The difference between contract variations and design amendments

Contract variations

The processes to be followed for any changes to the contract terms, clauses and schedules should be outlined and detailed appropriately; we’ll call these contract ‘variations.’  The contract should cover how to deal with variations proposed by the Employer or the Contractor.  Variations are important to understand fully, as they will almost inevitably end up with additional time and/or cost requirements.

If the variations relate to the technical specifications, they should result in improvements to how the facility operates; to generate more energy, to operate more safely or to result in cost reductions.  Variations may also change certain clauses or obligations set out in the contract, relating to either party’s obligations.  For example, the Employer may require additional reporting functions over and above what is required in the original contract, or there may need to be changes made to the way that performance guarantees are calculated.  These naturally need to be negotiated and agreed upon.

What is important here is that there will be requirements for written notification of the intention for a variation, the impact of this variation will need to be reviewed, and any additional cost imposed on the Contractor will inevitably be reflected in changes to the overall contract price.  Extensions to the scheduled completion date may also come into effect (if, for instance, additional equipment needs to be procured, impacting on the critical path.)

Variations requests and the outcomes of the requests should be documented and recorded and all relevant parties and stakeholders should be informed of the variation and the impact that this has on the project.  Reports, programme of works, design documentation, test plans, manuals etc should be updated accordingly.

Design amendments

Changes to the design are different.  The contract should outline the process to be followed for the Employer to review Contractor designs.  This will typically provide the Employer with a certain period in which they are able to provide comment on the design.  At the end of this period the Contractor may proceed as if the Employer has no comment if no feedback has been received.

This does not mean that the Employer has accepted that the design is in compliance with technical specifications of the contract.  Regardless of the Employer’s review, the responsibility for ensuring that the design is in compliance with contract remains with the Contractor.  This is very important, and both parties should understand this key concept well.  This is also an important reason for the Employer to be incredibly cautious in directing the Contractor to include any specific items in the design, as this may cause a conflict between what is set out in the contract, and what the Employer requested.

I digress slightly here, but the above is very important and is relevant for the point I want to make here which is as follows: the Contractor can make amendments to the design, submitting said amendments to the Employer for comment, but as long as the overall design is still in compliance with the technical requirements set out in the contract, this does not constitute a contract variation, and the variation clauses should not be triggered.  The Employer may comment or not, but if the Contractor has simply issued a drawing update, or a minor layout change, for instance, no formal contract variation processes apply.

I’ve seen confusion over this principal in practice.  The Contractor submits a design change for comment (a design change that was not in accordance with the specs), and when no response from the Employer is received they considered it to have been accepted as a variation.  When the Employer later questions why they are not fulfilling the technical requirement of the contract, the Contractor has said, “well, you accepted a change when we submitted the design.”

“No Mr Contractor”, you say, “where did you submit in writing that you were after a contract variation, and what documentation did you provide to me to show that this presented an improvement to the facility’s efficiency, safety, or cost?”

Clever Employer.

But first, to be such a clever employer, you first need to ensure that you have the correct tools at your disposal, which, in this case, are the suitable contract clauses are in place, where the processes to be followed for contract variations and design reviews are clearly defined.