CICV Best Practice Guide – Practice Note 4: Variations and Compensation Events

by Clair Mooney | 27 Feb, 2025 | CICV - Best Practice Guides, Contractual and Legal

Introduction

This Practice Note highlights the risks associated with variations in construction contracts, including onerous clauses, conditional precedents, and the risks of performing work without formal instructions. It builds upon Practice Note 1 on Notices and reinforces the importance of the “no instruction, no work” principle.

A key challenge for both contractors and subcontractors is completing work on-site only to face disputes over payment. This PN outlines how to identify and mitigate contractual risks related to variations, ensuring proper documentation and adherence to contract terms.

1. Understanding Variations and Instructions

One of the most common clauses in subcontracts requires that all variations must be formally confirmed in writing. In many cases, failure to obtain a written variation order may result in the subcontractor having no entitlement to additional time or money.

How Variations Typically Arise:

• Site managers often issue verbal instructions on-site for additional work.
• Subcontractors, keen to progress the project, proceed without formal written approval.
• When the final account is settled, contractors dispute or reject the variation due to a lack of records or proper authorisation.

2. Best Practices for Managing Variations

Step 1: Always Obtain Written Instructions

If a verbal instruction is given on-site:

• Request a formal site instruction (SI) in writing from the site manager.
  Email the Contractor’s Quantity Surveyor (QS), seeking confirmation that it is a variation.
• Provide a cost estimate and request written approval before proceeding.
• If no written instruction is received, do not proceed unless the subcontract allows the subcontractor to issue a variation notice. If the contract requires written approval, failing to obtain it may mean the work will not be paid for.

Step 2: Clarify the Contractor’s Position

If the contractor refuses or delays issuing an instruction, this is a red flag and a potential dispute risk. In such cases:

• Explain that the contract requires written approval to avoid future disputes.
• If the contractor insists that work must start without a written instruction, escalate the issue immediately.
• Document the request and refusal for future reference.

3. Keeping Accurate Records for Variations – refer also to PN 2

Maintaining proper records ensures variation claims are substantiated. The following records should be maintained:

• A log of all variation requests with request and response dates.
• A tracker for site instructions (SIs) received and whether they were in writing.
• Photographic and video evidence of the work before, during, and after completion.
• Labour, material, and time records for all additional work.
• Regular correspondence with the contractor’s QS to ensure agreement on variation costs.

Tip: Agree on variations as they occur rather than leaving disputes until the final account stage.

4. Handling Disputes Over Variations

If an instruction is disputed, or if the contractor refuses to issue a variation order:

• Red flag the issue and document the request.
• Request an official instruction allowing the work to proceed, pending valuation under the contract.
• If no resolution is reached, consider alternative dispute resolution (ADR) options, such as the Conflict Avoidance Process (CAP), and the Low Value Adjudication Schemes.
• Readers should note however the provisions in the JCT and SBBC Contracts in Schedule Part 2, which relates to Clause 5.3 in the Contract, which allows for a Variation Quotation to be submitted, and this will include the direct loss and expense to be incurred. This brings cost certainty to the employer, and the contractor, and goes a long way to eliminate payment disputes.

5. Final Advice

• Be proactive in managing variations — do not wait until the final account stage.
• Always insist on written instructions — verbal agreements are not enforceable.
• Keep detailed records — this will strengthen any claims for additional payment.
• Communicate regularly with the contractor’s QS — avoid last-minute disputes.

By implementing these best practices, contractors and subcontractors can ensure clarity, fair compensation, and effective commercial management while minimising disputes.

CICV Best Practice Guide Practice Note 3: Contract Amendments

by Clair Mooney | 27 Feb, 2025 | CICV - Best Practice Guides, Contractual and Legal

Introduction

Contract amendments continue to be a major issue in the construction industry, often shifting risk disproportionately onto contractors and subcontractors. This Practice Note aims to highlight key contractual risks, explain why early contract review is essential, and provide guidance on managing amendments effectively.

For those new to the CICV Best Practice Guide (BPG), we strongly recommend reviewing its contractual and commercial management recommendations to reduce disputes and improve cash flow stability.

1. Why Early Contract Review Matters

Many contractors fail to review contracts until it is too late. A common scenario is when a contractor only seeks a contract review the day before work starts—by then, it’s too late to renegotiate.

Review the contract at the tender stage to identify risks early.
If amendments are unreasonable, negotiate or price the risk accordingly.
If the contract terms are unacceptable and non-negotiable, be prepared to walk away.

Tip: Some industry bodies, such as the Finishes and Interiors Sector (FIS), offer Contract Review Services to help members identify high-risk clauses before signing.

2. Common Risk Areas in Contract Amendments

Below are some of the most problematic contract amendments contractors should watch for:

Payment Terms

• Amendments that delay payments beyond standard terms.
• Retention clauses that extend payment periods or increase retention percentages.

 Notice Provisions

• Onerous “time-bar” clauses requiring notification of delays within a very short timeframe (e.g., 2-7 days).
• Strict notice requirements for submitting claims—refer to Practice Note 1 (PN1) on Notices for details.

Liquidated & Ascertained Damages (LADs)

• LAD amounts that are disproportionate to the subcontract value.
• No clear cap on liability, exposing subcontractors to excessive financial penalties.

Practical Completion

• Does the subcontract have its own completion date, or is it tied to the main contract completion?
• Are there unfair dependencies on other contractors’ work?

Variations and Design Responsibility

• Unclear variation procedures—refer to Practice Note 4 (PN4) on Variations for best practices.
• Expansion of Contractor Design Portions (CDP), shifting design liability to subcontractors.
• No clarity on interface issues with other trades or contractors.

 Site Conditions and Title Issues

• Clauses that pass responsibility for ground conditions or existing buildings to the contractor.
• Unclear responsibilities for resolving title issues or dealing with external utility providers.

 Insurance Requirements

• Contractual insurance provisions that do not align with your actual policies.
  Design liability clauses that may not be covered under your Professional Indemnity (PI) insurance.

3. How to Manage Unfavourable Amendments

If you encounter onerous contract amendments, you have three options:

1. Negotiate the terms with the client/contractor. Many amendments can be modified if raised early.
2. Price the risk—factor potential liabilities into your tender pricing.
3. Reject the contract and walk away if the risks are too high.

Tip: Industry bodies and trade organisations can provide support if you face unreasonable contract terms.

4. Industry Response and Conflict Avoidance

The construction industry is increasingly concerned about excessive contract amendments. The Conflict Avoidance Coalition is actively working with industry experts to address unfair practices.

If you are seeing highly unfair or unworkable contract amendments, reach out to your trade body or the Conflict Avoidance Coalition for support.

For further insights, watch the Cash Flow and Contract Webinar on the CICV website.

Final Advice

Always review contracts before signing—never wait until work is about to start.
Understand your obligations and risks—identify clauses that could impact your cash flow.

Engage in early discussions—negotiate terms that protect your interests.
Seek expert advice—use industry contract review services if needed.

Taking a proactive approach to contract amendments will help mitigate risk, reduce disputes, and improve financial stability.