FIDIC 2016 Day02-1010 Variations Under FIDIC Forms, Adrias Tan

Adrias Tan
MSc BSc(Hons) LLB(Hons) FCIArb FSIArb
Senior Legal Counsel, Hyundai Engg & Construction Co Ltd

Variations Under FIDIC Forms
© 2016 Adrias Tan MSc BSc(Hons) LLB(Hons) FCIArb FSIArb
Adrias Tan
MSc BSc(Hons) LLB(Hons) FCIArb FSIArb
Senior Legal Counsel, Hyundai Engineering & Construction Co Ltd
Fellow, Chartered Institute of Arbitrators
Fellow, Singapore Institute of Arbitrators
Fellow, Singapore Institute of Builders
Member, Society of Construction Law, UK
Member, Society of Construction Law, Singapore
Associate Member, Singapore Academy of Law
Associate Lecturer, Royal Melbourne Institute of Technology (SIM Singapore)
Panel of Arbitrators, SIArb

Variations give Contractor a right to additional money. How
does entitlement to compensation interrelate with other FIDIC
clauses? Can Contractor avoid the problems associated with
Clause 20.1 notice by claiming as a Variation instead?
• Variations compared to “Claims” under FIDIC.
• Does Contractor have to give notice under clause 20 in order
to get money or time for a Variation?
• Does Contractor have a choice as to whether it recovers as a
Variation or a “Claim”?
• Different approaches to valuing variations and “Claims”
• Claiming for Variation in absence of an Engineer’s instruction
ADRIAS TAN

Variations Compared to Claims
• Definition of Variation
― Defined as any change in form, character, kind, quality,
quantity, line, level, position, alignment, or dimension
of existing work or any additional work which vary the
Original Scope and Extent of Works that the Engineer
finds necessary, appropriate or desirable to complete
the works
― May be initiated by Employer’s Representative at any
time during the Contract Period, either by instruction or
by a request for the Contractor to submit a proposal

• Contractual Basis for Variations
– Changes in quantities of any item of work included in the
Contract
– Changes to quality and other characteristics of any item of
work
– Changes to levels, positions and/or dimensions of any part of
work
– Omission of any work unless it is to be carried out by others
– Any additional work, Plant, Materials or services necessary for
Permanent Works, including any associated Tests on
Completion, boreholes and other testing and exploratory work
– Changes to sequence or timing of execution of works

• Engineer’s Instruction
– If Engineer’s Instruction constitutes as Variation, then
contract provisions on Variations and Adjustments shall
apply
– Contractor may be requested to submit a proposal
constituting as a Variation
– Engineer’s Instruction constituting as a Variation issued
for an approved Contractor’s Value Engineering Proposal
– Variations evaluated in accordance with the Contract
provisions governing Measurement and Evaluation, for
re-measurement of the as-built Works executed

• Definition of Claims
– Claims arise when Contractor considers himself to be
entitled to time, cost and compensation for reasonable
profit, under any FIDIC Clauses or otherwise in
connection with the Contract
– Claims can also incur cost or time implications arising
from Variations, such as abortive works, disruption,
prolongation, suspension, re-engineering works

• Contractual Basis for Claims
– Delayed drawings or instructions
– Right of access
– Setting out
– Unforeseen physical conditions
– Fossils
– Testing
– Extension of Time for Completion
– Loss and Expense due to
Variations
– Delay caused by Authorities
– Suspension of works
– Evaluation and
Measurement
– Omissions
– Value Engineering
– Interference with
tests on completion
– Changes in legislation
– Employer’s Risks

• Scope of Claims
– loss and expense claims, breaches under general law, or
under the prevailing Conditions of Contract
– Time related claims, extension of the Time for
Completion
– Time related costs, loss and expense
– Contractor notifies Engineer where work has been
delayed by reasons beyond his control
– Failure to do so would render Contractor liable for
liquidated damages for delay

• Variations and Claims Conflated
– Distinction between evaluation of Variation Claims under
Clause 12 [Measurement and Evaluation] and Claims for
Additional Compensation arising from Variations such as
abortive works, prolongation, suspension, disruption,
delay under Clause 20.1
– Claims for Variations not administered under Clause 20.1,
a commonly misunderstood procedure
– Claims for Compensation due to Additional Costs arising
from Variations administered under Clause 20.1

Clause 20.1 Notice for Variation Claims
• Prevailing Express Contract Provisions
– Cost compensation for Variations evaluated pursuant
with contract provisions on Measurement and
Evaluation, for re-measurement of as-built Works
executed, including omission
– Contract Bills of Quantities Unit Rates, Schedule of Rates
used for varied work similar in nature and executed
under similar circumstances
– Adjustment based on new rates or price derived from
relevant prices with reasonable adjustments or from
reasonable cost of work including reasonable profit

• Henry Boot Constr v GEC Alstom Combined Cycles
– Humphrey Lloyd QC ruled that variations do not have to
be valued fairly but in accordance with contract terms
and rates agreed even if it meant that bill rates were
unduly favourable to the parties
– no express provisions requiring Contractor to notify
Engineer in order to get compensation for works
executed under an instruction constituting as a Variation
– When Engineer requires the Works to be measured,
reasonable notice given to Contractor if attendance or
assistance or additional particulars are required

– Such measurement and evaluation do not provide for any
other compensation such as abortive works, re-
engineering works, costs related to disruption,
prolongation, suspension, idling costs and such like,
arising from the Variations
– Under Clause 20, Contractor is contractually obliged to
notify Engineer for such claims arising out of complying
with such Variations

– Under Clause 20.1, Contractor is contractually obliged to
notify Engineer if the Variation will constitute:
• any time implications arising out of complying with
Variations, any entitlement to an extension of the Time
for Completion, the Contractual Completion Date will be
delayed due to such Valid Variations, such as substantial
change in the quantity of an item of work in the Contract
• abortive works, re-engineering works, costs related to
disruption, prolongation, suspension, idling costs

Recovering as a Variation or a Claim
– Whether claim for compensation is a Variation or a Claim
– Compensation for Variations for costs related to as-built
works, evaluated and re-measured under contractual
provisions such as Clause 12 [Measurement and
Evaluation]
– Claims arising from Variations and additional costs may
include loss and expense, and time related claims such as
EOT and EOT related costs, all of which are not
encapsulated in Clause 12 but necessarily incurred as a
result of the various factors
– Contractor may engage two approaches in seeking
compensation as a Variation and / or as a Claim

Valuing Variations
– Variations evaluated using methods of measurement of
net actual as-built quantity of Permanent Works, using BQ
Unit Rates, Schedule of Rates or other applicable rates
– Contractual procedure for evaluation of variations
enshrined in FIDIC Form under [Measurement and
Evaluation] clauses. Onus on Engineer and Cost
Consultants to measure and evaluate the variations
– Contentious issue arises when Engineer imposes Clause
20.1 relating to detailed particulars of a Claim to compel
Contractor to submit such details and supporting
particulars for the Engineer’s review and evaluation before
approving the variation claims

Valuing Claims
– Genesis of Claims lies in several Contract Condition
Clauses
– Claim for compensation due to variations is for additional
costs like loss and expense, time related claims for EOT
and EOT related costs, disruption, prolongation and
suspension costs, which are not encapsulated in
Evaluation of Variations but necessarily incurred
– Claims evaluated based on actual costs incurred, subject
to detailed supporting particulars of the basis of the
claim and additional payment claimed due under the
relevant provision of the Contract

Valuing Claims
• Loss and Expense Claims
– Delayed drawings or instructions
– Abortive Works
– Costs due to disruption, prolongation, suspension, idling
time
– Re-engineering and pre-planning works
– Substantial changes in quantities and contract price
above certain percentage requiring adjustment of the
contract unit rates

Valuing Claims
• Heads of Claims
– Direct Costs, indirect costs – subject to strict proof
– Overheads, financing charges and interests, FG Minter v
Welsh Health Technical Services Organisation
– Profit and Loss of Profit
• Global Claims
– Crosby & Sons Ltd v Portland Urban District Council
– Onus on Contractor to particularise detailed claims, not
just a scientific thesis and academically compelling
argument to substantiate the claims

Variation Without Engineer’s Instruction
– If an Engineer’s Instruction constitutes a Variation, the
Contract provides that the Variation shall be subject to
Evaluation and Adjustment
– Scenario: when Contractor submits a Variation Claim for
Engineer’s Instruction not clearly stipulated as a
Variation, and Engineer disapproves the Variation, but
still compelling the Contractor to comply with the
Instruction
– No contract protocol for Contractor to reserve rights of
claims and to protect his position in relation to such
Engineer’s Instruction which ought to constitute as a
Variation

– Most FIDIC Forms stipulates that the Contractor shall not
make any alteration and/or modification of the Works,
unless and until the Engineer instructs or approves a
Variation in writing
– Where an instruction constituting as a Variation is not
expressly stated as such, and the Contractor notifies the
Engineer of cost and time implications of the variation,
the Engineer must respond in writing that the same
ought to constitute as a Variation

– Once a Variation is approved in writing, the Contractor
shall acknowledge receipt, and the Contractor shall
execute and be bound by such an approved Variation
– Each Variation shall then be evaluated in accordance with
the Contract provisions governing Measurement and
Evaluation

– When the Engineer disapproves or rejects a Variation, the
instruction is deemed as an invalid instruction with no
contractual effect
– Complying with the instruction constituting as a Variation
which the Engineer has disapproved as a Variation would
disentitle the Contractor to any compensation
– Contractually, the Contractor is precluded from any rights
of claims for Variations executed in the absence of an
Engineer’s Instruction
– Compensation under doctrine of quantum meruit claims,
doctrine of unfair enrichment, or under equity

FLOW CHART – Engineer’s Instructions Constituting as a Variation, Evaluation and Claims for Additional Payment

 Interactive Voting System – Multiple Choice Questions
 The FIDIC Forms, or the Guidance
Notes, should provide clear and
unambiguous contractual procedures
to distinguish the difference between
Claims for Variations and Additional
Works as opposed to Claims for
Compensation due to Variations and
other contractual basis?
1) AGREE
2) NO, the present provisions are
adequate

 Choose one of the following scenario:
1) The Contractor must submit,
pursuant to Clause 20.1,
compensation claims for evaluation
and remeasurement of Variation
Works executed
2) The Engineer proceeds
straightaway to evaluate the
Variation Works upon completion
pursuant to Clause 12
[Measurement and Evaluation]

 The FIDIC Form can be further
improved by stipulating that the
Engineer, when issuing an instruction
constituting as a Variation, to inform
the Contractor in writing that the
instruction is a Variation.
1) AGREE
2) Not necessary, the present
provisions are adequate

 The Engineer has issued an
instruction, and the Contractor has
notified the Engineer that it
constitutes a Variation, which the
Engineer disapproves. Should the
FIDIC Form include provisions for the
Contractor to proceed with the
instruction pending resolution of this
dispute to protect the Contractor?
1) YES
2) NO, the Contractor must comply
without compensation

MSc | BSc(Hons) | LLB(Hons) | FCIArb | FSIArb
Adrias has more than two decades of practical working experience
in the construction industry, working currently as in-house legal
counsel for an MNC Company. Adrias is professionally trained in
litigation, arbitration, adjudication, mediation and dispute
resolution, and is an accredited arbitrator. He has handled several
institutional and ad-hoc arbitral proceedings, as well as having
tutored in SIArb, and conducted numerous workshops and
seminars on diverse construction, contractual and legal issues
including various Standard Forms of Contracts. He also lectures at
the Royal Melbourne Institute of Technology, at the Singapore
Institute of Management Campus teaching law subjects.
email: adriastan@yahoo.com
sg.linkedin.com/in/adrias-tan-5ab34035
Adrias Tan

FIDIC 2016 Day02-1010 Variations Under FIDIC Forms, Adrias Tan

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