Many contracts contain a clause which allows both partners to change the project or its scope as matters progress.
Many of the changes are due to:
- design development ie completing the scant details that existed when the contracts were signed
- design changes due to the client changing her mind
- unexpected events: floods, finding Richard III under your car park, unexploded bombs, or other surprises.
Your contract needs a change/variation procedure. It needs to be practical because it needs to be followed.
Without a change procedure, you’d need a new contract every time you wanted to add more work and you’d never be allowed to miss things out that you no longer want. This is because your contract obliges the contractor to carry out the whole scope and gives it the right to carry out the whole scope (a right to finish).
Most standard forms, like MF/1, expressly allow the parties to reduce the scope:
‘variation’ means any alteration of the Works whether by way of addition, modification or omission (clause 27.1)
If your contract does not allow the scope to be reduced by omitting items then you can’t as the contractor has a right to finish. Of course, as the contractor has the right to finish and priced the project based on completing the whole scope, then any omission should result in the employer compensating the contractor for those omitted works.
Although most standard form contracts do not say this, the case law says a client is not entitled to omit works and either pass it to another contractor (it cuts across the contractor’s right to finish) or to do those works itself. The reason is that this smacks of a form of back-door termination – but one where the client doesn’t have to justify itself.
MF/1 also doesn’t allow unlimited variations, whether extra or omitted works. The cumulative effect of all the variations under an MF/1 contract cannot:
involve a net addition to or deduction from the Contract Price of more than 15% unless the parties consent in writing.
Limits like this are sensible and benefit both the client and the contractor. It prevents an unscrupulous client doubling the project without giving the contractor a chance to decide if it has the resources to carry out the revised project. It also ensures that new rates can be used for new economies of scale. And it lets funders or clients be sure that the contract price will not keep rising out of control… Even if your contract does not include express limits, the cases show you cannot order anything and everything under a variation clause [read more].
What should you do?
As a contractor, check that the right to omit still allows you to claim lost profits on those works.
As a client, beware reducing the contract to a mere statement of intent with a right to omit works, do them yourself and not compensate the contractor for its lost profits.