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Method of Valuing Variations Under Construction Contracts12 Sep 2017

Variations may arise during the contract period or at the final account stage. It is not uncommon that construction disagreements and disputes often relate to contract variations and in particular, the method by which the variation is valued. Indeed, whilst recent research[1] shows historically adjudications relating to value of work and variations amount to 20% of all adjudications, the recent decrease is masked by the significant increase in withholding and payless disputes, which may well include unagreed amounts relating to variations.

Disagreement as to the value of variations occur for several reasons. These may include if the actual cost of the variation is greater than the perceived value returned. Alternatively the works may be undertaken in different circumstances than the planned scope of works. Or, the timing and conditions of the varied work undertaken may be inconsistent with the contract scope of works by which the works were priced, or the conditions of contract have been misinterpreted or misunderstood.

Indeed, this final point was highlighted by HH Judge Humphrey Lloyd[2]:

“That the type of question raised by this appeal is a matter of the construction of the contract (here clause 52(1)) and not a question of valuation or fact”.

Where there is no agreement to the value of variations, standard form contracts, including JCT, ICE and CECA[3] have their own specific mechanisms for valuing additional, omissions or substituted work. Notwithstanding this, where a contract provides specific valuation rules for valuing variations, disputes can still arise. Disputes may relate to which valuation rule applies and how the rule is interpreted.

Methods of Valuation

Essentially, the methods of valuation consider whether:

  1. Contract bills of quantities or schedule of rates are applicable to the varied works.
  2. Whether the varied work was of similar character and nature to those in the contract bills,
  3. Are the works undertaken in similar conditions as those proposed in the contract bills; and
  4. Are there significant variances in the quantity of work, as set out in the contract bills.

During the tender process the production of rates and the pricing often lack the foresight that in the event of variations occurring they will be used as a basis for…

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[1] Report No.14, Adjudication Reporting Centre in conjunction with The Adjudication Society April 2016

[2] Henry Boot Construction Ltd v. Alstom Combined Cycles [1999] EWHC Technology 263

[3] Joint Contracts Tribunal Standard Building Contract, Infrastructure Conditions of Contract and Civil Engineering Contractors Association Form of Sub Contract

[4] Henry Boot Construction Ltd v. Alstom Combined Cycles [1999] EWHC Technology 263

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