Valid and invalid variation omission of works

Abstract

An agreement cannot generally be varied or changed unilaterally by either one of the contracting parties unless there is an express variation provision in the contract. A significant feature of a construction contract is the inclusion of a variation order (VO) provision. A VO may be an addition, omission or substitution of the work. A VO must also be valid to be tenable at law. Employers often abused the VO term by issuing invalid omissions causing contractors to incur losses in terms of profit and overhead expenses. Ultimately, the first step that contractors shall do is to verify whether instructions omitting works are valid VOs. However, provisions in standard forms of contract do not set limits on the permissible extent of omissions of work that an employer may issue. Thus, the objective of this study is to identify valid and invalid omission of works issued under VO clauses. The research methodology undertaken is by documentary analysis of law cases reported in law journals. The cases identified are from five jurisdictions: United States of America, Australia, United Kingdom, South Africa and Malaysia. The research identified twelve cases related to the invalid variation omissions. There is no case law reported on valid omission. The findings of the analysis are: one, it is invalid for employers to omit works and award them to third parties contractors for commercial reasons, or dissatisfaction with the contractors’ performance; it appears that any omission of works provided under provisional sum, is also invalid. Two, a magnitude of omission that substantially or fundamentally alters the scope of work is also invalid. Three, omissions that amount to a virtual cancellation of the contract is similarly invalid. This study also found that all the courts in the five jurisdictions had used five principles in holding the omissions invalid; they are: the omission must first be bona fide; second, it must not hinder the contractor’s right to perform the work and earn his profit; third, it cannot be used to terminate the contractor’s employment; and fourth, it cannot virtually lead to total cancellation of the contract. In conclusion, it is suggested that these limitations to variation omission are expressly stated in the standard forms of contract to reduce disputes.