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Comparison of Variation Clauses in Traditional Procurement

(PWD 203A 2010) and Design-Build Procurement (PWD DB 2010)

Seng Hansen
Master Student of Construction Contract Management UTM
Email: Hansen_zinck@yahoo.co.id


Introduction: What is Variation?
Almost all construction contracts have included variation clauses as the
standard provisions in the contract. We can find them in international as well
as national standard forms of contract. We can also find them in different types
of procurement such as traditional, design and build, management contracting,
EPC, etc. Even in bespoke or domestic contracts, there must be variation
clauses which entitle the employers to impose the contractors an obligation to
change the scope of the work during construction stage which subsequently
cause the contract sum to be adjusted either up or down by such variation. As a
result, the contractors are entitled for the variations in their payment
certificates.

Each standard form of contract gives its own definition on variation. However, in
general variation can be defined as the alteration or modification to the basis
upon which the contract was let. It is a famous term known to be inevitable in
any construction project due to the changing nature of construction projects.

Powell-Smith (1990) mentioned that in the absence of variation clauses, the
employers or architects would have no power to request to the contractors to
make any changes in the work that they have agreed to do. In other words,
without variations clauses, the employers and his representatives do not have
the power to order variations to the contractors.

Beside the above main purpose, variation clauses are made to serve the
contractors right to seek a claim due to variations, to provide a mechanism for
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limiting the variations scope, to provide a procedure for variation process, and
to provide a mechanism for the valuation of variations.

Understanding of variation clauses is very important since variations are the
major cause of many problems and disputes in construction industry. They
influence the two major aspects in construction projects: time and cost. If the
variations do not handled carefully, they may end up in delay of construction
time period and cause cost overrun. The magnitude of variations effects are of
course influenced by many factors, including the employers characteristics,
project characteristics, project organization and environmental factors.

This paper is talking about the comparison of variation clauses between
traditional and design-build procurement systems with reference to PWD
standard forms of contract which are published by the Malaysia Public Works
Department. Before we move on to the comparison issue, it will be better if we
briefly discuss the nature of traditional and design-build procurement systems.


The Nature of Traditional and Design-Build Procurement Systems
Under conventional/traditional procurement system, design should be
completed before competitive tenders are invited and before the contract is
executed. Assuming that there will be less changes introduce during the
construction period, construction costs can be determined with reasonable
certainty. The responsibility of both parties is determined clearly. The
contractors responsibility includes all financial and other risks during
construction period, whilst the employers take the responsibility and risk for the
design. The employers also have the ability to influence the development of the
design to meet their requirements. Moreover, they usually will have the ability to
influence the construction process through their representatives such as S.Os.
or architects acting as their agents.

While on another hand, design and build procurement system is a fast-track
strategy. Construction can start before all the detailed design is completed, but
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at the contractors risk. Under a design and build strategy, a single contractor
assumes the risk and responsibility for designing and building the project, in
return for a fixed-price lump sum. It is very important, therefore, that the brief
and performance or quality specifications for important requirements in the
project are fully and unambiguously defined before entering into this type of
contract. If requirements are not specific, the employers should provide
contractors with a performance specification at tender stage. The contractors
develop the design from the specification, submitting detailed proposals to the
employers in order to establish that they are in accordance with the
requirements of the specification. The employers are, therefore, in a strong
position to ensure that their interpretation of the specification takes preference
over the contractors. Specification is a risky area for inexperienced employers.
Moreover, the contractors have a legal duty to provide the employers with a
project that is fit for its purpose.





Variation Clauses in PWD 203A 2010 (Traditional Procurement)
There are two clauses related directly with Variations; i.e. clause 24 and 25.
24.0 VARIATIONS
Employer Contractor
Traditional Procurement
Design and Build Procurement
Risk Allocation
Financing Approvals Design Procurement Construction Maintenance Fit Out
PWD 203A
PWD DB
Scope of Contractors Activities
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24.1 The S.O. may issue instructions requiring a Variation in a form of a
Variation Order. No variation required by the S.O. shall vitiate this
Contract. Upon the issuance of such Variation Order, the Contractor shall
forthwith comply with the Variation Order issued by the S.O.
24.2 The term Variation means a change in the Contract Document which
necessitates the alteration or modification of the design, quality or
quantity of the Works as described by or referred to therein and affects
the Contract Sum, including:
(a) the addition, omission or substitution of any work;
(b) the alteration of the kind or standard of any of the materials, goods
to be used in the Works; or
(c) the removal from the Site of any work executed or materials or
goods brought thereon by the Contractor for the purposes of the
Works other than work, materials or goods which are not in
accordance with this Contract.
25.0 VALUATION OF VARIATION
25.1 All variations instructed in writing by the S.O. in accordance with clause
24 hereof shall be measured and valued by the S.O. The valuation of
Variations, unless previously or otherwise agreed, shall be made in
accordance with the following rules:
(a) the rates in the Bills of Quantities after adjustment if necessary as
provided in clauses 26.6 and 26.7 hereof, shall determine the
valuation of work of similar character and executed under similar
conditions as work priced therein;
(b) the said rates, where work is not of similar character or executed
under similar conditions as aforesaid, shall be the basis of rates for
the same, so far as may be reasonable, failing which a fair valuation
thereof shall be made by the S.O.;
(c) the rates in the Bills of Quantities shall determine the valuation of
items omitted, PROVIDED THAT if the omission substantially vary
the conditions under which any remaining items of work are carried
out, the rates of such remaining items shall be valued under rule
(b);
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25.2 Where work cannot properly be measured or valued, the S.O. may allow
daywork price as specified in Appendix. Unless otherwise provided in the
Bills of Quantities, the daywork prices for the purpose of this Contract
shall be taken to mean the actual net cost to the Contractor of his
materials, plant and labour for the work concerned. The Contractor shall
be paid daywork prices, plus fifteen percent (15%), which shall include for
the cost of all ordinary plant, tools, scaffolding, supervision and profit.
PROVIDED ALWAYS that as a condition precedent to any right to any
payment the Contractor shall produce vouchers, receipts and wage books
specifying the time for labour and plant employed and materials used to
the S.O. not exceeding seven (7) days after the work shall have been done.
25.3 The amount of variations shall be certified by the S.O. and added to or
deducted from the Contract Sum as the case may be and the amount
shall be adjusted accordingly.


Variation Clauses in PWD DB 2010 (Design and Build Procurement)
There are two clauses related directly with Variations; i.e. clause 23 and 24.
23.0 VARIATIONS
23.1 The term variation means a change in the Governments Requirements
which makes necessary the alteration or modification of the design,
quality or quantity of the Works as described by or referred to therein and
affects the Contract Sum, including:
(a) the addition, omission or substitution of any work,
(b) the alteration of the kind or standard of any of the materials, goods
to be used in the Works; and
(c) the removal from the Site of any work executed or materials or
goods brought thereon by the Contractor for the purposes of the
Works other than work, materials or goods which are not in
accordance with this Contract.
23.2 The P.D may issue instructions effecting a variation by way of a Variation
Order. The Contractor shall forthwith comply with the Variation Order. No
variation instructed by the P.D under this clause shall in any way vitiate
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or invalidate the Contract but the fair and reasonable value (if any) of all
such variations shall be taken into account in ascertaining the amount of
the Contract Sum, unless such variation is necessitated by the
Contractors default. PROVIDED THAT any variation which alters or
modifies the design of the Works shall be with the consent of the
Contractor, whose consent shall not be unreasonably delayed or withheld.
23.3 Notwithstanding clause 23.2, if in the opinion of the P.D the variation is
necessary for the purpose of suitability, functionality and safety of the
Works, the Contractor shall effect the variations. For the purpose of this
clause, what constitutes suitability, functionality and safety of the
Works shall be solely determined by the P.D and such determination
shall for all intents and purposes be final and conclusive. Notwithstanding
thereto the Contractor shall remain responsible for the design of the
works as provided under clause 14.
23.4 Where a variation under clause 23.3 results in extra cost, the said extra
cost shall be borne by the Contractor. However, if the variation results in
a reduction in cost, the Contract Sum shall be accordingly reduced.
23.5 Any variations made under this clause shall not relieve the Contractor of
his obligations under clause 14.1(a).
24.0 VALUATION OF VARIATIONS
24.1 The valuation of additional or substituted work shall be consistent with
the value of works of similar character set out in the Contract Sum
Analysis or Contract Schedule of Rates, making due allowance for any
change in the conditions under which the work is carried out or any
significant change in the quantity of the work so set out. Where there is
no work of a similar character set out in the Contract Sum Analysis or
Contract Schedule of Rates a valuation shall be made by the P.D.
24.2 The valuation of the omission of work shall be in accordance with the
values in the Contract Sum Analysis or Contract Schedule of Rates.
24.3 Any valuation of work under clause 24.1 and 24.2 shall include allowance
for any necessary addition to or reduction of the Site administration, Site
facilities and temporary works.
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24.4 Where an appropriate basis of a valuation of additional or substitutes
work is Day work, the valuation shall comprise the prime cost of such
work plus 15% which shall include the provision of Site administration,
Site facilities and temporary works and for profit. PROVIDED THAT as a
condition precedent to any right to any payment the Contractor shall
produce vouchers specifying the time daily spent upon the work, the
workmens names, the plant and the materials employed to the P.D for
verification not exceeding seven (7) days after the work has been executed.
24.5 The valuation made under this clause shall not include any claims for
direct loss or expense notwithstanding that such variation affects the
regular progress of the Works.
24.6 Upon determination of the valuation of the variation, the Contract Sum
shall be revised accordingly by way of addition or deduction.


Comparison of Variation Clauses in PWD 203A and PWD DB 2010
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Scope of Variation Item/Clause
PWD 203A
2010
PWD DB 2010
S.O. (P.D) issuing the instructions 24.1 23.2
No variation shall vitiate the contract 24.1 23.2
The contractor shall comply with the VO 24.1 23.2
Alteration of modification of the design, quality or quantity of the works 24.2 23.1
Addition, omission or substitution of any work 24.2(a) 23.1(a)
Alteration of the kind or standard of any of the materials, goods to be
used in the Works
24.2(b) 23.1(b)
Removal from the Site of any work executed or materials or goods
brought thereon by the Contractor for the purposes of the Works other
than work, materials or goods which are not in accordance with this
Contract
24.2(c) 23.1(c)
A change in the employer's or government's requirements - 23.1
Fair and reasonable value (if any) of all such variations shall be taken into
account in ascertaining the amount of the contract sum, unless such
variation is necessitate by the contractor's default
- 23.2
Any variation which alters or modifies the design of the Works shall be
with the consent of the Contractor, whose consent shall not be
unreasonably delayed or withheld.
- 23.2
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Scope of Variation Item/Clause
PWD 203A
2010
PWD DB 2010
The Contractor shall effect the variations if in the opinion of the P.D the
variation is necessary for the purpose of suitability, functionality and
safety of the Works
- 23.3
Where a variation under clause 23.3 results in extra cost, the said extra
cost shall be borne by the Contractor. However, if the variation results in
a reduction in cost, the Contract Sum shall be accordingly reduced
- 23.4
Any variations made under this clause shall not relieve the Contractor of
his obligations under clause 14.1(a): contractor's responsibility for design,
execution and maintenance of the Works
- 23.5
The valuation shall be made by the S.O. (P.D) 25.1 24.1
The valuation of work of similar character and executed under similar
conditions as work priced therein
25.1(a) 24.1
The valuation of work of not of similar character or executed under
similar conditions as aforesaid
25.1(b) 24.1
The valuation of items omitted 25.1(c) 24.2
Any valuation of work shall include allowance for any necessary addition
to or reduction of the Site administration, Site facilities and temporary
works
- 24.3
The Contractor shall be paid daywork prices, plus fifteen percent (15%) 25.2 24.4
The Contractor shall produce vouchers, receipts and wage books
specifying the time for labour and plant employed and materials used to
the S.O. not exceeding seven (7) days after the work shall have been done
25.2 24.2
The valuation shall not include any claims for direct loss or expense
notwithstanding that such variation affects the regular progress of the
Works
- 24.5
The amount of variations shall be certified and added to or deducted
from the Contract Sum as the case may be and the amount shall be
adjusted accordingly
25.3 24.6
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Conclusion
Almost all standard forms of construction contract provide for variation or
change orders clauses. They include the definitions as well as the rules for the
valuation of variations. Although PWD 203A 2010 (traditional procurement
system) and PWD DB 2010 (design and build procurement system) are different
in their nature of project delivery system and risk allocation, both still have
similar provisions of variations in many aspects.

From the above comparison, we may conclude that the items of variation
clauses in PWD DB is more than those in PWD 203A. In my opinion, this may
happen since the nature of design and build procurement which tends to give
all responsibility to the contractors. Unlike in traditional procurement where the
employers may issue any variation instruction easily, in design and build, by
nature the design is in the contractors responsibility. Therefore, the employer
does not have flexibility in changing design as much as in the traditional
procurement system.

Despites this, both standard forms of contract have many similarities rather
than differences. The differences are more on the procedural aspects, while the
main concept is still the same.

We also may conclude that in order to be valid, variations should be in writing
and fulfill the principle of variations. The case of Thorn v Mayor and
Commonalty of London and [1876] 1 App Cas 120 and Blue Circle
Industries v Holland Dredging Co [1987] 37 BLR 40, are both discussed
about the invalid additional work of variation. Harban Singh (2003) also
explains that if the variation order be substantially different, either materially in
excess of the agreed sum or fundamentally changes the nature of the works,
such a variation work would be contractually invalid. This statement can be
seen in the case of Sir Lindsay Parkinson and co Ltd v Commissioners of
His Majestys Works and Public Buildings [1949] 2 K.B. 623 and Wegan
Construction Pty Ltd v Wodonga Sewerage Authority [1978] VR 67.
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All variation works also must exclude any changes which are intended to rectify
any negligence or default by the contractor. If there are such changes, then the
contractor should entirely bear the cost at his own expenditure.



References
Entrusty Group. What Constitute Variations and How to Evaluate Them?. Master
Builder 4
th
Quarterly 2008. Page 82-92.
Heng Wei Kiong, R. 2009. Variation Orders in Design and Build Contracts. M.Sc.
Universiti Teknologi Malaysia.
PWD FORM 203A (Rev. 1/2010)
PWD FORM DB (Rev. 1/2010)