A common feature of a construction contract is the variation clause. For example, if the principal needs to modify the project plans to comply with a change in law, then the principal may direct a contractor to vary the scope of works to reflect the changes required in that project.

However, there are some limitations to when a principal can exercise the power to make variations.

1. Principal cannot instruct a variation after practical completion

Generally, an instruction to vary the works under a contract is usually given before the date for practical completion. For example, in the AS4000 contracts the

“The Superintendent, before the date of practical completion, may direct the Contractor to vary WUC.”

 If there is no express power given to the principal in the contract to instruct variations after the date of practical completion, then the principal cannot direct a contractor to do so.

Some contracts include drafting which allows variations to be directed up until the end of the defect liability period or prior to the issue of a final certificate. This is problematic for contractors, who will have since demobilised from site.

2. Principal cannot fundamentally alter the scope of the works

There is no general right to order variations under common law principles and unless there is an express power given to the principal under the contract, a principal cannot arbitrarily change the scope of works under the contract.

Contracts will typically include wording stipulating that the variation directions must be of a character and extent contemplated by, and capable of being carried out under, the provisions of the contract. For example, in an AS4000 contract, the wording in clause 36.1 continues as follows (emphasis added):

“The Superintendent, before the date of practical completion, may direct the Contractor to vary WUC by any one or more of the following which is nevertheless of a character and extent contemplated by, and capable of being carried out under, the provisions of the Contract.”

If a principal purports to make a variation which fundamentally changes the works or the value of the works, that could be regarded as a breach of contract. If such wording has been modified, the Principal would be entitled to direct variations of scope not typically contemplated by the parties.

It is important therefore to be aware of what will be considered a variation, and what must be done to ensure the variation is valid and compliant under the contract.

3. Principal cannot delete works and engage another person to perform those works

If there is no express power given to the principal to do so, the principal cannot delete works and engage another contractor to perform such work regardless of whether such deletion relates to a small portion of the contract works or if the principal intends on engaging another contractor in the future.

In Commissioner for Main Roads v Reed & Stuart Pty Ltd (1974) 131 CLR 387, the contract stated that if the contractor were required to supply additional topsoil, then it would be paid a good rate for each unit of additional topsoil.

The principal’s contract manager in this case did not want to incur the additional cost of paying the contractor and instead engaged a third party to supply the topsoil. This was held to be a breach of contract by the principal, as the contract did not give the principal the power to take away a portion of the contract work from the contractor and engage another contractor to perform such work.

Typical wording found in construction contracts to overcome this common law principle is:

If a variation omits any part of the works, the Principal may carry out such omitted work itself or by engaging other contractors.

Take away

Whether you are a developer or a builder, it is important that you have a clear understanding of the powers and obligations under a construction contract to ensure the success of your construction project.

Our team at Keystone Lawyers are experts in building and construction law and we can assist with contract drafting, review and management to ensure you are compliant with your obligations and that you can make timely decision to exercise any rights provided under a construction contract.