Chapter 4 Why have a variations power?

At common law, the principal does not have an automatic right to instruct variations.

Unless the contract specifically empowers the principal to instruct variations, the contractor can refuse to perform the variation and insist on performing its original scope of works. This is true of all types of variations, including increases to, decreases from, or qualitative changes to, the contractor’s scope of works.

This principle applies to all contracts, including subcontracts and consultants’ agreements. It is therefore normal for construction related contracts to have a clause specifically empowering the principal to instruct variations.

If the principal insists on a variation without the right to do so, the consequences can be serious. Even if the contract contains an express power to order a variation, that power will usually be read so as to not enable the principal to order a variation that fundamentally changes the nature of the contract. Any instruction given where there is no power to give that order will constitute a breach of contract and, if the breach is sufficiently serious, may entitle the contractor to terminate the contract. Accordingly, some contracts contain a provision such as ‘No variation ordered by the principal will vitiate the contract’ to protect the principal.

CASE STUDY

Ettridge v The Vermin Board of the District of Murat Bay [1928] SASR 124

Facts
  • The contactor was engaged by the principal to construct a fence along a railway line on a schedule of rates basis.
  • During construction, the principal instructed the contractor to deviate from the original line.
  • The contractor refused to construct the fence on the deviated line and abandoned the work, arguing that the contract did not provide the principal with a variations power.
Result
  • The court said that if the principal did not have the contractual power to instruct a variation, then it had repudiated the contract by insisting that the contractor depart from the original line.
  • As a result, the contractor was entitled to terminate the contract.

CASE STUDY

Wegan Constructions Pty Ltd v Wodonga Sewerage Authority [1978] VR 67

Facts
  • The contractor was engaged by the principal to construct sewers.
  • The superintendent instructed the contractor to increase the scope of excavation works by approximately 60% and the sewer lengths by approximately 40%. This increase in works would have increased the contract price by approximately 40%.
  • Under the contract, the power to vary the scope of works expressly prohibited variations which would increase moneys payable under the contract by more than a reasonable amount.
Result
  • The court said that the superintendent’s instruction did not constitute a variation which was permitted under the contract.
  • As a result, the court said that the principal had repudiated the contract.
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