a VARIATION ORDERS AND ADDITIONAL WORKS: CLAIMS ON EXTENSION OF TIME ARISING THEREFROM (TO APPLY IN CIVIL WORKS) By Eng. A.Okelo Rogo MCIArb L.BACKGROUND The above claims are encountered in all Civil Works Contracts and standard provisions are made as to procedures of handling the claims. It does not matter whether Works are cartied out under FIDIC, EDF or any other internationally accepted condition of Contract became the fundamental basis of these claims are rules of nature, justice faimess, logic ‘and accepted international practice in Civil Works trade. For our purpose we will refer to Tourth Edition of FIDIC 1987.PIDIC in Drench stands for Federation Internationale des Ingenieurs Conseils 2.STANDARD CONTRACT PROVISIONS. FIDIC Conditions of Civil Works have the followi additional Works claims in pro clauses 51,52 and 53. provisions on Variation Orders and 51.1 The Engineer shall make any variation of the form, quality or quantity of Works or any part thereof, there may in his opinion be, necessary and for that purpose or for any other reason it shall, in his opinion, be appropriate, he shall have de authority w insuruct the Contractor to do and the Contractor shall do any of the following; a) increase or decrease the quantity of any work included in the Contract, b) omit any such work (but not ifthe omitted work 1s 10 be carried out by the Employer or by another Contractor), ©) change the character or quality or kind of any such work. 6), change the levels, lines, position and dimensions of any part of the Works, ©) execute additional work of any kind necessary for the completion of the Works, or £) change any specified sequence or timing of construction of any part of the Works. No such variation shall in any way vitiate or invalidate the Contract, but the effect if any, of all such variations shall be valued in accordance with Clause 52,provided that where the issue of an instruction to vary the Works is necessitated by some detault of or breach of Contract by the Contractor or for which he is responsible, any additional cost attributable to such default shall be bome by the Contractor. 51.2 The Contractor shall not make any such variation without an instruction of the Engineer. Provided that no instruction shall be required for increase or decrease in the quantity of any work where such increase or decrease is not the result of an instruction given under this clause but is the result of the quantities exceeding or being less than thote stated in the Rill of Quantities, 52.1 All variations referred to in clause 51 and any additions to the Contract price which fre required to be determined in aecoriance with Clause 52 (for the purposes of this Clause referred to as “varied work"), shall be valued at the rates and prices set out in the@ Contract if, in the opinion of the Engineer, the same shall be applicable. Ifthe Contract does not contain any rates and prices applicable to the varied work, the rates and prices in the Contract shall be used as the basis for valuation so far as may be reasonable, failing which, after due consultation by the Engineer with the Employer and the Contractor, suitable rates of prices shall be agreed upon between the Engineer and the Contractor. In the event of disagreement the Engineer shall fix such rates or prices as are, in his opinion, appropriate and shall notify the Contractor accordingly, with a copy to the Emplover until such time as rates or prices as agreed or fixed, the Engineer shall determine provisional rates of prices to enable on-account payments to be included in certificates issued in accordance with Clause 60, 52.2 Provided that the if the nature or amount of any varied work relative to the nature or amount af the whale of the Worle ar fo any part threaf. is such that, in the apinion of the Engineer, the rate or price contained in the Contract for any item of the Works is by reason of such varied work, rendered inappropriate or inapplicable, then, after due consultation by the Engineer with the Emplayor and the Cantractora snitahla rata ar price shall be agreed upon between the Engineer and the Contractor. In the event of dis- agreement the Engineer shall fix such rates or prices as is, in his opinion, appropriate and shall notify the Contractor acsordingly, with a copy’ to the Emplayer. Until such time aé rales ot prices are agreed or fixed the Engineer shall determine provisional rates or prices to enable on-account payments to be included in certificates issued in accordance with Classe 60. Provided also that no varied work instructed to be done by the Engineer pursuant to Clause 51 shall be valuod under sub-clause $2.1 or under this sub-Clause unless within 1 ddays of the date of such instruction, and, other than in the case of omitted work, before the commencement of the varied work, notice shall have been given either: fa) by die Couuavios Wy dic Bugince: uf his iuteation to claim extra payment or a vatied rate or price, or b) by the Engineer to the Contractor of his intention to va y a rate ot price. 52.31f on the issue of the Teking Over Certificate for the whole of the Works, itis found that as a result of: a). all Varied work valued under Sub-Clauses32.1 and 52.2,aud b) all adjustments upon measurement of the estimated quantities set out in the Bill of quantities, excluding Provisional Sums, dayworks and adjustments of price made under Clause 70,but not trom any other case, there have been additions (0 or deduitions from the Contract Price which taken together are in excess of 1 5percent of the “Effective Contract Price” (which for the purposes of this sub- Clause shall mean the Contract Price, excluding Provisional Sums and allowance for dayworks,if any )then and in such event(subject to any action already taken under any other Sub-Clause of this Clause),after due consultation by the Engineer with the Employer and the Contractor, there shal] be added to or deducted trom the Contract price such further sum es may he agreed between the Contractor and the Engineer or, failing agreement, determined by the Engineer having regard to the Contractor's Site and general overiiead costs of the Contract. The Engineershall notify the Contractor of any determination made under this Sub-Clause, with 2 copy to the Employer, Such sua sul be based only on the amount by which additions or deductions shall be in excess 1Spercent of the Effective Contract Price. 52-4 The Daginccr may, if iu his ypiniom iL Is necessary or desirable, sssue an instruction ‘that any varied work shall be executed on a day work basis. The Contractor shall then be paid for such varied work under the terms set out in the daywork schedule included in the Contcacs cud at dhe tates wud prives affixed thereto by num in the Tender, The Contractor shall furnish to the Engineer such receipts or other vouchers as may be savcessury lo prove the amounts paid and, before ordering materials, shall submit to the Engineer quotations for the same for his approval. Im respect of such of the Works executed on a daywork basis, the Contractor shall during the continuance of such work, deliver each day to the Engineer an exact list in duplicate of the names, ¢2cupation and time of all workmen employed on such work and a statement, also in duplicate showing the description and quantity of all materials and Contractor's equipment used thereon or thereof other than Contractor's equipment which is included in the percentage addition in accordance with such daywork schedule. One copy of each list and statement will, if comect, or when agreed, be signed by the Engineer and returned to the Contractor. At the end of each month the Contractor shall deliver to the Engineer a priced statement of the labour, materials and Contractor's equipment, except as aforesaid, used and the Contractor shall not be entitled to any payment unless such lists and statements have heen fully and punctually rendered. Provided always that if the Engineer considers that for any reason the sending of such lists or statements by the Contractor, in accordance with the foregoing provision. was impracticable he shall nevertheless he entitled to authorize payment for such work, either as daywork, on being satisfied as to the time employed and the labour, materials and Contractor's Equipment used in such work, or at such value ‘therefore as shall, in his opin'cn:, he fair and reasonable. 53.1 Notwithstanding any ather provision of the Contract, if the Contractor intends to claim any additional payment pursuant to any Clause of these conditions or otherwise, he shall give notice of his intention to the Engineer, with a copy to the Employer, within 2Bdays after the event giving rive to the claim hao first risen. 53.2 Upon happening of the event referred to in Sub-Clause 53.1 the Contractor shall keep such contemporary records aa may reasonably be necessary to support auy elas be may subsequently wish to make, Without necessarily admitting the Employers liability, the Engineer shall, on receipt of a notice under Sub-Clause 53.1, inspect such contemporary rovords aud sul histuct dhe Cunaeior « Keep uy olher contemporary records as are reasonable and may be material to the claim of which notice has been given, The Contractor shall permit the Engineer to inspect all records pursuant to this ‘Sub-Clause and shall supply him copies thereof as and when the Engineer so instructs.59.3 Within 28 Jays, uc such vther reasonable time as may be agreed by the Engineer, of giving notice under sub-Clause 53.{,the Contractor shall send to the Engineer an account giving detailed particulars of the amount claimed and the grounds upon which the claim iy bused. Where the event giving tise tothe claim hs a continuing effect, such account shall be considered to be an account and the Contractor shall, at such intervals as the Engineer may reasonably require, send further interim accounts giving the accumulated amounts of the claim and any turther grounds upon which it is based. In cases where interim are sent to the Engineer, the Contractor shall send a final account within 28 days of the end of the effects resulting from the event. The Contractor shall, if required by the engineer to do so, copy to the Employer all accounts sent to the Engineer pursuant to this Sub-Clause. 53.4 I the Contractor fails to comply with any of the provisions of this Clause in respect to any claim which he seeks to make, his entitlement to payment in respect thereof shall not exceed such amount as the Engineer or any arbitrator or arbitrators anpointed pursuant to Sub-Clause 67 3assessing the claim considers to be verified by contemporary records (whether or not such records were brought to the Engineer's notice as required under Sub-Clauses 53.2 and 53.3), 53.5 The Contractor shall be entitled to have included in any interim payment certified by the Engineer pursuant to Clause 60 such amonnt in respect af any elnim as the Engineer, after due consultation with the Employer and the Contractor, may consider due to the Contractor provided that the Contractor has supplied sufficient particulars to enable the Engineer to determine the amount due. If snch particulars are insufficient to substantiato the whole of the claim, the Contractor shall be entitled to payment in respect to such part of the claim as such particulars may substantiate to the satisfaction of the Engineet. The Engineer shall notify the Contractor of aay determination move under the Sub Clause with a copy to the Employer. 3.1 Origin or Source of Variation Orders (V0 3) It io the Engincor i. in clause $1.1 who ordets vatiativus iu funn, quality OL quantity of woks on behalf of the Employer and instruets the Contractor 10 implement it. This should put to xest wrong impression in some quotas that V.0's ave tricks of Couuaciur’s 1eap usted prot. fi) Variations in Works Contract includes those with physical implications i.e. increase quantities or methods of operations/programme changes all to the vonveuicuce or advantage of the Employer and the Project. ii) Civil Works by their nature have unforeseens, which are humanly unguantifiable ic, weather patterns, financial trends ete.and the only way to address these unforescens tn a rational manner ts through V.U's. [Mus V.O"s are vital tools for the Employer and Engineer to effectively implement Project Worksiv) V.0"s do not necessarily result into project increased costs. In some cases it ‘may result into reduction ot a project cost. ¥) Ofcourse V.0"s issued due to the Contractor's omission or default in the Contract is the Contractor’s responsibility. vi) Bills items or Works items Quantities in Civil Works are Estimates only, thus inerease or decrease of these quantities within reasonable limits do not create V.0's 3.2 Procedures for V.0’s notification and implementation. ') Under the above FIDIC Conditions the Engineer (with his site staff) is the main ACTOR, however there are very clear provisions of “after due consultations with the Contractor and the Employer.” This occurs even in instances when the Engineer is entitled to fix rates. ii) There are clear provisions both for the Engineer and the Contractor to give notices on their intentions and activities. See Clause 53.1. iii) Regular detailed Site Record keeping, both by the Engineer and the Contractor is vital, and is clearly stated. See Clause 3.2.3.3 and 53.4, B iv) There is inherent provision that, even in situations of V.0"s, related Works are measured and due payments processed expeditiously by the Engineer/Employer. This is in view of the fact that Civil Works Contracts efficiency is largely related to sustenance of cashflow “health”, See Clause 53.5 and also 52.4 ¥)—_Daywark provision in FIDIC Cantrants has and advantnga in owpediting the Contractor's payments in V.0 Works without getting into a long procedure of negotiations/fixing suitable rates. However it requires thorough and detailed site records/checks to be effective, See Clause 52.4, 4. MAIN AREAS/CAUSES OF CLAIMS ARISING FROM VARIATION ORDERS AND ADDITIONAL WORKS 4.1 By their definition, Variation Orders and Additional Works, obviously disrupts ‘Works programme, ond is therefore, a fertile source of claims both for time extension and related costs. As mentioned above, V.O's are necessary evils for effective implementation of Projects to the benefit of Employers. tis therefore Use Engineer's aul Comtsacion’s responsibility wo Le prepared to deal with atl resolve V.0"s related issues satisfactorily. It js also the Engineer's professional responsibility in providing services to his Client, However Clients or Employers rus also be ready and willing w listen aud avcept advices seveivedt i professional knowledge/experience of the Engineer. There is no doubt that if provisions of FIDIC Contract listed above are diligently adhered to by both the Contractor and Employer, claims arising from V.O's would be drastically minimized, and if they occur they would be resolved without resorting to lengthy/expensive Arbitration/Litigation processes, at the expense of a Project delivery. 4.2 Issues that repeatedly cause V.O's related claims in Civil Works are the following;i) ny my Lack of understanding and therefore negative perception of V.0"s on the part of smpioyers and general public. V.O's are already assumed as corruption prior to realistically looking into the Project Delivery situation and Contract provisions.(This refers to Kenya scenario) ‘Some Contractors view V.0"s as opportunity to maximize profits and therefore do not fully comply with Contract provisions in giving notices, compiling accurate/regular site records, Some Engineers and their site staf¥ do not take adequate time to receive and verify site Conditions/Records related to V.0s, Some Engineers and their site staff fail to create an atmosphere for cl regular consultations between the Engineer, the Contractor and the Employer as provided in the Contract inorder to speedily resolve claims or disputes that arise during early stages. Adequate attention is not paid by the Employer and Engineer for expedient processing of V.O’s related Works, inorder to alleviate the Contractor's cashflow burden. The Contractor therefive has no option but to scheme short and long-term devious measures to recover his costs. 4.3 Key factors to be checked in evaluating V.O's related claims; i) ii) Confirm that the V.0"s were ordered within provisions of the Contract conditions ie the Fgineor suhorized it with due approval of the Employer. Consultations took place as to the extent of V.0’s Works i.e. definition, location, time frames and related payments/rates between, the Employer, Engineer and Contractor as provided for in the Contract conditions. Notices were duly iecued by all Parties ao regards rates, Claims and site conditions. All necessary site records were carefully kept and verified regularly. In thio inotance contemporary records are vital Correct procedures for issuing notice of claims, filing of claims and presentation of the claims to the Adjudicator/Engineer and eventually to the Arbitrator axe followed, all widkia Conta Pivvisious Approval and award of the V.0's claim should be strictly based on verifiable facts and figures provided, the above provisions of the Conta, aitigation sneasures eftecied by une Claimant tn reducing costs, reasonable time extension, and cost recovery figures on basis that particular Site conditions’situation. It should be noted that in nearly all time extension awards, cost re-imbursement in form of unforeseen expenditure and interest follows, This factor has to be checked carefully in relation to Contract Provisions, Prevailing Economic situation in the Works Country and the Claimants Country of origin, May 2006THE CHARTERED INSTITUTE OF ARBITRATORS (KENYA BRANCH) EIDIC CONTRACT COURDE 1U™11™ MAY. 2006, CLAIMS RESULTING FROM NON-AVAILABILITY OF MATERIALS AND, UNFORUEABLE FINANCIAL CIRCUMSTANCES 1. INERODUCLION Most contracts in the construction industry allocate the risks between the parties, concerned. Some risks remain with the Employer, others with the Contractor and others are shared between them. Each party has to provide for the tisk assigned to it Contractual claims will arise as and wien the risks are not properly addressed and resolved by the appropriate party. Such claims normally result in Extension of Time, Financial Compensation or both, Clause 44 of FDIC deals with Extension of Time in the event of: (@) The amount or nature of extra or additional work. (b) Any cause of delay referred to in the conditions of contract, (©) Exceptionally adverse climatic conditions (@) Any delay, impediment Or prevention by the employer (©) Other special circumstances, which may occur, other than through a defanit af or breach of contract by the Contractor for which he is responsible. on of Time arises because mast enntrarts have a defined period for mn, which should be strictly adhered to unless interference occurs due to the factors listed above. ‘The Extension of Time provision is only concemed with fixing a new completion date; from which liquidated damages will be charged if the date is not met. This does rot entitle the contractor ta additional payment, ac any additional payment would have to be assessed through a rigorous analysis of the events or circumstances that gave rise to the Extension of Time. A claim for extension of time is not a claim for fn additional paymaont. Further, Extension of time io not necosoary ad a result of the Employers failure to honour his obligations but may be due to circumstances beyond either the Employer's or Contractors control. In such cizcumstances, the Extension of Time may be given on ‘Excgratia’ basis.2. CLAIMS DUE TO __NON-AVAILABILITY OF CONSTRUCTION MATERIALS 2.41 Material Supply ‘The Conditions of Contract clauses 36, 38 and 39 deal with materials to be used in the works. Under normal circumstances, it is the responsibility of the Contractor to provide the materials for works in such quantitics and of such quality that the Engineer is satisfied. Physical inspections and laboratory testing must be done to ascertain the specifications in the contract. 2.2 Exceptional Circumstances In. sume spevifie and exceptional circumstances, the Employer may provide: {@) Some construction materials (b) Material Sites In such circumstances, Claims may arise (@) the material sites are exhausted (b) there ts increased hautage (c) Excavation and loading conditions change (@) change in terrain resulting in difficult haulage conditions (@) nature of materials to be used for works 1s Varied. Clause 54.1 stipulate that all Contractors Equipment, Temporary Works and MATERIALS provided by the contractor shall, when brought on site, be deemed to be exclusively intended for the Works and the Contractor shall not remove the same or any part thereof, except for the purpose of moving it from one part of the site to the other without the consent of the Engineer. ‘When circumstances are such that the Employer provides the material or the sources of material and delays occurs due to circumstances above, the Contractor is entitled to Extension of Time and Compensation, if the provision of such materials falls in the critical path. 23 Materials Supplied by Contractor - It is the contractor’s responsibilities to supply materia mitigating factor such as; to site, However, some @ genuine exhaustion of materials and need to change the nature of materials (ii) Shortage of Materials (if imported) Gi) Fabrication problems ‘The above circumstances are not in the control of either the Employer or the Contracine hut itis the omis of the Contractor to prove that they have occurred.The following conditions must be satisfied: @ Early warning by notice to the Engineer Gi) Records of orders, payments and dates of delivery Awards should be limited to Extension of Time on Ex-gratia basis only if the materials are for works in the critical path. 24 Ex-gratia Payment Such payments may be made on Claims with no foundation in the contract or at law but only in a sense of “faimess’ or ‘equity’, These claims depend on ‘ex-aratia’ or “kindness” payments by the Employer, made in particular circumstances. An ‘ex- gratia’ payment may be made to recover cost incwred by the contractor, the expenditure of which gave a benefit to the employer, but for which there are no a grounds of recovery under the contract, It is the responsibility of the Contractor to provide adequate finances to run the contract. However, under some circumstances, provisions for Advanae Payment, recoverable over the contract period, are made. In the course of the contract the Contractor relies heavily on the Interim Payment Certificates, ‘The process of Payment Certificates is contained in clause 60 and the Employers Default is in Clause 69. Only in extreme circumstances should termination of contract he made die ta lack of payments 3.2 Unforeseeable Financial Circumstances Such circumstances may arise if the funds set aside in the contract, including contingencies and variation of Prices are ekceeded without adequate altemative sonreas of finance. These circumstances inainly emanate from; @ — Claims (ii) Curreney Rate of Exchange (i) Withdrawal of Donor Funding322 Claims ‘These may arise out of any of the events in clause 44 or any other events, which are not in the contract (ex-gratia payments). However, claims should not uccessaiily alfeut Ine plugiess oF wuiks ay diets resuludon may go beyond the contract period. Currency Rate of Exchange Contracts whose prices are fixed on the exchange rate at the time of tender can ‘turn out to be very expensive for the Employer if the local currency depreciates remarkably in comparison to the dollar, pound or any other foreign currency t0 which itis pegged. A serious situation arose in Kenya when the dollar unexpectedly rose forin Kshs. 45/- before tender closing date to Kshs. 60 and Kshs. 70. These changes in currency made the ongoing projects very expensive resulting in some contractors giving default notices after the Government could not clear their payments on time. The rapid devaluation process caused the Employer huge losses due to the increase in liabilities in regard to the payment of the dollar portion. ‘The losses incurred by the Employer increased the contract price by a significant margin falling beyond the budget. This resulted in the Employer defaulting on payments and the contractor-involving clause 69.4 of the conditions of contract intending to slow down the works and eventually go for suspension. ‘The Employer realized the risk of increased prolongation costs and the lack of progress of works and opted for an amicable termination of the Contract. 3.23, Withdrawal of Donor Funding Most development projects have a high proportion of Donor funding, some to the tune of 90%. Unexpected circumstances may lead to suspension or withdrawal of such funding causing strains in the Employers financing, Cases of corruption were alleged by the World Bank on Kenya Urban Transportation Project (KUTIP). which led to sudden withdrawal af finde This may have led to huge claims due to: a). Delays experienced while searching for altemative source of funds ). Termination claims 2), Interest an delayed payments4, CONCLUSION Non-availability of construction materials and unforeseeable financial ‘eiroumstanocs may easily lead to the bursting of the budget, Huweve, cluse monitoring of the contracts and through immediate intervention at the appropriate time may avert the crisis. These issues should not be ignored in the planning and execution of the projects ENG.R.K. MIEK, R.ENG.