Variation order in lump sum contract

Abstract

In this complicated industry, variation orders are part and parcel in construction contract. It is likely impossible not to have changes in completing the project either to the plans or the construction process itself. Due to its complexity in nature, these changes are inevitable in any construction project. Most construction contracts commonly include variations clauses to enable the employer’s design team to vary the design and specification, including in the Lump Sum type of contract. The main criticism of the traditional Lump Sum Contract has been that, it invites a confrontational approach over disputes arising out of contract variations. Furthermore, changes in Lump Sum Contract are difficult to quantify and the owner might reject the change order request. Thus, variation issues often give rise to argument, debate and litigation. Hence, the objective of this study is to identify the issues regarding variation order in Lump Sum Contract. The scope of the study is from the legal cases reported in Lexis Malaysia in relation to variations and Lump Sum Contract. The cases were analysed in order to achieve the objective of this project report. From the cases, few legal issues of ‘variation orders in Lump Sum Contract’ were found. The cases then be categorized under the issues discovered earlier in the literature review. From the analysis, it can be summarized that, the most common issue contended in court is on the validity of variation claims. The second is on the establishment of the very fact of a variation itself, while the third are, on the status of “cardinal” changes, and, “the contractual” and “common law position”. Last but not least, the issues on the measurement of varied work and valuation of variation orders, have also been identified in one case each respectively. Therefore, by conducting this research, the judgment made by the court on issues pertaining to variation order can be used as a reference to establish a guideline for the people in the industry so that the same problem will not be repeated in future project in Lump Sum Contract. The issues highlighted and the judgment delivered can become a lesson learned rather than opt for bringing the matter to court.