Variation Orders have always been an interesting topic, as the very nature of the Variation Order, or the timing thereof, may bring about some interesting consequences for the Parties to the Contract.

Clause 6.3.1 of the General Conditions of Contract for Construction Works (3rd Edition 2015, or “GCC 2015”) provides the list of Variations the Employer’s Agent may order the Contractor to implement. This is a closed list of what the Contractor may be ordered to do. In other words, a Variation may only be ordered if it falls within the definitions of the items listed in Clauses 6.3.1.1 to 6.3.1.6 of GCC 2015.

Such Variation may be ordered at any time before the issue of the Certificate of Completion. Clause 6.3.2 of GCC 2015 provides a very clear requirement, which is rarely followed by Employers’ Agents, in that when the order is issued, it must clearly state that it is a “Variation Order”, whereby it is identifiable as such. If it is not identifiable as such, then the intention of the Employer’s Agent is that the order or instruction does not constitute a Variation Order. The obligation is then on the Contractor to act in terms of Clause 6.3.2 if the Contractor is of the view that the order or instruction does indeed constitute a Variation Order.

Once the Contractor receives a written order stating, “Variation Order”, the onus is on the Contractor to verify that the written order falls within one of the listed definitions of Clauses 6.3.1.1 to 6.3.1.6, and if not clear, to seek clarification from the Employer’s Agent to ensure there is a “meeting of the minds”.

Where an Employer is taking the authority away from the Employer’s Agent to issue a Variation Order, the consequence is that the delay in the issuing of a Variation Order may cause a delay to the progress of the Works, which may then result in a claim for an extension of time. 

Now, Clause 6.3.2.1 of GCC 2015 provides that an oral order also constitutes a competent instruction, but the onus is on the Contractor to confirm the understanding within seven days from receipt of an oral order that such oral order is to be construed as a “Variation Order”. If the Contractor fails to comply within the seven-day provision, then the order shall not constitute a Variation Order. It would therefore be more than just “good practice” for a Contractor not to follow or rely on oral orders or oral instructions, and to rather request from the outset that all orders falling within the provisions of Clauses 6.3.1.1 to 6.3.1.6 of GCC 2015 be in writing.

The wording of Clause 6.3.2.1 of GCC 2015 also provides some interesting opportunities to a Contractor. Where the Employer’s Agent issues revised drawings or instructions to the Contractor during the progress of the Works and then, on the basis of Clause 6.3.1.3 or 6.3.1.4, depending on the contents of the revisions, the Contractor may write to the Employer’s Agent and contend that the resultant effect of the drawing or instruction must be treated as a “Variation Order” and that it must be valued in terms of Clause 6.4 of GCC 2015. This proposition is also supported in Clause 5.9.5 of GCC 2015 where Clause 6.3 is referred to in this Clause.

At this juncture it must be clarified that the document which contains the bills of quantities, or the valuation of the work contained in the Variation Order is not the “Variation Order”. A Variation Order requires no monetary value to be attached to it. The document which is usually issued containing the valuation of the work to be done in respect of the Variation Order is the “Valuation of the Variation” in accordance with Clause 6.4 of GCC 2015, and this “Valuation of the Variation” should state it as such in the heading.

Where an Employer is taking the authority away from the Employer’s Agent to issue a Variation Order, the consequence is that the delay in the issuing of a Variation Order may cause a delay to the progress of the Works, which may then result in a claim for an extension of time. The additional payment related to the extension of time claim may then, in some instances, exceed the cost of the Variation Order. Serious consideration must therefore be given by an Employer before reducing the limit of the powers of the Employer’s Agent in terms of Clause 6.3 of GCC 2015.

The obligation to value the Variation Order is on the Employer’s Agent in terms of Clause 6.4.2 of GCC 2015 and must be issued to the Contractor within 28 days of the date of the Variation Order. Clause 6.4.2 of GCC 2015 does not provide for a process of offer and acceptance. The Employer’s Agent must determine the value as certifiable amounts payable to the Contractor. The Contractor is then entitled to raise a dissatisfaction claim in terms of Clause 10.2 of GCC 2015. Where the Employer’s Agent failed to issue the Valuation of Variation, the Contractor may invoke the claims procedures of Clause 10.1 of GCC 2015 in order to pursue the amounts due.

CASE IN POINT

This now brings me to a case in point which played off in the year 2010 in the beginning of my career as a full-time construction law consultant.

I was approached by a Contractor for some advice on a very unfortunate event. The Contractor was in the process of completing a civil engineering infrastructure project to the value of R25 million. The project was completed in phases and at the time of the unfortunate event, the value of the work completed to date was in the order of R20 million. The contract was let under the GCC 2004 conditions of contract.

The Contractor was issued with a letter of termination by the Engineer, and the letter of termination was not preceded with a notice of default. It was just a summary termination without any warning or notice to rectify any default. I then wrote to the Engineer to confirm that the termination amounted to repudiation as, firstly, the Engineer had no authority to terminate the Contract, and secondly, the termination was contractually flawed. The Contractor would also be entitled to a contractual claim as a result of the repudiation.

The response of the Engineer was unexpected. The Engineer confirmed that he was instructed by the Employer to terminate the Contract forthwith, as the project was under financial pressure and the Employer had obtained a better price from another Contractor to complete the outstanding work of R5 million on the Contract.

In terms of Clause 36.1.2 of GCC 2004 (now Clause 6.3.1.2 of GCC 2015) the Engineer could have issued a Variation Order to “omit any such work” if the Contract was under financial pressure, but he did not pursue this avenue. Also, if he had issued such a Variation Order and the Employer then appointed another Contractor to execute such work, then this would also amount to a breach of Contract, as any omission of scope must be a genuine omission and cannot be ordered for the purpose of negotiating “a better bargain” with another contractor.

At the time of GCC 2004 there was no further provision in Clause 36.1.2 of GCC 2004 which stated “… provided it is not to be carried out by someone else …” The Contractor had to argue his case on the basis of the outcome of the case of Hydro Holdings (Pty) Ltd v Minister of Public Works and Another (1977) where the legal principle was established on “genuine omissions”.

Fortunately, in GCC 2015 you will now find that Clause 6.3.1.2 provides an express contractual obligation in that the omission of any work may only be ordered by the Employer’s Agent “… provided it is not to be carried out by someone else …” In terms of the case in point, the Employer eventually withdrew the termination letter issued by the Engineer and the Contractor completed the project as originally intended.