Variations to the Scope of a Building and Construction Project - Thesis Example

Name: Tutor: Course: Date: Introduction Variations in building and construction contracts refer to changes to the previously agreed terms of contract, for instance, to the scope or nature of works in a project. Research indicates that variations to the scope of a building and construction project are common since no project is considered to be impeccable, and thus changes are expected to face the unforeseen situations or the changed requirements. This implies that variations in building and construction projects can occur in different forms such as additions, substitutions or omissions. It becomes necessary also to consider the importance of variations clauses in building and construction contracts. In Ashwell Nesbitt v Allan & Co (1912) in Hudson’s Building Contracts, the 4th edition of vol.2, pp.462 states that at the onset of a contract, the proprietor is not yet entitled the right to direct variations. It is relevant to note that variation clauses ensure that contractors are entitled to recovering payments for different variations that were properly directed. However, issues or problems related to variations arise in three major areas, the scope where a question may be raised on whether it was a variation or the contractor intentionally decided to do? Cases related to non-compliance with procedural requirements as well as valuing of variations can also cause disputes in building and construction projects (Wilmot-Smith 56). In clause 1.1 of PC-1 (1988) of the Project Contract of Property Council of Australia states that contractual relationship between different parties is constituted through the Formal Agreement through which such conditions are attached, the description of works, contract particulars and conditions of contracts. It is quite clear, therefore, that ability to determine whether the variation work is reflected in the scope of a contract entirely depends on the terms agreed on in the contract. Arguably, the court may not only confine itself to written agreements when determining the scope of a contract, but also consider the specifications, correspondence and drawings which form an essential part of a contract (Lord Justice & Hughes). The issue of inconsistencies between the parts of a contract is also an important section of the contract clauses corresponds to contract documents. Different contract issues are dealt with differently as stated in the FIDIC of clause 5(2) which provides for the priority list of contract documents. It states that different documents which form the contract are considered mutually explanatory of the other. However, in situations of ambiguities or the project discrepancies similar documents will be explained and changed by the Engineer who shall in future stage issue to the contractor instructions in the event. Otherwise, the priority of documents that form the contract should have been provided as the completed contract agreement, a letter of acceptance, the tender, part 1 and 2 of such conditions as well as other relevant documents that form the contract. The Australian Joint Contracts Committee in section 2 issued the JCC-D 1994 Building Works Contract which lacks quantities. Although clause provides same precedence of the contract documents, it goes extra step to require either the contractor or architect who identifies any discrepancy, to immediately inform the other. Based on the nature of discrepancy discovered, the architect is required to issue the contractor with a detailed explanation of the instruction expected to determine and correct the discrepancy. The contractor is not required to perform works that are not specified in the scope of variation clause (Baker, Bremen & Lavers 210). This is related to Cook J in the J & W Jamieson Construction vs. City of Christchurch High Court 1984, stated that if a variation can be fairly said to be an alteration to the project works as described, regardless of whether it is an addition, substitution or a reduction to the effects of performing the works. It is the variation that a contractor is required to carry out and nothing less or more (Dorter & Sharkey 46). The Legal Analysis of the Clausal-Related disputes within the Construction Contracts in Australia The contractor in a building and construction contract is invariably expected to execute the tasks agreed upon and complete the project within a specified period of time. This implies that the contractor has the obligation to provide a construction program as well as keep it updated. However, delays in projects occur as a result of uncertainties and complexities which create major challenges to time management abilities between parties and professional consultants, making delays in other projects inevitable. Acceleration as the act of completing projects earlier than expected in the contraction contract, involves high costs since the techniques such as increased crew sizes and multiple crews, as well as overtime and shift work they all invariably involve work accomplished through reduced productivity as applied to achieve the project deliverables prior to the required time. In a Standard Form Clause 46(3) of ICE7 requires that an Engineer can order acceleration, however, the Contractor is not required to comply until its price for that particular acceleration is agreed with his or her employer. The ability to express terms of a given contract on the employer-directed acceleration, the clause provides that the contractor will be entitled to compensation on the quantum merit basis where the agreed sum was not initially made (Lane 238). Defenses to Claims of failure to deliver the payment schedule in 10 business days In Australia, there are cases where defences to claims to situations where the principle or employer fails to make payment as per the agreed schedule, for instance, the required 10 days under the Building and Construction Industry Security of the Payments Act (Vic) 2002. In this case, the employer is potentially subjected to the requirement to pay on condition to the full amount of his or her contractor’s claim. Subsequently, the employer is required to recover that particular amount as reflected from the contractor’s claim through instigating the Supreme Court action (Doug 87). On the other hand, the contractor provides a payment claim submitted under section 14 of the Act. This implies that the payment claim should be expressed in regard to the Act to be the payment claim as indicated under the Building and Construction Industry Security of the Payments Act BCIS (Vic) 2002. It is important to note from this Act that the employer is required to provide the contractor with a payment schedule within 10 days business day. Failure to deliver the payment schedule in that period of time, the whole amount claimed by the contractor becomes due and payable as from that particular date. It is quite clear from requirement of this Act that the contractor is guaranteed cash-flow rather than altering the state under the Contract (Fletcher 204). The case of Jemzone also provides a situation for unsuccessful defences to claims raised in New South Wales where the employer failed to comply with the requirements of NSW Act. The Jemzone defence was considered as successful case in New South Wales and in the Victorian Supreme Court Application VSCA for the summary judgment. In Jemzone vs. Trytan (2002) NSWSC 395, Austin J involved in a contract between the developer and the builder. The project was successful because the principle acknowledged the effects expected in the Building and Construction Industry Security of the Payment Act (NSW) 1999. However, there are other cases where the defenses claim in New South Wales that were considered unsuccessful because the principal failed to comply with the requirement of the Act to make full payment of the amount made in the payment claim. This indicates that the principle failed to provide a payment schedule in 10 business days. Although the New South Wales legislation differs with the Victorian legislation, the cases remain instructive. In the two cases, the principle created technical defences but they failed. It can be argued that the court could maintain that the Act should have taken effect of compelling the employer or to pay the whole amount expected of the payment claim rather than the principle disputing that the case was obligating under the relevant contract. From the above discussion, it is quite clear that a variation is often affected through instructions delivered by the principle’s architect or the superintendent. Therefore, it is critical that such instructions be provided in writing regardless of whether they are pre-requisites to the rights of a contractor to recover the payment. This is because the determination to recover the payment will depend on whether the instructions are condition precedent. It is important to note that under the Building and Construction Industry Security of the Payment Act (NSW) 1999, the underlying idea is on the interpretation of the contract (Smith 398). In Walker vs. Randwick Municipal Council (1929) of the SR (NSW) 84 case indicates that the contractor agreed to perform all tasks required in the construction of a concrete preserving wall. In the process of performing the works, Walker was forced to remove the sandbank in order to construct the preserving wall. The previous plan not incorporated within the contract indicated that the bank was supposed to be 6 feet wide. However, Walker alleged that the bank was 12 feet wide and thus claimed for extra work and labor for the removal of more 6 feet. On contrary, the courts maintained that the contract was entirely to build a preserving wall and at fixed price which indicated that the risk should be charged on the contractor. Based on clause 1.1 of PC-1 (1988) of the Project Contract of Property Council of Australia, it states that the contractual relationship between different parties is constituted through the Formal Agreement through which such conditions are attached, the description of works, contract particulars and conditions of contracts (Bell 324). A case with Walker, contractor had at the onset of the project agreed to perform all the tasks required in the construction of retaining wall. This suggests that then court could refer to clause 1.1 of PC-1 to determine whether the variation work is reflected in the scope of a contract by confirming on the terms agreed on under the contract. However, it could be important for the court not only to confine itself to the written agreements when confirming the scope of contract to build a retaining wall, but also consider the specifications, correspondence and drawings which form an essential part of a contract. Given the requirements of the Building and Construction Industry Security of the Payment Act (NSW) 1999, the emerged dispute of extra work on building of a retaining wall could be solved by involving case in clear interpretation of the contract (Marcus 67). The case for Commissioner of Main Roads vs. Reid (1974) 131 CLR 378 and JA Berriman vs. Carr (1953) 89 CLR 327 a clause within the contract allowed the engineer to direct the contraction to be in writing so as to obtain top soil from various approved locations, on condition that if the sufficient topsoil to provide the requirements of the project works is not obtainable in the right-of-way. Additionally, the contract contained a clause that gave the engineer the power to omit part of the works. A situation happened that the engineer instead of instructing the contractor to obtain the expected topsoil from various approved locations, opted to exclude the works assigned by the contractor and referred the works to another contractor at low cost rate. Therefore, Australian High Court maintained that the clause specifically gave the engineer one option, either to choice instructing the contractor to get the topsoil or simply to omit the works. It can be argued that the clause did not bestow the engineer with the right to direct the works be performed by another engineer or third party. This implies that even though variation clauses are widely drafted, they have limitations as well. The limitation portrayed in this case, therefore, relates to the ability of the proprietor to omit works directed by the contractor. However, it is important to note that the ability to vary the scope of works does not necessarily offer the proprietor the power to deprive the contractor of the entire privileges that particular work (Chuen Ren). Chadmax vs. Hansen & Yunken Pty Ltd (1985) BCL 52 is also a relevant case on variation in building and construction contracts. It provides the dilemma faced by the principal contractor when directed by the proprietor to omit other works. It is a case where the subcontractor was hired to install the wall-flex to the stairwells and corridors. In this case, the architect involved in subsequent deletion of substantial portions of certain work from the originally agreed upon contract. This task was also handled by the main contractor who acted in a similar manner with the subcontractor. As a result, the subcontractor succeeded to sue the principal contractor for repudiation of the contract. The court held that the principal contractor partnered with the owners for one common action, unfortunately the principal contractor the work of wall-flex was accomplished in the original contract constituted only the minor section. Thus, their omission from the original contract was expected to be in the main scope of the contract. This provides a clear indication of dilemma faced by the principal contractors when instructed by the proprietors to exclude certain works. The court could maintain that the power held by the defendant to claim additions or reductions or omission from the emerged sub-contract work, could not be considered as construed power to reject virtually the entire subcontract works. In valuing the variation, clause 36.4 of the AS 4000 states that if a variation relates to the terms of a greed in the contract, the rates stated will be used to determine the value of the work, allowing a more reasonable amount for profits (Bailey & Bell). Suggested changes to Standards Australian Contract AS4000 to enhance contract’s clauses dealing with variations The execution of variations without a clearly documented instruction has been considered a major pitfall for the contractors. Under clause 36.1 of the AS4000, is not required to vary Works Under Construction (WUC) unless if directed in a written document. This implies that before requiring execution for a variation, the principal is required to issue a written instruction or direction. Similarly, prior to executing a variation the contractor is advised to receive a written direction. Although AS4000 in clause 36.4 has clearly set out the order of the precedence for assessing variations as the ability to make prior agreement, applicable rate or prices within the contract, rates in the priced bill of quantities and schedule of rates and reasonable rates to include reasonable sums for profit (Bailey & Bell). It could be important to set out a standardized figure or amount to avoid ambiguities in the applicable rates and prices within the priced bill of quantities. The AS4000 clause 36 should set a specific sum of deduction to be considered as the amount for the profit to avoid confusion with the amount for overheads. On the other hand, the scope for the valuation of variations has been broadly defined to include the third option that offers the superintendent the power to change rates that do not meet the contents of a contract document. Such task is difficult to accomplish because it is hard to establish reasonable cases for extra protection to be provided to contractors, particularly in regard to the obligations compelled on the principal to fulfill the entire aspects of functions held reasonably as well as in good faith. Therefore, it is imperative to argue that the task of assessing, adding and deducting the actual cost from the main contract amount should not only be left in the hands of Superintendent, but also involve the contractor in a written and agreed upon document. As a result, cases related to contractor claiming overheads and abnormal value charged as profit value will be avoided. The Australian Standards construction contract AS4000 adopted the apportionment approach clause 34.4 Assessment states that when both the non-qualifying and qualifying agents of delay overlap, then the superintendent will be required to apportion the emerging delay to the Works Under Contract (WUC) in accordance with the respective causes or agent’s contribution. In the process of assessing each Extension Of Time (EOT), the superintendent is required to disregard questions such as whether, the WUC can reach the practical completion without necessarily involving EOT or the contractor can be able to accelerate though will be required to regard the extent to which prevention as well as mitigation of the delay is not affected by a contractor. It is relevant that the clause works to provide both the parties with the authority to share responsibility for their delays (Cyril 28). However, a concern must be raised about the clause as well as make the general practicality of this apportionment approach. For example, in cases where the qualifying cause of a particular delay was identified to be the inability of the project company to ensure accessibility to the site and non-qualifying cause of delay was considered the inability of the contractor to initiate the work due to being black-banned by the unions. The emerging question is how should such causes be apportioned? Based on the two causes, it can be argued that both are absolutely responsible for the delay, and thus the two parties are considered fault. In such a case, therefore, The Australian Standards construction contract AS4000 should be changed to include that the delay be split down at the middle where the contractor will receive 50% of total delay as the extension of time. On the other hand, the delay should be apportioned 100 percent to a project company where the contractor will receive 100% of time that was entirely claimed. This is because the delay cannot be apportioned 100% to the contractor since the arbitrator may consider the judgment to be unfair, for instance, where potentials for important liquidated damages legal responsibility can be identified. Although the above clause is not rigorous legal reasoning, it does not directly lend itself to the rigorous assessment (Keith 68). The Australian Standards construction contract AS4000 should be changed to clearly rather than being canvassed viewing a variation limitation as an action which bears certain relationship to the ongoing contract works. This implies that variations that are directed must be identified with character as well as extent contemplated through and capable of being executed under the requirements of the contract AS 4000 in clause 36.1. Additionally, similar qualification changes should be established in the JCCD 1994 Contract in Clause 6.10.01. However, if agreement is made that the entire variations shall be in the main scope of the contract agreement to be considered of character and the extent contemplated through and likely being executed under relevant conditions of the agreement, then no alterations should be made on the clause. Such clauses provide significant limitations to variations because they guide the proprietor from negatively affecting the critical changes to the original building design or simply the works considered under the occurrence of variations (Bailey & Bell). In conclusion, variations are almost inevitable components of construction claims. Due to the competitive nature of the construction industry environment, it can be concluded that a number of contractors depend on the variations of a proprietor to reasonably claim for their contracts. It is quite clear that execution of variations affect the originally agreed upon completion date of the project, and thus impact on the delay claims by a proprietor. It is relevant to argue that resolutions of issues related to variations is not an easy task, particularly in situations where the dispute is experienced after the building and construction project is completed without records which renders the physical measurement of the already accomplished tasks difficult. Works Cited Baker, E., Bremen, J & Lavers, A. The Development of the Prevention Principle in English and Australian Jurisdictions, International Construction Law Review, 22(2), 197-211. 2005. Bell, M. The prevention principle in Australian construction contrac- ting, International Construction Law Review, 23(3), 318-354. 2006. Cyril, Chern, The Law of Construction Disputes. 2010. Doug, Jones. Building and Construction Claims & Disputes.1996. Dorter & Sharkey.Building and Construction Contracts in Australia, 2nd ed, Chapter 9, pp. 46-47. Fletcher, A. Key Issues in Time Extension Claims. Building and Construction Law, 4, 193-208. 1998. Ian, Bailey & Matthew, Bell. Construction Law in Australia, 3rd ed. 2011. Ian, Bailey & Matthew, Bell. Understanding Australian Construction Contracts. AS2124, AS4000, ABIC MW-1, PC-1. 2008. Keith, Pickavance. Delay and Disruption in Construction Contracts 4th ed. 2010. Lane, N. Constructive Acceleration. Construction Law Journal, 16(4), 231-241. 2000. Lim, Chuen Ren, CR Lim Construction Lawyers. Melbourne. Lord Justice, Lewison & David, Hughes. The Interpretation of Contracts in Australia.2011. Marcus, Jacobs. Security of Payment in the Australian Building and Construction Industry 4th ed. 2011. Smith, G.The “prevention principle” and conditions precedent: recent Australian developments. International Construction Law Review, 19(3), 397-404. 2002. Wilmot-Smith, Richard. Construction Contracts: Law and Practice 2nd ed. 2010. Read More