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Variations Exceeding 20% Dilemma The intention of the clause Variations Exceeding 20% in any typical standard form

is to compensate the Contractor for any costs, which are not recovered elsewhere in the Contract, for net variations greater than 20% (in some cases 10 or 15 per cent) of the Effective Contract Price (as defined in the contract). It is assumed that the Contractor has included, in his individual rates, the cost of site and other overheads for the value of work included in the Effective Contract Price. Should the amount of work vary from that value, then there could be a variation in the Contractor's costs, which were not recovered, either because the amount was less or thus overhead recovery and profit reduced and must be compensated, or because the amount was more and extra overheads were incurred. If the amount was increased, normally overhead recovery and profit would be included in the relevant variation orders. The calculation is done at the time of the final certificate and it will be up to the Contractor to prove the changes to his site and general overhead costs. In the meantime, there is a ha-ho in some contracts that an Instruction to Tenderers authorizes the contractors to claim new rates once the value of work done has been exceeded by 20% of the contract sum. The first hand impression given by this instruction is that the Employer has the right to increase or decrease work, upto 20% of the contract sum, but not beyond. It also does not address what will happen when this limit exceeds. However, the employers right to issue variations upto the limit of 20% original contract sum is totally different from the variations exceeding 20% for the compensation of unabsorbed overhead due to adjustment of quantities and varied work. The first limit could be during the progress of work while the second only at the practical completion. The first explains the employers right while the second deals with the contractors entitlement. The whole idea of Variations exceeding 20% clause typically in any contract modality is to compensate the contractor for any unabsorbed overhead component due to overwhelming decrease or increase of such work where his overhead would have been expended more and his profit would have been exhausted more in proportion to what he had planned and contracted with, and vice versa for the employer. Another aspect not to be confused is when the quantity of an individual pay item has been found to be exceeded by a certain limit, not necessarily 20%. The clause 51 in many standard forms provides engineer to form his opinion as to suitability of the existing rate and decide a new rate in a disagreement. This individual treatment is allowed in the contract depending on the nature and amount of such varied work so that this is not the subject coverage under variations exceeding 20%. Under circumstances, it is not reasonably inferable that the contractor has the right to refuse any variations beyond this limit, except of course in two circumstances where the instructed new work fall out of the contract domain because the additional work were so

peculiar, so unexpected and so different from what was contemplated by the contract and in any additional work found to be unnecessary for completion that does not fall under clause 51. A glaring anomaly of this ruling is the ignorance when some works omitted at the last lap of the project so that the net resultant impact is not necessarily exceeding 20% but still the contractor may have a case validly submitted under the grounds of this instruction. The power to control variations gone into the hands of the contractor is not at all practicable when the employer badly needs some varied work inevitable for the completion of the works. The clause 51 on the other hand does not specify a limit in the contract for the contractor to stop work or object compliance with the instructions to variations. A rate revision can be made only on the circumstances that rendered the existing rates unreasonable or inapplicable (due to nature and amount of any omission and addition compared with the nature and amount of whole of the contract work or to any part thereof). A rate would even be reduced perhaps in a typical civil engineering work where the rates could be much more profitable owing to economies of scale whenever the quantities are overwhelmingly increased. A rate revision is possible only when the net resultant impact of variations is in excess of +/- 20% of the effective contract sum. However, where the instructed new work found to be unnecessary for completion that does not fall under clause 51 or fall out of the contract domain because they were so peculiar, so unexpected and so different from what was contemplated by the contract in terms of location, nature, type or technical complexity. This is an exceeding the intended limits or purpose of the original contract, resulting in a separate contract situation, in which the contractor may well be having a legitimate claim for a total rate revision. Summarily, there are three distinct scenarios. Firstly, for the employer to seek approval from the tender committee prior to issue any variation beyond 20% of the original contract sum, to which an internal procedure is existing, in substantial increase of quantities for an individual pay item, Secondly, for which the clause 51 provides the way, and Thirdly the contractor to submit a claim for the recovery of unabsorbed site and general overheads when the net resultant impact of variations is found to be in excess of +/- 20% of the effective contract sum. Each has its own contractual application.