The two parties immediately concerned with the issue of variation orders and the handling of contractor’s claims are the engineer under the contract, and the resident engineer. While on overseas sites the resident engineer may have powers delegated to him to agree payments and to value variations (see Sec-tion 9.2) this would rarely be the case in the UK and, under ICE conditions, he cannot be delegated powers to settle the contractor’s claims for delay or the cost of meeting unforeseen conditions in accordance with Clause 12(6). Also only the engineer has authority to issue the final certificate for payment, which of course, can include revision of any payments previously certified in the interim payment certificates.
In practice the resident engineer conducts the ‘first stage’ negotiation work on payment matters, digging out and recording all the relevant information, examining and checking the contractor’s claims or justification of new rates he wants for varied work, and endeavouring to reach agreement with the contractor on what a fair rate should be under the terms of the contract. He reports all this to the engineer. If the resident engineer can get the contractor’s agreement to a payment, which the engineer approves, this has the advantage that the contractor can have confidence that agreements he reaches with the resident engineer will not later be overturned.
The employer should normally be kept regularly informed of the progress and state of the contract. This information will include: major variations that the engineer has had to make; whether many claims have been put in by the contractor and what substance there is to them; and what the likely effect on the total cost of the contract will be. The employer may require to be consulted on any claim so that he can give his views on it before the engineer comes to a decision. Some contracts, such as the FIDIC 4th edition, specifically require the engineer to consult with the employer as well as the contractor before exist, the engineer should always report major claims to the employer and allow both parties to put their views to him.
On very large projects where an ordered variation may incur heavy extra expenditure, it is advisable that the employer is involved in the issue of any order which incurs significant extra cost and many contracts stipulate this. On many such projects, including the Mangla project mentioned in Section 5.6, the engineer will report any proposed major variation to the employer for his agreement, with a technical report in justification. Variation orders can then be issued in two parts: Part I to issue the necessary instructions to the contractor;
Part II to set out the terms of payment once discussed with the contractor. Thus urgent variations can be sanctioned by the employer and work can proceed.
The employer needs a sufficiently large technical staff available to appraise the technical issues involved without delay. The advantage to the engineer is that the technical issues are thoroughly examined and solutions accepted before commitment to the very large sums which sometimes have to be sanctioned, and the advantage to the employer is that he is fully aware of the changes needed and their effect on the final cost.
While variations are normally decided and instructed by the engineer it is not uncommon for contractors to put forward ideas either to save cost or time.
Indeed this is encouraged by value engineering procedures and can be a useful way of controlling or reducing the final price. The ICE conditions recognize the potential of such proposals and allow for sharing of any changes in value or time between both parties. Any proposals accepted must be instructed by the engineer before coming into effect.
Although the rest of this chapter mostly refers to the powers of the engineer under the contract, this must be taken as implying that the resident engineer must act similarly.