MORE ON VARIATIONS
In this article, we look at some more problems regarding
“variations”, and ways in which the sub-contractor can protect his financial
position.
Where a bill has been prepared in accordance with SMM 7, the rules
are very clear. Provisional sums should be
classified in the bill of quantities as either "defined" or
"undefined". (SMM 7 general rules 10.1 to 10.6 thereof). These rules
are also reflected in the Dom/1
conditions.
If the sums are "defined" then the sub-contractor is
deemed to have allowed in his programme and pricing of
"prelims". To qualify as
"defined" the bill item must give information about (a) the nature
and construction of the work (b) how and where the work is fixed to the
building and what other work is fixed thereto (c) a quantity or quantities
indicating scope and extent (d) any specific limitations and/or requirements.
The provisional sum does
not qualify for the title of "defined", even if so described in the
bill, unless it complies with these requirements. Even when compliant, the
sub-contractor is still entitled to delay costs and extension of time,
where appropriate, if the instruction is issued late in relation to the
sub-contractor's timely request.
If the sums are termed as “undefined”, SMM 7 states that the
sub-contractor will be deemed not to have made any allowances for
programme effects and/or prelims for undefined sums. Therefore, as and when
such sums are instructed, the work involved is, in effect, a variation for
"additional work" with full entitlements of extension of time and loss and expense where this is merited
by the nature, timing and/or volume of the work involved.
Most contracts make no
specific provision for "post contract variations". The sub-contractor should take the
initiative by proposing a revised
percentage for dayworks and/or agreement by prior quotation of lump sum, where
possible. There is usually no reason
why these post completion variations should be based on the original bill
rates. It is a matter for agreement between the parties.
The sub-contractor should be careful not to go ahead with
significant variations issued after practical completion, until he has secured
agreement to the method and level of
pricing.
Similar remarks apply to the common situation when the end client is allowed to take possession on the original completion date,
even though the project is still incomplete, through no fault of the
sub-contractor. The sub-contractor then
finds himself executing the balance of his works (ie snagging, variations and
commissioning) under conditions of
restricted access, changed time scales and congested work faces.
In these cases, the sub-contractor must take the initiative by
asserting his entitlements under "change of character and/or
conditions", dayworks and/or as
loss and expense. Unless he takes the
lead, he will find the main contractor continuing to value the works on the
original bill basis.
It is well established under contract law that taking away of part or all of a contractor's
or sub-contractor's contract works and giving to another firm is a breach of
contract. This would entitle the injured party
to damages under the law (ie loss of profit).
However, the
position regarding the straightforward omission of works is less
straightforward. There is no automatic
right to loss of profit in such cases.
It may be possible to show that, in so far as the time related “prelims” and overheads were originally
“spread” through the bill prices as a percentage, then any substantial
omission will adversely affect the
sub-contractor’s recovery of these time related /or overheads elements. The
logical way of redress would be to
increase the percentage allowances (ie make a “fair allowance”) in the remaining non-varied works.
The initiative must rest with the sub-contractor to ensure that the
main contractor and/or client are kept
fully informed at all times as to the probable end cost of the sub-contract
works. The sub-contractor must
endeavour to price and include his variations in the monthly interim
applications. At the very least,
“budget figures” should be included. The bringers of “nasty surprises” at the end of the job are unlikely to receive
sympathy from other parties.
It is vital that basic systems are maintained on all sites. These
include the daily site diary, ( recording work done each day, labour
records and activities, key progress,
delays and their origins, major events occurring and special difficulties
encountered), drawings register,
confirmation of instructions, and dayworks records.
There must be a system whereby all variations are identified and confirmed without delay, and detailed
valuations submitted at the time. If the sub-contractor follows this approach,
there will be great benefits in terms of good cash flow and reduction of
disputes.
John Russell
Construction Contracts & Training Consultants (Established
1984)
Cheshire CW4 7DP Tel : 07770 986444
Email : swsubbie@globalnet.co.uk Website: www.jrconsultant.co.uk