1 | P a g e S e n g H a n s e n 2 / 2 0 1 2

Comparison of Variation Clauses in Traditional Procurement

(PWD 203A 2010) and Design-Build Procurement (PWD DB 2010)

Seng Hansen

Master Student of Construction Contract Management UTM

Email: Hansen_zinck@yahoo.co.id

Introduction: What is Variation?

Almost all construction contracts have included variation clauses as the

standard provisions in the contract. We can find them in international as well

as national standard forms of contract. We can also find them in different types

of procurement such as traditional, design and build, management contracting,

EPC, etc. Even in bespoke or domestic contracts, there must be variation

clauses which entitle the employers to impose the contractors an obligation to

change the scope of the work during construction stage which subsequently

cause the contract sum to be adjusted either up or down by such variation. As a

result, the contractors are entitled for the variations in their payment

certificates.

Each standard form of contract gives its own definition on variation. However, in

general variation can be defined as the alteration or modification to the basis

upon which the contract was let. It is a famous term known to be inevitable in

any construction project due to the changing nature of construction projects.

Powell-Smith (1990) mentioned that in the absence of variation clauses, the

employers or architects would have no power to request to the contractors to

make any changes in the work that they have agreed to do. In other words,

without variations clauses, the employers and his representatives do not have

the power to order variations to the contractors.

Beside the above main purpose, variation clauses are made to serve the

contractors right to seek a claim due to variations, to provide a mechanism for

2 | P a g e S e n g H a n s e n 2 / 2 0 1 2

limiting the variations scope, to provide a procedure for variation process, and

to provide a mechanism for the valuation of variations.

Understanding of variation clauses is very important since variations are the

major cause of many problems and disputes in construction industry. They

influence the two major aspects in construction projects: time and cost. If the

variations do not handled carefully, they may end up in delay of construction

time period and cause cost overrun. The magnitude of variations effects are of

course influenced by many factors, including the employers characteristics,

project characteristics, project organization and environmental factors.

This paper is talking about the comparison of variation clauses between

traditional and design-build procurement systems with reference to PWD

standard forms of contract which are published by the Malaysia Public Works

Department. Before we move on to the comparison issue, it will be better if we

briefly discuss the nature of traditional and design-build procurement systems.

The Nature of Traditional and Design-Build Procurement Systems

Under conventional/traditional procurement system, design should be

completed before competitive tenders are invited and before the contract is

executed. Assuming that there will be less changes introduce during the

construction period, construction costs can be determined with reasonable

certainty. The responsibility of both parties is determined clearly. The

contractors responsibility includes all financial and other risks during

construction period, whilst the employers take the responsibility and risk for the

design. The employers also have the ability to influence the development of the

design to meet their requirements. Moreover, they usually will have the ability to

influence the construction process through their representatives such as S.Os.

or architects acting as their agents.

While on another hand, design and build procurement system is a fast-track

strategy. Construction can start before all the detailed design is completed, but

3 | P a g e S e n g H a n s e n 2 / 2 0 1 2

at the contractors risk. Under a design and build strategy, a single contractor

assumes the risk and responsibility for designing and building the project, in

return for a fixed-price lump sum. It is very important, therefore, that the brief

and performance or quality specifications for important requirements in the

project are fully and unambiguously defined before entering into this type of

contract. If requirements are not specific, the employers should provide

contractors with a performance specification at tender stage. The contractors

develop the design from the specification, submitting detailed proposals to the

employers in order to establish that they are in accordance with the

requirements of the specification. The employers are, therefore, in a strong

position to ensure that their interpretation of the specification takes preference

over the contractors. Specification is a risky area for inexperienced employers.

Moreover, the contractors have a legal duty to provide the employers with a

project that is fit for its purpose.

Variation Clauses in PWD 203A 2010 (Traditional Procurement)

There are two clauses related directly with Variations; i.e. clause 24 and 25.

24.0 VARIATIONS

Employer Contractor

Traditional Procurement

Design and Build Procurement

Risk Allocation

Financing Approvals Design Procurement Construction Maintenance Fit Out

PWD 203A

PWD DB

Scope of Contractors Activities

4 | P a g e S e n g H a n s e n 2 / 2 0 1 2

24.1 The S.O. may issue instructions requiring a Variation in a form of a

Variation Order. No variation required by the S.O. shall vitiate this

Contract. Upon the issuance of such Variation Order, the Contractor shall

forthwith comply with the Variation Order issued by the S.O.

24.2 The term Variation means a change in the Contract Document which

necessitates the alteration or modification of the design, quality or

quantity of the Works as described by or referred to therein and affects

the Contract Sum, including:

(a) the addition, omission or substitution of any work;

(b) the alteration of the kind or standard of any of the materials, goods

to be used in the Works; or

(c) the removal from the Site of any work executed or materials or

goods brought thereon by the Contractor for the purposes of the

Works other than work, materials or goods which are not in

accordance with this Contract.

25.0 VALUATION OF VARIATION

25.1 All variations instructed in writing by the S.O. in accordance with clause

24 hereof shall be measured and valued by the S.O. The valuation of

Variations, unless previously or otherwise agreed, shall be made in

accordance with the following rules:

(a) the rates in the Bills of Quantities after adjustment if necessary as

provided in clauses 26.6 and 26.7 hereof, shall determine the

valuation of work of similar character and executed under similar

conditions as work priced therein;

(b) the said rates, where work is not of similar character or executed

under similar conditions as aforesaid, shall be the basis of rates for

the same, so far as may be reasonable, failing which a fair valuation

thereof shall be made by the S.O.;

(c) the rates in the Bills of Quantities shall determine the valuation of

items omitted, PROVIDED THAT if the omission substantially vary

the conditions under which any remaining items of work are carried

out, the rates of such remaining items shall be valued under rule

(b);

5 | P a g e S e n g H a n s e n 2 / 2 0 1 2

25.2 Where work cannot properly be measured or valued, the S.O. may allow

daywork price as specified in Appendix. Unless otherwise provided in the

Bills of Quantities, the daywork prices for the purpose of this Contract

shall be taken to mean the actual net cost to the Contractor of his

materials, plant and labour for the work concerned. The Contractor shall

be paid daywork prices, plus fifteen percent (15%), which shall include for

the cost of all ordinary plant, tools, scaffolding, supervision and profit.

PROVIDED ALWAYS that as a condition precedent to any right to any

payment the Contractor shall produce vouchers, receipts and wage books

specifying the time for labour and plant employed and materials used to

the S.O. not exceeding seven (7) days after the work shall have been done.

25.3 The amount of variations shall be certified by the S.O. and added to or

deducted from the Contract Sum as the case may be and the amount

shall be adjusted accordingly.

Variation Clauses in PWD DB 2010 (Design and Build Procurement)

There are two clauses related directly with Variations; i.e. clause 23 and 24.

23.0 VARIATIONS

23.1 The term variation means a change in the Governments Requirements

which makes necessary the alteration or modification of the design,

quality or quantity of the Works as described by or referred to therein and

affects the Contract Sum, including:

(a) the addition, omission or substitution of any work,

(b) the alteration of the kind or standard of any of the materials, goods

to be used in the Works; and

(c) the removal from the Site of any work executed or materials or

goods brought thereon by the Contractor for the purposes of the

Works other than work, materials or goods which are not in

accordance with this Contract.

23.2 The P.D may issue instructions effecting a variation by way of a Variation

Order. The Contractor shall forthwith comply with the Variation Order. No

variation instructed by the P.D under this clause shall in any way vitiate

6 | P a g e S e n g H a n s e n 2 / 2 0 1 2

or invalidate the Contract but the fair and reasonable value (if any) of all

such variations shall be taken into account in ascertaining the amount of

the Contract Sum, unless such variation is necessitated by the

Contractors default. PROVIDED THAT any variation which alters or

modifies the design of the Works shall be with the consent of the

Contractor, whose consent shall not be unreasonably delayed or withheld.

23.3 Notwithstanding clause 23.2, if in the opinion of the P.D the variation is

necessary for the purpose of suitability, functionality and safety of the

Works, the Contractor shall effect the variations. For the purpose of this

clause, what constitutes suitability, functionality and safety of the

Works shall be solely determined by the P.D and such determination

shall for all intents and purposes be final and conclusive. Notwithstanding

thereto the Contractor shall remain responsible for the design of the

works as provided under clause 14.

23.4 Where a variation under clause 23.3 results in extra cost, the said extra

cost shall be borne by the Contractor. However, if the variation results in

a reduction in cost, the Contract Sum shall be accordingly reduced.

23.5 Any variations made under this clause shall not relieve the Contractor of

his obligations under clause 14.1(a).

24.0 VALUATION OF VARIATIONS

24.1 The valuation of additional or substituted work shall be consistent with

the value of works of similar character set out in the Contract Sum

Analysis or Contract Schedule of Rates, making due allowance for any

change in the conditions under which the work is carried out or any

significant change in the quantity of the work so set out. Where there is

no work of a similar character set out in the Contract Sum Analysis or

Contract Schedule of Rates a valuation shall be made by the P.D.

24.2 The valuation of the omission of work shall be in accordance with the

values in the Contract Sum Analysis or Contract Schedule of Rates.

24.3 Any valuation of work under clause 24.1 and 24.2 shall include allowance

for any necessary addition to or reduction of the Site administration, Site

facilities and temporary works.

7 | P a g e S e n g H a n s e n 2 / 2 0 1 2

24.4 Where an appropriate basis of a valuation of additional or substitutes

work is Day work, the valuation shall comprise the prime cost of such

work plus 15% which shall include the provision of Site administration,

Site facilities and temporary works and for profit. PROVIDED THAT as a

condition precedent to any right to any payment the Contractor shall

produce vouchers specifying the time daily spent upon the work, the

workmens names, the plant and the materials employed to the P.D for

verification not exceeding seven (7) days after the work has been executed.

24.5 The valuation made under this clause shall not include any claims for

direct loss or expense notwithstanding that such variation affects the

regular progress of the Works.

24.6 Upon determination of the valuation of the variation, the Contract Sum

shall be revised accordingly by way of addition or deduction.

Comparison of Variation Clauses in PWD 203A and PWD DB 2010

8 | P a g e S e n g H a n s e n 2 / 2 0 1 2

Scope of Variation Item/ClausePWD 203A

2010PWD DB 2010

S.O. (P.D) issuing the instructions 24.1 23.2

No variation shall vitiate the contract 24.1 23.2

The contractor shall comply with the VO 24.1 23.2

Alteration of modification of the design, quality or quantity of the works 24.2 23.1

Addition, omission or substitution of any work 24.2(a) 23.1(a)

Alteration of the kind or standard of any of the materials, goods to be

used in the Works24.2(b) 23.1(b)

Removal from the Site of any work executed or materials or goods

brought thereon by the Contractor for the purposes of the Works other

than work, materials or goods which are not in accordance with this

Contract

24.2(c) 23.1(c)

A change in the employer's or government's requirements - 23.1

Fair and reasonable value (if any) of all such variations shall be taken into

account in ascertaining the amount of the contract sum, unless such

variation is necessitate by the contractor's default

- 23.2

Any variation which alters or modifies the design of the Works shall be

with the consent of the Contractor, whose consent shall not be

unreasonably delayed or withheld.

- 23.2

9 | P a g e S e n g H a n s e n 2 / 2 0 1 2

Scope of Variation Item/ClausePWD 203A

2010PWD DB 2010

The Contractor shall effect the variations if in the opinion of the P.D the

variation is necessary for the purpose of suitability, functionality and

safety of the Works

- 23.3

Where a variation under clause 23.3 results in extra cost, the said extra

cost shall be borne by the Contractor. However, if the variation results in

a reduction in cost, the Contract Sum shall be accordingly reduced

- 23.4

Any variations made under this clause shall not relieve the Contractor of

his obligations under clause 14.1(a): contractor's responsibility for design,

execution and maintenance of the Works

- 23.5

The valuation shall be made by the S.O. (P.D) 25.1 24.1

The valuation of work of similar character and executed under similar

conditions as work priced therein25.1(a) 24.1

The valuation of work of not of similar character or executed under

similar conditions as aforesaid25.1(b) 24.1

The valuation of items omitted 25.1(c) 24.2

Any valuation of work shall include allowance for any necessary addition

to or reduction of the Site administration, Site facilities and temporary

works

- 24.3

The Contractor shall be paid daywork prices, plus fifteen percent (15%) 25.2 24.4

The Contractor shall produce vouchers, receipts and wage books

specifying the time for labour and plant employed and materials used to

the S.O. not exceeding seven (7) days after the work shall have been done

25.2 24.2

The valuation shall not include any claims for direct loss or expense

notwithstanding that such variation affects the regular progress of the

Works

- 24.5

The amount of variations shall be certified and added to or deducted

from the Contract Sum as the case may be and the amount shall be

adjusted accordingly

25.3 24.6

10 | P a g e S e n g H a n s e n 2 / 2 0 1 2

Conclusion

Almost all standard forms of construction contract provide for variation or

change orders clauses. They include the definitions as well as the rules for the

valuation of variations. Although PWD 203A 2010 (traditional procurement

system) and PWD DB 2010 (design and build procurement system) are different

in their nature of project delivery system and risk allocation, both still have

similar provisions of variations in many aspects.

From the above comparison, we may conclude that the items of variation

clauses in PWD DB is more than those in PWD 203A. In my opinion, this may

happen since the nature of design and build procurement which tends to give

all responsibility to the contractors. Unlike in traditional procurement where the

employers may issue any variation instruction easily, in design and build, by

nature the design is in the contractors responsibility. Therefore, the employer

does not have flexibility in changing design as much as in the traditional

procurement system.

Despites this, both standard forms of contract have many similarities rather

than differences. The differences are more on the procedural aspects, while the

main concept is still the same.

We also may conclude that in order to be valid, variations should be in writing

and fulfill the principle of variations. The case of Thorn v Mayor and

Commonalty of London and [1876] 1 App Cas 120 and Blue Circle

Industries v Holland Dredging Co [1987] 37 BLR 40, are both discussed

about the invalid additional work of variation. Harban Singh (2003) also

explains that if the variation order be substantially different, either materially in

excess of the agreed sum or fundamentally changes the nature of the works,

such a variation work would be contractually invalid. This statement can be

seen in the case of Sir Lindsay Parkinson and co Ltd v Commissioners of

His Majestys Works and Public Buildings [1949] 2 K.B. 623 and Wegan

Construction Pty Ltd v Wodonga Sewerage Authority [1978] VR 67.

11 | P a g e S e n g H a n s e n 2 / 2 0 1 2

All variation works also must exclude any changes which are intended to rectify

any negligence or default by the contractor. If there are such changes, then the

contractor should entirely bear the cost at his own expenditure.

References

Entrusty Group. What Constitute Variations and How to Evaluate Them?. Master

Builder 4th Quarterly 2008. Page 82-92.

Heng Wei Kiong, R. 2009. Variation Orders in Design and Build Contracts. M.Sc.

Universiti Teknologi Malaysia.

PWD FORM 203A (Rev. 1/2010)

PWD FORM DB (Rev. 1/2010)