Construction Contracts Variations Not in Writing

Construction contracts are usually entered into with the parties enthusiastic to get on with the new project ahead. However, that enthusiasm can quickly be dampened if problems occur when variations are issued orally.
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Construction Contract Dispute Resolution
Construction Claims

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Rossendale - Lancashire - England

July 11, 2009 - PRLog -- The realisation that the path to a successful project completion is not always smooth dawns for the first time when the contractor has submitted its claim for the value of the additional work, but it is rejected either in full or in part.

When the cost of variations cannot be agreed, or the sums certified are lower than applied for, Senior Management will be swift to draw the site team's attention to the principle that good contract administration is essential and that this principle should have been adhered to from day one.

However, experience has shown us that it is an unfortunate truth that whether it be because of trust, naivety or even the fine words of the Employer's Representative, proper administration can be put to one side in favour of the urge to progress the work on the assumption that you will be paid accordingly once the work is complete.
Whilst the naive amongst us may say that good contractor / client relationships will prevail and payment will follow the work, the more experienced amongst would tend to be far more realistic.

However, even the more experienced are still subject to the nightmare that is the Oral Instruction.

At Driver Consult we encounter project upon project where oral instructions are given and then acted upon without the necessary paperwork of written instructions being put into place.

If the contractor then records all the additional resources it used to complete the work and then seeks payment, it may encounter difficulties in recouping the monies spent.
The first hurdle that the contractor may face is whether or not the contract requires that the instruction to be in writing.

This point has come into greater focus given the current financial climate, which has created additional pressures on Employers to administer their contracts strictly in accordance with the Conditions of Contract.

There is case law that has specifically addressed matters surrounding instructions that must be given in writing.

In Hersent Offshore S.A. and Amsterdamse Ballast Beton-en-Waterbouw B.V. v Burmah Oil Tankers Ltd (1978), Clause 51 of the Conditions of Contract provided that the Engineer could instruct the Contractor to carry out any variation that he thought might be necessary for the completion of the Works, including changes to the character or quality of the work, but no variation was to be undertaken by the Contractor without a Variation Order in writing from the Engineer. Clause 52 of the Conditions of Contract provided that no increase in the contract price for variations would be made unless the Contractor gave notice of such to the Engineer, or vice versa, in writing.

The claim arose when the Engineer gave an oral instruction requiring the contractor to vary the design of the riser support structure. This instruction was not confirmed in writing.
Notice of intention to claim extra payment for this work was not given to the Engineer for over a year. Payment was not made and, as a consequence, the dispute went to arbitration, where it was determined that the notice of intention to claim should have been given as soon as possible after the date of the instruction. As it had not, it was found that the Employer was not liable to the contractor.

It was held that the absence of writing did not prevent the instruction of the Engineer from being an instruction under the Contract, however the contractor had not given notice as soon as practicable after the commencement of the varied work.

An example where a contractor needs to ensure that a variation is in writing relates to Tharsis Sulphur and Copper Company v McElroy & Sons and Others (1878). In this case, a lump sum contract for the construction of large iron buildings contained a clause that provided that no alterations or additions should be made without the Employer's Engineer's written order.

During the progression of the works, the Contractor alleged that it was impossible to cast certain trough-girders to a specified weight and consequently it had been allowed to erect girders of a heavier weight. Furthermore, that the actual weights had been inserted in the Engineer's Certificates. After the work was completed, the Contractor claimed the additional sums incurred for the extra weight of the material.

It was held that the Engineer's Certificates were not written orders and the claim was, therefore, excluded by the terms of the contract.

In S.C. Taverner and Co. Ltd. v Glamorgan County Council (1941), the contract stated "The contractor shall execute all alterations and additions which shall be ordered by the county surveyor, but if the contractor shall be of the opinion that such alterations and additions will cause additional expense, he shall not be bound to execute the same without an order in writing signed by the clerk of the county council stating the price."

During the works, the council's clerk of works issued oral instructions to the Contractor's managing director that part of the building was to be dressed with a more expensive stone than had been specified in the contract. The Contractor duly complied with the clerk of works' instruction and the Contractor sought to recover the additional cost of the works. The court held that in the absence of any order in writing, as provided for in the contract, the Contractor's claim must fail.

However, in Redheugh Construction Ltd. v Coyne Contracting Ltd. and British Columbia Building Corporation (1978), the contract between the subcontractor and the sub-subcontractor provided that any changes to the work or materials, or any increase in the sub-contract price had to be authorised in writing. During the works, the Main Contractor issued change orders that resulted in the sub-subcontractor undertaking additional works. These orders were received, from the Employer, by the subcontractor's project manager on site, who informed the sub-subcontractor of the changes. However the subcontractor's project manager did not issue a written change orders. Following completion, the sub-subcontractor claimed a lien from the subcontractor, but the Employer disputed the claim for extra payment. The court at the first instance found that the sub-subcontractor was entitled to payment for the extra work. However, the Employer subsequently appealed.

It was held, in dismissing the appeal, that a party who undertakes additional work without regard to contractual condition precedents will not normally be entitled to additional payment. In this case, the condition precedent had been waived by a party, and that party could not later rely upon that provision for asserting a breach of contract. An Employer may waive the requirement for written authorisation for extra work, or that requirement may be waived by conduct. The project manager had the authority to assign the change orders and also to waive the written notice provisions on the subcontractor's behalf. He had in effect done so by not issuing a written change order.

So sometimes it may prove difficult to achieve success in claiming for the proper entitlement in respect of varied works if the variations have not been issued in writing.

Therefore, it is imperative that you ensure that you have instructions in writing otherwise the instruction may not be worth the paper it isn't written on! Or failing that, you can also take a chance at sealing your name in history by creating more case law on this subject.

Sean Harrion
Senior Consultant
© Written by Sean Harrion .Copyright and ownership of this material rests with Driver Consult Limited.
About the author.

For 10 years Sean was a quantity surveyor working for some of the largest construction companies in the UK, before becoming a quantum analyst.

For further information please contact Sean Harrion.
Driver Consult Ltd.,
4, St. Crispin Way,
Tel :  +44 (0) 1706 223999
Fax :  +44 (0) 1706 244199
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Driver Consult is a leading provider of dispute avoidance, dispute resolution and consultancy services to the construction and engineering industries. Formed in 1978, our history endows us with the knowledge to understand our clients’ business and contracts, and the experienced and appropriately qualified staff to deliver the optimum resolution to their contractual issues and business needs.
Zip:BB4 4PW
Tags:Construction Contract Dispute Resolution, Adjudication, Arbitration, Mediation, Construction Claims
Industry:Business services
Location:Rossendale - Lancashire - England
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