VARIATIONS IN
CONSTRUCTION
CONTRACTS
DEFINITION
“Work not contemplated at the time of
contract execution and not provided for.”
(Barter v Mayor of Melbourne, 1870)
Variations are changes to the original work
plan not included when the contract was
signed. They may include:
○ Additional work
○ Changes in design or quantity
○ Omissions or substitutions
A contract gives the contractor the right
to complete the work they were
promised. Taking away or changing that
work without agreement is a breach.”
(Abbey v PP Brickwork Ltd, 2003)
Contracts must include variation
clauses to prevent breach.
They let employers adapt the project to
clear rules to avoid arguments.
Also, They allow employers to adjust the
scope legally without renegotiating a
whole new contract.
To determine the position of the
additional work, we need to apply the
7-step test established in Watson v
Guennewig (1967):
1 .The extras were outside the scope of
the contract.
2. The extras were ordered by (or on
behalf of) the employer.
3. The employer agreed to pay more
money, either by words or conduct.
4. The extras were not provided
voluntarily by the contractor.
5. The extras were not necessary
because of the contractor’s default.
6. If the extras were ordered on behalf
of the employer, that agent was
authorised to issue that instruction.
7. Any condition precedent to payment
imposed by the contract has been
fulfilled.
Not a variation if:
○ It’s already in the contract, clearly
or implicitly.
○ It’s needed to finish the job (e.g,
Williams v Fitzmaurice, 1858).
○ It results from the contractor’s
fault.
○ The contractor upgrades materials
on their own.
○ The contractor adds work without
instructions.
The way changes are handled in
construction contracts depends
largely on the type of contract.
Lump Sum Contracts
Vs
Re-measurement, Cost-Plus, or
Target Cost Contracts.
Lump Sum Contracts:
• In a Lump Sum Contract, the contractor agrees
to complete a defined scope of work for a fixed
total price.
• Usually paid in stages, not all at once.
• Contractor gets the agreed amount, no matter
their costs.
·How Do Changes Work in Lump Sum Contracts?
• Lump sum contracts only work properly when
the scope of work is clearly defined and priced
at the start.
• However, if changes occur, those variations
must be evaluated carefully since the original
price was based on a fixed scope.
Re-measurement, Cost-Plus, or Target Cost
Contracts:
• These contracts do not lock in a final price
upfront.
• They set out a pricing method, and the final
cost depends on the actual quantities of work
completed.
• Payments are based on the actual work done.
·How Do Changes Work in These Contracts?
• In these types of contracts, the employer takes
the risk if quantities are underestimated, while
the contractor takes the risk that their unit
rates are sufficient.
• These styles of contracts handle risk and price
adjustments in very different ways. They
require different considerations when
evaluating variations.
Now, a variation has been agreed.
Yet, it doesn’t really matter why the
variation was needed.
what matters is how it's priced.
• Most contracts use the original bill of
quantities or a similar pricing structure.
• But what if the original rate was wrong or
too low?
Does it still apply?
Let’s see what the court said.
In Weldon v Commission for New Towns
(2001):
• The court made it clear that if a
contractor underprices something,
they’re usually stuck with that rate..
• Even if the rate is clearly too low, it
still counts because it’s what both
parties agreed to in the contract.
• Courts generally don’t care if the
actual cost turns out to be much
higher. The agreed rate wins.
Variations Are Normal, but they need careful handling.
To assess whether work is a variation:
• Know Your Contract: Fixed price or not, it shapes
the rules.
• Start with the contract scope: What’s expressly or
implicitly included?
• Apply the 7-Step Test for extras.
• Contractors should always double-check their
pricing before signing the contract and make sure
that their assumptions are clearly stated within
the contract documents.
• They should avoid under-pricing items tactically,
since they will likely be held to those prices later.
• Finally, contracts should clearly define when work
is considered “similar” to the original scope to
reduce future disputes.
