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23/11/20

Variations and Covid-19

Variations and Covid-19

The starting point for contractors looking to claim relief and compensation for the impact of Covid-19 has been to look at their contract provisions for Force Majeure and Change in Law.

There will often be severe restrictions on a claim under those clauses and so a contractor should also consider the degree to which the variations clause may trigger entitlements.

The clause will normally be cited when there are changes to the permanent works. For example, where specified equipment is no longer available because a supplier has been affected by the pandemic. But the impact of Covid-19 has been more especially felt in the way that sites have changed how they operate. In particular, by being required to introduce changed methods of working.

Such a claim needs to consider three issues:

  1. Whether a valid instruction has been issued;
  2. The type of variation that may be instructed under the contract; and
  3. Whether the change is outside the contractor's risk.

Author: Michael Sergeant, Partner, HFW 


1. Whether a valid instruction has been issued

Claims associated with changes to site procedures will often fall at this initial hurdle. Construction contracts almost always require the employer (or its agent) to issue an instruction to trigger a variation entitlement. During the pandemic, contractors will often have altered their working practices based on public health information rather than following the directions of their client. However, this will not always be the case and an email from the employer indicating such changes
are required may be sufficient to qualify.
 

2. The type of variation that may be instructed under the contract

If the contractor can overcome the first hurdle, it needs to consider whether the change to its operating procedures qualifies as a variation under the contract.

Variations are sometimes defined as amounting to only changes to the permanent works.

The issue is illustrated by the 1997 Court of Appeal case, Strachan & Henshaw v. Stein (1997) 87 BLR 52. S&H was employed to install and commission generators at a power station, being constructed at St Neots in Cambridgeshire within the UK. It initially based its site facilities camp immediately adjacent to where its operatives were working. But then, shortly into the project, S&H was instructed to move the camp. This meant its operatives ended up with a half mile walk every time they wanted to use the facilities. The change led to a significant reduction in efficiency and S&H brought a large claim for the extra costs. For the purposes of the case, it was assumed the contract stipulated that the site camp should be based in the original location. But, despite this, the contractor lost the case. The court found that the variations clause did not bite in this situation. The clause stated that variations meant “any alteration to the Works whether by way of addition, modification or omission”. Furthermore, the term “Works” was defined as “work to be done by the Contractor under the Contract”. The Court of Appeal therefore concluded that this definition of “Works” did not encompass the arrangements for operatives to be transported to the workplace as it only covered the actual site construction work; i.e. the permanent work.

This case usefully illustrates the principles, although on this occasion, the wording of the variations clause was too narrow to establish entitlement. Fortunately, for most contractors, the commonly used UK standard forms contain wider definitions of both the work-scope and variations, than provided for in the contract of the Strachan & Henshaw case. The FIDIC Yellow Book 1999, defines Variation as including any change to the Employer’s Requirements or the Works, which is in turn defined as including both permanent works and temporary works. The JCT D&B 2016, defines “Change” to include various alterations to the way the work is organised on site, including changes to site access or limitations on working space or hours. Under NEC4, Compensation Events include an instruction changing the Scope, which is defined as information, which either specifies and describes the work or states any constraints on how the Contractor provides them.

In short, therefore, most UK contractors will be operating under contracts that allow instructed changes to site procedures to be categorised as variations.


3. Whether the change is outside the contractor’s risk

The final challenge for this type of claim is to establishing that the contractor’s new working arrangements amount to a change in its duties under its contract. Take as an example the CLC’s Site Operating Procedures (SOP), [Site Operating Procedures issued by the CLC]. It seems to be generally recognised that a contractor’s duty to implement the SOPs arises as a consequence of the Construction (Design and Management) Regulations 2015 (CDM Regulations) which impose various duties; e.g., a duty to manage the works to ensure they are carried out as safely as reasonably practicable (Regulation 13).

A contractor has an underlying duty to comply with the CDM Regulations and it takes the burden of both the risk (and cost) of doing so. [The Construction Leadership Council: www.constructionleadershipcouncil.co.uk]

A change to a contractor's scope (even if allowed for under the variations clause) will not qualify as contract variation if it involves something that is already part of its underlying risk allocation. This principle is worth considering in a different context. If, for example, it transpires that a specified item of equipment is inadequate then a design and build contractor cannot claim extra. This is because the contractor's design obligation means that this is its risk. It cannot amount to a variation even if the employer mistakenly directed it as one. The same issue may prevent a contractor claiming that compliance with SOPs is a variation.

If compliance with the SOPs is an underlying duty under its contractual obligation via the CDM Regulations, then changes to working operations to comply with the SOPs cannot be a variation.

This is not to say that no changes to working operations will qualify as variations. Employers may well impose alterations to the way in which the contractor is required to carry out the work or organise its site, which go beyond the CDM Regulations.
Finally, it should be remembered that if a contractor can find a route to claiming as a variation this will give advantages over other claims.

A right to both time and money will be triggered and compensation will be based on prices rather than cost, making entitlement easier to establish and potentially more lucrative.


This article originally featured in issue 20 of the Driver Trett Digest.
To view the publication, please visit: www.driver-group.com/digest-issue-20 

To find out how Driver Trett can support your claims management, please view our services, and get in touch. 


 

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