that maybe caused by a variation may not be
capable of being ascertained at the time of
performing the variation. In such circum-
stances it may only be possible to analyse the
indirect effect of variations and other factors
that haveaffected the peiformance ofthe proj-
ect at a later stage in the project. However,
Contract procedures should ensure that the
Contractor does not delay the submission of
readily identifiable costs merely because
there may be ongoing indirect effects caused
by variations and other delaying events. If the
Contractorconsiders that there will be indirect
costs and delays associated with a variation,
this should be advised to the Principal at the
time of submitting the statement of readily
identifiable costs and delays.
(x) Variation Orders shouldnot be issued after the
Works have reached Practical Completion.
Any modifications or additional workrequired
to be executed after Practical Completion
should be the subject of a separate agreement
with the Contractoror otherpersons employed
by the Principal. If other persons are em-
ployed, the Principal s~ould take care not to
void warranties relating to the Works.
Issue #15 50
5. Guidelines For Minimising The Cost OfPerforming
Variations
5.1. The cost ofperforming variations, and hence the price
properly payable by the Principal, may be minimised
through adherence to the following general guidelines:
(i) Variation instructions should be explicit as to
technical requirements and extent.'
(ii) Contract procedures should be consistent and
clear and not open to uncertainty and ambigu-
0us interpretation.
(iii) Restrict each Variation Order to one change
only.
(iv) A variation should be instructed in sufficient
time to allow proper re-planning of the work
under the Contract, and to allow the work to be
carried out in an orderly manner in proper
trade sequence.
(v) Keep the number of variations to a minimum
to avoid the additional costs incurred as a
result of the compounding effect of multiple
variations.
(vi) Whereverpossible, avoid "urgent"variations.
Urgent variations are expensive and have a
high potential for delay, disruption and later
dispute.
(vii) Whenever possible, the parties should
agree the price for a variation prior to au-
thorising the varied work to proceed. How-
ever, it may not be practical to pre-agreed
the valuation of "urgent" variations. A delay
in authorising a variation pending agreement
on price may cause a "non- urgent" variation
to become an "urgent" variation.
(viii)Where a variation is instructed prior to agree-
ment on price, "without prejudice" progress
payments should be certified and paid pend-
ing resolution of the final price.
6. Valuation Of Variations
6.1. The Risk Allocation Model indicates that variations
are a Principal's obligation/risk, and that the Contractor is
entitled to full and fair compensation for the performance
ofvariations to the project instructed by the Principal, and
for variations necessary as aresult ofproblems with design
and/or documentation for which the Principal is respon-
sible. Contractual provisions should not assist the Princi-
pal avoid the consequences of variations.
6.2. Where practicable, the price for a proposed variation
should be agreed prior to the Principal authorising the
varied work. In general, this procedure is only practical for
non-urgent variations where the pricing and agreement
process for the proposed variation can be completed prior
to the start of the lead time necessary to allow the varied
work to be properly planned and to allow the varied work
to be carried out in an orderly manner and in proper trade
sequence with the performance of the project.
6.3. Ifvariation work is ofa similarcharacter and executed
under similar conditions to work described in the Bills of
Quantities, then it may be appropriate to apply the relevant
prices or rates contained in the Bills of Quantities.
Australian Construction Law Newsletter Issue #15 51

6.4. However, urgent variations are not carried out under
the same orderly conditions as the original contract work
described in the Bills of Quantities. When itis reasonable
to do so it may be appropriate to establish a fair valuation
of the direct cost component of an urgent variation based
on an extra - over increase in the prices and rates set out in
the Bills of Quantities.
resolution of the dispute, whether by negotiation, arbitra-
tion or other means, as binding on both parties.
7.2. Such procedure overcomes the potential problems
associated with parallel dispute resolution procedures under
the Head Contract and the Subcontract in respect of the
same matter.

6.5. Ifthe conditions under which a variation is performed
are so different to the conditions under which the original
Contract work would have been carried out there may be
no reasonable alternative but to build up from first prin-
ciples a reasonable price for the variation based on job
specific data and other relevant factors.
7.3. The Contractor should ensure that only those matters
that are relevant to the Principal's responsibilities are dealt
with in this manner; it is inappropriate to forward to the
Principal components of a Subcontractor's claim that are
matters properly limited to the Contractor and not matters
for which the Principal could be held accountable.

6.6. The valuation of variations, particularly urgent vari- 8. Variations In Respect Of Defective Materials Or
ations, may include costs relating to the delay and disrup- Work
tion caused by the variation. It may be appropriate to state, 8.1. If the Contractor's materials or work is not in accor-
as separate valuations items, the direct costs and the dance with the Contract, it is normal practice for the
indirect costs incurred carrying out an urgent variation, so Contractor to remove and replace the defective materials
that the Principal is aware of the cost penalty to the project or work.
of urgent variations.
8.2. In certain circumstances, it may be more appropriate
6.7. The pricing and payment structure of most construc- for the defective work to be "varied", such that the defec-
tion contracts is based on the conceptofprogress payments tive work as varied satisfies the Principal's requirements
being made monthly in respect ofwork carried out during for the project.
the previous month. The Principal should make "without-
prejudice" progress payments in respect of variations, 8.3. If the Principal agrees to vary the defective work as
even if the final. prices of the variations have not been described, the Contractor should not be entitled to an
established. extension of time or payment for such variation unless the
. variation causes an increase in the value to the Principal of
6.8. If payment for a variation is not made until after the the Works, in which case a valuation of the variation
final price for a variation has been agreed or determined, should have regard to such increase.
the valuation may reasonably include for the financing
costs incurred by the Contractorduring theperiodfrom the 8.4. The Principal and the Contractor should agree on any
date of the next progress payment after the variation work increase or decrease in the Contract price or time for such
was performed to the date when payment is made. a variation prior to the variation being instructed.

6.9. The direct cost and immediate ripple effect of a vari- 8.5. The Principal should be under no obligation to order
ation should be established within a reasonable specified such a variation merely to assist the Contractor.
time after the performance of the variation. The indirect
delay and disruption ripple effect that may be caused by a 8.6. A Contract provision dealing with this class of vari-
variation may not be capable of being ascertained at the ation is set out in Clause 30 of AS2124-1986.
time ofperforming the variation. In such circumstances it - Reprinted with the permission of the National
may only be possible to analyse the indirect effect of Public Works Conference and the National
variations and other factors that have affected the perform- Building and Construction Council.
ance of the project at a later stage in the project. The
valuation of the indirect component of a variation should
be addressed progressively after identification and sub-
mitted as soon as practicable. The Contractprocedures for
valuing variations should recognise this two stage process
in the establishmentofthe proper valuation ofcertain vari-
ations' particularly urgent variations.

7. Disputes Regarding Variations

7.1. If a Subcontractor's claim relates to a variation, or an
alleged variation, to the Head Contract Works, (and as-
suming the technical documentation for the Subcontractis
the same as that included in the head contract), the
Subcontractor's entitlement in respect of the variation
should be resolved in a single forum pursuant to the terms
ofthe Head Contract. The Contractor and the Subcontrac-
tor should co-operate to prepare submissions to the Princi-
pal in respect of the disputed variation and accept the