Can variations clauses be invoked over pandemic-driven changes to the way construction projects are being run?
The main focus for contractors working out how to claim relief and compensation for the impact of covid-19 has been to look at the force majeure and change in law provisions in their contracts. But it may also be worth considering the options under the more tried and tested variations clause.
We are normally used to citing this clause when there are changes to the permanent works. Indeed, the crisis has triggered many such changes; for example, where specified equipment is no longer available. Yet the impact of covid-19 has more especially been felt in the way that sites have changed the way they operate; for example, by introducing revised methods of working. A variations clause can compensate for this type of change but a great deal will depend on how the scope of work is defined. In particular, it will be necessary to carefully examine the various contractual documents to see whether the contractor is entitled to work in accordance with a specified method.
The issue is neatly illustrated by the 1997 case, Strachan & Henshaw vs Stein (1997) 87 BLR 52. S&H was employed to install and commission generators at a power station being constructed at St Neots in Cambridgeshire. The contractor initially based its site facilities camp immediately adjacent to where its operatives were working. However, shortly into the project, S&H was instructed to move the camp. As a result, its operatives ended up with a half-mile walk every time they wanted to use the facilities. The change caused a significant reduction in efficiency and led a substantial claim being brought.
For the purposes of the case, it was assumed the contract stipulated that the site camp should be based in the original location. Despite this, the contractor lost because of the limited scope of the variations clause, which stated that variations meant “any alteration to the works whether by way of addition, modification or omission”. The term “works” was defined as “work to be done by the contractor under the contract”. The Court of Appeal found that this definition of “works” did not encompass the arrangements for operatives to be transported to the workface as it only covered the actual site construction work (the permanent work).
Fortunately for most contractors, the commonly used UK standard forms contain wider definitions of both the work scope and variations. For example, the FIDIC Yellow Book 1999 defines “variation” as including any change to the employer’s requirements or the works, which is in turn defined as including both permanent works and temporary works. The JCT D&B 2016 defines “change” to include various alterations to the way the work is organised on site, including changes to site access or limitations on working space or hours. Under NEC4, compensation events include an instruction changing the scope, which is defined as information that either specifies and describes the work or states any constraints on how the contractor provides them.
Most UK contractors will be operating under contracts that allow for instructed changes to site procedures to be variations
In short, therefore, most UK contractors will be operating under contracts that allow for instructed changes to site procedures to be variations. The challenge, however, will be in establishing that new working arrangements amount to a change to the contractor’s duties under its contract. Take as an example the CLC’s Site Operating Procedures. It seems to be generally recognised that a contractor’s duty to implement the SOPs arises as a consequence of the Construction (Design and Management) Regulations 2015 (CDM Regulations), which impose various duties – for example, a duty to manage the works to ensure that they are carried out as safely as reasonably practicable (regulation 13). A contractor will have an underlying duty to comply with the CDM Regulations and must take the burden of the risk (and cost) of doing so.
A change to a contractor’s scope will not qualify as contract variation if it involves something that is part of their underlying risk allocation
A change to a contractor’s scope will not qualify as contract variation if it involves something that is part of their underlying risk allocation. For example, if it transpires that a specified item of equipment is inadequate then a design and build contractor cannot claim extra. The contractor’s design obligation means that this is its risk and it is not a variation. The same issue may prevent a contractor claiming that compliance with SOPs is a variation. If compliance is an underlying duty under its contractual obligation via the CDM Regulations, then it cannot be a variation.
This is not to say that no changes to site procedures will qualify as variations. Employers may well impose alterations to the way in which the contractor is required to carry out the work or organise its site which go beyond the CDM Regulations.
If a contractor can make its claim on the basis that it is a variation, this has advantages over other types of claim. A right to both time and money will be triggered and compensation will be based on prices rather than cost, making entitlement easier to establish and potentially more lucrative.
Michael Sergeant is a partner in the construction team at HFW and co-author of Construction Contract Variations.