Project managment

Rates for ordered variations

Under the ICE conditions Clause 52 a proposed variation can be the subject of a quotation from the contractor either before or after it is instructed. If a quotation is not accepted an ordered variation can be valued in one of three ways:
• ‘where the work is of similar character and carried out under similar conditions to work priced in the bill of quantities it shall be valued at such rates and prices contained therein as may be applicable’; or
• if not ‘the rates and prices in the bill…shall be used as the basis for valuation so far as may be reasonable failing which a fair valuation shall be made’; or
• the engineer can order the work to be carried out with payment to be made by dayworks if he thinks this necessary or desirable.
In addition, if the effect of any variation is such that any rate in the contract is ‘rendered unreasonable or inapplicable’ the engineer can fix such rate as he thinks ‘reasonable and proper’. This allows the engineer to look at the effect of any variation on the contract as a whole and to allow modification of other rates if necessary. Hence if a variation has the effect of extending the time to complete the works, any time-related or similar preliminary rates can be adjusted to allow for the consequence of instructing the change.
Where bill rates do not directly apply, an appropriate bill rate can sometimes be deduced by extrapolation of quoted rates. For example, if rates exist for trench excavation not exceeding 1.5 m depth and not exceeding 2.0 m depth, a rate can be extrapolated for not exceeding 2.5 m depth. However, this simple approach is not always possible because rates often exhibit discontinuities.
Thus if there are rates for 100 and 300 mm diameter pipelines, the rate for a 200 mm pipeline may not lie halfway between them. To fix a new rate it may be necessary to break it down into its component parts. The price of the pipe and its weight for handling and laying may not be pro rata to diameter because of increased wall thickness; and the trench excavation width may be virtually the same for a 200 mm pipe as for a 100 mm pipe. A rate derived from build-up of prices should be compared with one derived by deduction or addition from bill rates. The latter may prove fairer to both parties because bill rates will include the addition chosen by the contractor for overheads, risks and profit.
A problem arises when a bill rate or price which could be used for extra work appears unjustifiably high or low, either by error or, in the case of a high  rate, perhaps by intention. One party or the other may feel it is unjust to use such rates or base new rates on them for varied work. However, it can be pointed out that the use of existing rates is what the contract requires, and other rates in the contract must have been correspondingly low (or high) to arrive at the tender total. Even when existing rates cannot be used directly, using them as a basis for new rates, or adopting similar levels of overhead and profit can be seen to give a fair result under the contract.

The problem of setting rates for new work or for omitted items, or where a quantity change of itself justifies a new rate, can sometimes prove difficult. The principle in these cases is, however, the same – the billed rates act as the predominant guide when developing varied rates, because they are the basis of contract. If this principle is departed from, it can be seen that many complications could arise in setting new rates since, if one bill rate is not adopted because it appears too high (or low), then either party could maintain the same applied to other bill rates, and there would be no clear basis for setting new rates.
It should be noted that the phrase ‘Variation Order’ is not used in most conditions of contract. Variations in the works are instructed (ICE conditions Clause 51) and valued (Clause 52). A ‘Variation Order’ then results as a record of the instruction and valuation.
In the United States the term ‘change order’ is used in lieu of variation order.


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