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  • Writer's pictureRicardo Cuesta

Construction in Common and Civil Law: understanding each other (4)  - Variations and Change Orders

A variation is a change in the scope of works by way or addition, substitution or omission and it may appear to be necessary because of a change or a defect in the design or due to other circumstances. The owner has the right to introduce variations and most construction contracts contain provisions and mechanisms for variations.

The owner may decide to add or omit certain parts of the works as permitted by the contract but in other circumstances a variation is requested by the contractor because of certain circumstances that alter the way in which the project was conceived for execution, for example, different site or underground conditions, omissions or defects in the design or delays not attributable to the contract.

A Spanish engineer experienced in working in infrastructure projects for the government in Spain has a very clear idea of what a variation is and the complex regulation and proceedings that need to be overcome in order to obtain a variation in a public construction contract.

The leading principles for variations in the Public Contracts Act 2017 are:

  • A variation can only be accepted in a contract for reasons of public interest when (i) they are provided for in the contract specifications or (ii) in exceptional circumstance.

  • Variations are mandatory for contractors if they do not alter the contract price in more than 20% and the contractor cannot claim damages if the variation implies a reduction of the scope of the contract.

  • When the contract needs to be amended over certain limits it must be terminated.

Let’s review both types of variations:

Variations already provided for in the contract specifications.

The contract specifications must detail the scope, limits and nature of the allowed variations, the objective circumstances under which a variation can be accepted and the procedure to be followed. A variation cannot imply the introduction of new unit prices not provided for in the contract.

A variation must comply with the following requirements:

  • Cannot exceed 20% of the contract price

  • Cannot alter the global nature of the contract, which is deemed to be altered if (I) the works are replaced by different ones, or (II) the type of contract is changed

Only replacement of work units are allowed which means that no new work units are permitted.

Variations not provided for in the contract specifications.

A variation not provided for in the specifications is allowed exceptionally if it is limited to introducing the strictly necessary amendments to respond to the objective circumstances that makes it necessary.

Note the strict and restrictive language used by the Act which establishes a contract modification regime more restrictive than the one established in the EU Directives, in order to avoid irregular practices.

A variation not provided for in the specifications can only be accepted in three circumstances:

1. When it is necessary to add new works, provided that

  • Replacing the contractor is not technically or economically possible and replacement of the contractor implies significant inconveniencies or a substantial increase in costs for the owner, and

  • The value of the variation does not exceed 50% of the contract price.

2. When unforeseeable circumstances at the time of bidding arise, provided that

  • the supervening circumstances could not have been foreseen by a diligent owner,

  • the variation does not change the global nature of the contract, and

  • the value of the variation does not exceed 50% of the contract price.

3. When the variation is not substantial. A variation is considered to be substantial:

  • If it introduces conditions that, had they been known at the time of bidding, would have allowed the selection of candidates or offers other than those selected.

  • If the modification alters the economic balance of the contract to the benefit of the contractor. This situation occurs when new work units are introduced whose value exceeds 50% of the contract price.

  • When the variation significantly expands the scope of the contract. This situation arises when (i) the variation implies an increase of the contract price of more than 15% or (ii) the works included in the variation are part of another present or future contract which bid process is pending.

Change Orders

The process for having a variation approved and became a change order is a long one.

Firstly, the Project Engineer must be convinced that a variation is necessary usually at the contractor’s request. When the Project Engineer has convinced himself of the need to change the project, then he must obtain the owner’s authorization to start the process which consists on:

  • Drafting of the project variation and obtaining its technical approval from the owner.

  • The contractor and the designer of the original project must give their opinion on the variation.

  • Final approval by the owner including assignment of funds to pay the variation.

This process usually take months and very often it may imply total temporal suspension of the works until the modification is approved. In this case, if suspension of the works causes serious damage to the public interest, the Minister can issue an order to provisionally continue the works complying with the following requirements:

  • The foreseen value of the variation must not exceed 20% of the contract price (which is the limit for mandatory variations for the contractor).

  • There must be a reasoned proposal from the Project Engineer.

  • Contractor must give its opinion

  • The owner must accept the proposal.

In this situation the owner must approve the final modified project in six months and give final approval in eight months. Very commonly these deadlines are not complied with and the projects suffer additional delays.

The obligation of drafting the documents for the variation falls within the Project Engineer (usually through the designer retained by the owner) and not with the contractor as is the case in other jurisdictions.

Any time a variation is needed there is always a tension between the Project Engineer and the contractor because the former does not want the project to stop and the contractor is not willing to carry out work that he will not be paid for. Only approved variations will be paid to the contractor.

I hope this explanation helps my common law colleagues to understand which is the experience of Spanish engineers regarding variations, which is the purpose of these posts.

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