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Variation Orders: Legal Reference

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43 views6 pages

Variation Orders: Legal Reference

Uploaded by

Le Thi Anh Tuyet
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Variation Orders

Legal Reference:

IRR-A Annex “E” provides the rules in relation to Variation Orders.

What is a Variation Order?

A Variation Order refers to any increase/decrease in quantities within


the general scope of the project as bid and awarded, in any of the
following aspects:

1. Introduction of new work items that are not included in the


original contract; or

2. Reclassification of work items that are either due to change of


plans, design or alignment to suit actual field conditions
resulting in disparity between the preconstruction plans used for
purposes of the bidding and the “as staked plans” or
construction drawings prepared after a joint survey by the
contractor and the government after award of the contract, or
during actual construction.

A Variation Order may either be in the form of a Change Order or


Extra Work Order.

A Change Order covers any increase/decrease in quantities of original


work of items in the contract.

An Extra Work Order covers the introduction of new work necessary


for the completion/improvement or protection of the project which are
not included as items of work in the original contract. As an example,
there may be subsurface or latent physical conditions at the site that
differ materially from those indicated in the contract. There might also
be duly unknown physical conditions at the site of an unusual nature
that differ materially from those ordinarily encountered and generally
recognized as inherent in the work or character provided for in the
contract.
The addition/deletion of works should be within the general scope of
the project as bid and awarded, and the deletion of the work should
not affect the integrity and usefulness of the structure.

When can the Procuring Entity issue a Variation Order?

Variation Orders may be issued by the Procuring Entity concerned at


any time during contract implementation. However, the adjustment
provided for in these orders must be necessary to fully meet the
requirements of the project. The issuance of a Variation Order, must
conform to the following:

1. That there will not be any short changes in the original design;
2. That it will not affect the structural integrity and usefulness of
the structure; and
3. That it is covered by a CAF.

How much Variation Order is allowed?

The net cumulative amount of the Variation Order should not exceed
positive ten percent (+10%) of the original project cost.

If the adjustments provided for in a Variation Order costs more than


ten percent (10%) of the original project costs, these shall be the
subjects of another contract to be bid out if the works are separable
from the original contract. However, if these adjustments are urgently
necessary to complete the original scope of work, the Head of the
Procuring Entity may authorize the Variation Order beyond ten
percent (10%) but not more than twenty percent (20%), subject to the
guidelines to be determined by the GPPB.

In case the Variation Order exceeds ten percent (10%), the Procuring
Entity must ensure that appropriate sanctions are imposed on the
designer, consultant or official responsible for the original detailed
engineering design which failed to consider the conditions that led to
the need for adjustments costing more than ten percent (10%) of the
original total contract price.
What are the conditions under which a contractor may start work
under Variation Orders and receive payments?

Under no circumstances can a contractor proceed to commence work


under any Change Order or Extra Work Order unless the Head of the
Procuring Entity or his/her duly authorized representative has
approved the order.

The Procuring Entity’s Regional Director or equivalent official, under


whose jurisdiction the project is located, may, subject to the issuance
of the CAF, authorize the immediate start of work under any Change
or Extra Work Order, subject to any or all of the following conditions:

1. In the event of any emergency where the prosecution of the


work is urgent to avoid any detriment to public service, or
damage to life and/or property; and/or

2. When time is of the essence, for works in the critical path based
on the approved PERT/CPM;

However, the approval is valid on work done up to the point where the
cumulative increase in value of work on the project which has not yet
been duly fully approved does not exceed five percent (5%) of the
adjusted original contract price whichever is less. Furthermore,
immediately after the start of work, the corresponding Change Order
or Extra Work Order must be prepared and submitted for approval in
accordance with the above rules herein set. Payments for works
satisfactorily accomplished on any Change Order or Extra Work Order
may be made only after approval of the same by the Head of the
Procuring Entity or his duly authorized representative.

For a Change Order or Extra Work Order involving a cumulative


amount exceeding five percent (5%) of the original contract, no work
thereon may be commenced unless said Change Order or Extra Work
Order has been approved by the Secretary or his duly authorized
representative.

What rules govern price adjustments due to a Variation?

The payment to the contractor for additional work under Variation


Orders, must be derived based on the following:

1. For additional/extra works duly covered by Change Orders


involving work items which are exactly the same or similar to
those in the original contract, the applicable unit prices of work
items in the original contract shall be used.

2. For additional/extra works duly covered by Extra Works Orders


involving new work items that are not in the original contract, the
unit prices will be based on the direct unit costs used in the
original contract (e.g., unit cost of cement, rebars, form lumber,
labor rate, equipment rental, etc.). All new components of the
new work item shall be fixed prices, provided the same is
acceptable to both the government and the contractor. The
direct unit costs of new components must also be based on the
contractor’s estimate as validated by the Procuring Entity, in
comparison with the construction price indices issued by the
NSO. The Procuring Entity must validate these prices through a
documented canvass among three eligible suppliers registered
with the DPWH or PhilGEPS in accordance with existing rules
and regulations. The direct cost of the new work item must then
be combined with the mark-up factor (i.e. taxes and profit) used
by the contractor in his bid to determine the unit price of the new
work item.

The request for payment by the contractor for any extra work must be
accompanied by a statement, with the approved supporting forms,
giving a detailed accounting and record of amount for which he claims
payment. This request for payment must be included in the
contractor’s statement for progress payment.

Who are the parties involved in the issuance of a Variation


Order?

The following parties are involved in the issuance of a Variation Order:


1. The PMO or end-user unit;

2. The contractor;

3. The Head of the Procuring Entity or his duly authorized


representative.

Methodology: How is a Variation Order issued?

The following must be undertaken in issuing a Variation Order:

1. Within seven (7) calendar days after the contractor discovers


that there is a need for variation order, the said contractor must
communicate the same to the Procuring Entity by giving it notice
of the findings. Afterwards, the contractor has twenty-eight (28)
days to submit a full documentation of the variation order.
Failure to provide either of such notices in the time stipulated
shall constitute a waiver by the contractor for any claim.

2. If the Project Engineer finds that a Change Order or Extra Work


Order is justified, he/she must prepare the proposed order,
accompanied with the following:

a. Notices submitted by the contractor;


b. The plans to effect the adjustments;
c. The contractor’s computations as to the quantities of the
additional works involved per item indicating the specific
stations where such works are needed, the date of his
inspections and investigations thereon, and the log book
thereof; and
d. A detailed estimate of the unit cost of such items of work,
together with his justifications for the need of such
Change Order of Extra Work Order

The project engineer then submits the same to the Regional


Director or equivalent official of the
office/agency/corporation/LGU concerned.

3. The Regional Director or equivalent official concerned, upon


receipt of the proposed Change Order or Extra Work Order shall
immediately instruct the technical staff of the Region to conduct
an on-the-spot investigation to verify the need for the work to be
prosecuted. A report of such verification shall be submitted
directly to the Regional Director or equivalent official concerned.

4. The Regional Director or equivalent official concerned, after


being satisfied that such Change Order or Extra Work Order is
justified and necessary, shall review the estimated quantities
and prices and forward the proposal with the supporting
documentation to the head of Procuring Entity for consideration.

5. If, after review of the plans, quantities and estimated unit cost of
the items of the work involved, the proper office of the Procuring
Entity empowered to review and evaluate Change Orders or
Extra Work Orders recommend approval thereof, the Head of
the Procuring Entity or his duly authorized representative,
finding that the Change Order or Extra Work Order is in order
and covered by the CAF, shall approve the same.

6. Upon approval by the Head of the Procuring Entity or his duly


authorized representative, the PMO or end-user unit shall notify
the contractor to proceed with the work/delivery of items in
accordance with the amendment.

7. The PMO shall likewise post the Variation Order in the


PhilGEPS and website of the Procuring Entity, if any.

8. The contractor shall proceed with the work/delivery of items in


accordance with the amended contract.

The timeframe for the processing of Variation Orders from the


preparation up to the approval by the Procuring Entity concerned
should not exceed thirty (30) calendar days.

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