Chapter 4 How do variations occur?
An instruction to carry out a variation must be issued in the manner and form prescribed by the contract.
The contract usually sets out a procedure for the issuing of instructions for variations.
Most contracts require that where a principal or superintendent proposes to instruct a variation that a written notice of a proposed variation be issued to the contractor. For example, clause 36.2 of AS4000-1997 Construct Only Contract sets out the following procedure:
- the superintendent must give the contractor written notice of a proposed variation; and
- after receiving notice of a proposed variation, the contractor must notify the superintendent whether the proposed variation can be carried out along with the contractor’s estimate of the effect on the construction program and the cost of the variation.
In practice however, contractual procedures for variations are not always followed. Disputes often arise over whether:
- a variation instruction was given in accordance with the contract; or
- the contractor has notified a variation claim in accordance with the contract.
If the principal does not follow the procedure for instructing a variation under the contract, but knows that the contractor is undertaking the variation work in the expectation of being paid for it and accepts the benefit of that work, then the contractor may have a claim in quantum meruit: Paraiso v CBS Build Pty Ltd  NSWSC 190.
No written variation instruction
Sometimes, a contractor may be directed by the principal to perform works outside the scope of works under the contract without a written instruction to perform those works.
If the contractor wants to claim payment to perform those works, it must follow the process under the contract. There are often strict requirements as to the timeframe within which a contactor must notify the principal that it has a claim and the form in which that claim must be made.
For example, a clause may state that if the contractor wishes to make a claim against the principal arising out of any direction by the principal (that direction being a variation), the contractor shall give the principal a prescribed notice within 10 business days of the date that the contractor became aware or when it ought reasonably to have become aware of the direction upon which the claim is based. The prescribed notice given by the contractor must usually set out the particulars of the direction on which the claim is or will be based.
Contractor proposed variations
Contracts also include clauses which empower the contractor to suggest beneficial changes to the works which the principal is then entitled to accept or reject. Usually, these provisions are known as variations for the contractor’s convenience. The contractor is usually not entitled to any extra time or money for a variation for its own convenience.
- S.H.A. engaged Lanskey under various contracts for the design and construction of petrol stations.
- The superintendent emailed Lanskey and requested that a variation be submitted but stated that ‘work orders will be raised on all approved variations and no work to proceed without work orders’ (Early emails).
- Subsequently, the superintendent issued six work orders issued which were addressed to Lanskey (Work Orders). The Work Orders contained the words ‘Construction Quote Approved’.
- Lanskey also received an email from S.H.A. regarding the Yeppoon project requesting that Lanskey proceed with the work and stating that S.H.A. would issue a ‘work order’ (Email Order).
- • Neither the Work Orders nor the Email Order satisfied the requirements for valid variations under the contracts.
- • S.H.A. refused Lanskey’s payment claims for the works done in relation to the Work Orders and the Email Order. Lanskey referred the matter to adjudication where it was determined that Lanskey had made valid payment claims.
- S.H.A. sought an order declaring the adjudication decisions void.
- The court found that the Work Orders issued by the superintendent were entirely consistent with the direction given by the superintendent in the Early emails.
- As all approved variations would be the subject of work orders and no work was to proceed without work orders as stated by the superintendent in the Early emails, the Work Orders and the Email Order could be seen as confirmation of approved variations.
- The court looked at the conduct of the parties and found S.H.A, by its conduct, waived the requirement for strict compliance with the variation provisions under the contract.