When is enough enough?

Modern forms of contract all allow the principle agent considerable authority to ‘add, vary or omit’ work. To what extent can the scope of work be increased? Chris Binnington answers.

This power is considerable and is one of the unusual aspects characteristic of a construction contract. One U of the questions we are frequently asked is: “By how much can the principle agent increase the scope of work before it exceeds the authority of the agent to instruct?

Unfortunately, there is no simple answer. In the interpretation of contract documents, the starting point is to give the words ordinary grammatical meaning.

Thus, where the authority is granted to “change the quantities of the work” or to “add work” or to “omit work”, the words must be given their literal meaning. Accordingly, in the absence of a clause restricting the power to, for example, a percentage of the accepted contract sum, the power to vary is almost unlimited providing that what is being instructed is the same type of thing that was contemplated in the original contract. Thus, for example, where the contractor is required to build 20 km of road with four bridges over the road, it would not be permissible to require, by variation, the construction of a hotel alongside the road.

International and local case law on this point is not of great assistance. The answers given are always subjective and, to a large degree, depend on the facts (and, of course, the contract) for the specific result. As long ago as 1876, in Thorn v Mayor & Commonality of London (1876) 1 App. Gas. 120 at 127-127, Lord Cairns described the principle as follows: “… either the additional or varied work … is the kind of additional and varied work contemplated by the contract or it is not.”

Cairns added: “If it is the kind of additional or varied work contemplated by the contract, he must be paid for it, according to the prices regulated by the contract, If, on the other hand, it was additional or varied work, so peculiar, so unexpected, and so different from what any person reckoned or calculated upon, that It is not within the contract at all, then, it appears to me, one of two courses might have been open to him; he might have said: I entirely refuse to go on with the contract — Non hec in foedera veni: I never intended to construct this work upon this new and unexpected footing. Or he might have said, I will go on with this, but this is not the kind of extra work contemplated by the contract, and if I do it, I must be paid a quantum meruit for it. Or, for aught I know, for I wish to express no opinion on the subject, having gone on with it, he might now, if this is not extra work within the contract, have maintained a proceeding for remuneration for a quantum meruit for the extra work he so did…”

In South Africa, Alfred McAlpine — Alfred McAlpine & Son (P4’) Ltd v Transvaal Provincial Administration 1974 (3) £4 506(A) — who contracted with the TPA for the construction of the Pretoria to Bronkhorstspruit road in the early 1970s, tried to argue that, by virtue of the very significant number of variations instructed, the original contract fell away and the contractor was entitled to be paid on a quantum meruit basis. It would appear that McAlpine had uneconomical rates in the contract and was attempting to overcome that difficulty by trying to persuade the Court to abandon the rates and pay him on a cost-plus-reasonable profit basis.

The Court rejected this argument and said that what was contracted for was a road and what was ultimately built was a road notwithstanding the considerable number of changes instructed by way of variations. It also seems that McAlpine only embarked on this course of action on completion of the contract. The Court noted that, throughout the construction period, McAlpine abided by the terms of the contract and had claimed and been paid in accordance with the contract without recording any protest with regard to the alleged substantial changes.

The Court did not address what might have happened had McAlpine protested at the time of the changes and reserved its rights (whatever they might have been). More recently, in the case of Guncrete Scharrighuisen Construction 19962682 N, Guncrete was a nominated sub-contractor for specialist guniting work. Its contract contained the ‘add, vary and omit’ clause.

The engineer under the main contract changed the design to eliminate guniting and issued an appropriate variation order to this effect. The main contractor similarly issued an instruction to its sub-contractor to omit the guniting. At that time, the subcontract had been awarded but Guncrete had not carried out any work. Unsurprisingly, Guncrete was somewhat miffed that its entire scope of work had been omitted and argued that the omission was not contemplated by the contract. The company argued that it was a repudiation of the contract and the main contractor was liable for damages — for breach of contract being the loss of profit on the work omitted.

After careful consideration of the contract, the Court came to the view that ‘omit’ meant to ‘leave out’ and accordingly the main contractor had acted within its authority following a valid instruction from the engineer to omit this aspect of the work. The fact that, in terms of the main contract, the value omitted was relatively small but, in terms of the sub-contract, constituted the entire scope of work did not affect the Court’s view that Guncrete had agreed that work may be omitted. The claim was dismissed.

Contractors and sub-contractors should take heed of the decisions of local and overseas Courts. If they sign contracts with standard variation clauses and do not limit the scope and extent to which the contracts may be varied, the work may be either considerably more or less than they had originally contemplated, possibly with disastrous financial consequences.

Chris Binnington is the Managing Director of Binnington Copeland & Associates.

THE CIVIL ENGINEERING CONTRACTOR SEPTEMBER 2006