The Extent of Validity and Enforceability of Change Orders without Consideration in Construction Contracts under English Law

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M

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Title: The Extent of Validity and Enforceability of Change Orders without

Consideration in Construction Contracts under English Law

Name: Ezgi Eylül Bora

Supervisor: Prof. Dr. Martijn W. Hesselink

Date of Submission: 14 September 2018, Friday

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ABSTRACT: Purpose of this paper is to recognize an invalid variation clause in a construction

contract subject to English law, and to become aware of the limits of a valid variation clause in such a contract. After making an introduction to the topic and explaining the methods of which this paper was written in the first chapter, essence of the topic is examined. Issues regarding the main topic are mainly divided into two sections. First issue of unilateral aspect of the topic is examined in the second chapter. Unilateral aspect of the topic is examined through the effects variation clauses make on the contract itself. Second issue of topic is lack of consideration which is examined in the third chapter via an examination of consideration under English law. Thereafter, limitation English law provide to these types of variations are examined in chapter four. Finally, certain drafting options are considered in the fifth chapter to the benefit of the employer regarding specific changes the employer may want to make.

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TABLEOF CONTENTS

1. Introduction 4

1.1. Methodology 5

2. First Issue: Unilateral Aspect 7

2.1. Changing the Works or Changing the Contract 7

2.2. Impacts to Certainty of the Contract 8

3. Second Issue: Lack of Consideration 10

3.1. New Promise New Consideration 10

3.2. Consideration under English Law 12

4. Limitations 14 4.1. Major Changes 14 4.2. Cumulative Changes 15 4.3. Reasonableness 17 5. Drafting Options 19 6. Conclusion 21

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1. Introduction

The parties may agree to vary the contract in a way that can prejudice or benefit either party.1_{It is possible to variate any kind of contract; however, most contracts do not have a}

specific clause about variation and the parties simply come together and agree on the extent and terms of variation to their original contract. Most of the construction contracts on the other hand have specific clauses dedicated to variations. We know these provisions as change order or variation clauses2_.

A construction contract usually has two parties: the party who is procuring the work which this paper will refer as the “employer” (like a project developer or a land owner), and the party who is performing the work which this paper will refer as the “contractor”.

Variation clauses in construction contracts enable the parties, or one of the parties if the clause is unilateral (mostly the employer), to change the works originally determined in the construction contract. Due to this capability of substantially changing the details of the works which is one of the primary elements of the construction contracts, these clauses are arguably one of the most important clauses to look for in a construction contract, and hence the

construction contracts have a significance with regard to contract variation.

In construction contracts where both parties have somewhat comparable bargaining power, change order clauses usually require the agreement of both the parties, or the

employer will at least grant a reasonable time extension to the contractor for the completion of the variated works and/or compensate the additional work undertaken by the contractor if indeed such change order increased the originally undertaken work of the contractor.

However, in construction contracts where the employer has a higher bargaining power, usually because of the magnitude, significance, and/or profitability of the project for the contractor, these clauses may be composed in a way that a change order can be unilaterally put into effect by the employer and the contractor will be bound to carry the variated works without getting the aid of extra time and/or money. These specific clauses where the change is made unilaterally, and the contractor is denied of receiving certain remedies, and the extent of their validity and enforceability will be examined in this paper.

1.1. Methodology

The main research question presented in this paper is as follows:

1 Chitty on Contracts Vol. I General Principles (Sweet & Maxwell, 32nd_{ed., 2015) 453, par. 4-080}

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To what extent a change order clause that allows the employer to change the works without giving any additional consideration to the contractor is valid and enforceable in a business to business construction contract subject to English law?

Due to the fact that the research question is purely related to finding an answer to a practical problem arising out of construction contract practices, this paper will focus on the positive laws of England applicable to the research question. However, slight comparisons with US law, and explanation of certain US law rules are made where necessary in order to discover and explain a certain English law position due to the affinity of these two common law systems.

Aside from the personal linguistic advantages of making a research in English law, the topic, which I have come across in business to business construction contracts that were subject to civil law systems, becomes especially interesting due to the English law’s requirement of consideration. Variation clauses that do not grant the contractor any consideration for the additional works may become a problem in any legal system that the contract is subject to, especially if such change order causes the obligations of the parties to become disproportionate (laesio enormis). However, consideration itself is a requirement of English law to make a contract enforceable regardless of the proportionality of the

obligations which is a different discussion. That is why I selected English law to examine the validity and enforceability of these types of variation clauses in construction contracts.

Furthermore, novelty of the topic stems from the lack of documentation of research regarding variation clauses in construction contracts, especially if the clause is unilateral with limited or no remedy to the benefit of the contractor. The topic is in need of further

discussion as variation clauses remain a significant part of construction contracts and construction contract related disputes.

I will describe and explain the positive laws of England with the help of respectable English law sources and reviewing of the significant English law cases, all cited in the bibliography, to figure out the answer of the presented research question. Purpose of this paper is to recognize an invalid variation clause in a construction contract subject to English law, and to become aware of the limits of a valid variation clause in such a contract.

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Issues regarding the research question is mainly divided into two. First issue that is reviewed in this paper is the unilateral aspect of the variation clauses described in the research question, and the second issue is the lack of consideration or limited consideration aspect of such variation clauses.

To evaluate the extent of validity of the described variation clauses, following questions will also be looked into throughout this paper:

Is there a legally binding agreement for the additional work created by the change order if the parties agreed that there will not be a compensation for it? How does it affect the validity and enforceability of the variation clause if the agreement (i) does not provide any kind of consideration to the contractor or (ii) does not provide monetary consideration but entitles the contractor for an extension of time?

Is the contract amended when the works stipulated under the contract is changed unilaterally by the employer, and does English law permits a unilateral

amendment in such a way? If yes, what are the reasons behind such permission? Can the parties agree that the employer can unilaterally change the works hence amend the agreement without the consent or approval of the contractor? Will such an amendment be a legally binding agreement for the contractor? Is it relevant for the validity or applicability of such a variation clause to

determine how substantially the change order changes the initially agreed works and how should we decide on what would constitute a “substantial” change? Can the employer’s requests be limited? If yes, what are the limits of a request the employer can unilaterally make?

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2. First Issue: Unilateral Aspect

2.1. Changing the Works or Changing the Contract

English law does not permit the contract to be amended unilaterally.3_{The contract is}

made inter alia by the mutual agreement of the parties; in parallel, mutual consent of all parties would naturally be required if the contract is going to be amended. But, is the contract amended when the employer changed the works unilaterally without the consent of the contractor? This is the question that needs to be answered.

A variation ordered under the terms of a construction contract does not amend the contract itself because the contract entitles the employer to order variations and therefore the instruction to vary the work is an instruction issued under and envisaged by the contract, and the contractor agrees to take the obligation to perform the varied work by executing the contract.4

There is a difference between amending i.e. changing the contract and changing the works,5_{and it is important to make the distinction between these to determine if it would be}

legally valid and enforceable for the employer to make a change order solely depended on its own will simply because the contract says that it can do so. Changing the contract would mean the obligations of the parties are fundamentally changed in relation to each other whereas changing the works would mean changing only certain specifications or details of the works originally stipulated in the contract while the underlying contract itself, with all its terms and conditions, remains the same.6_{The freedom of contract principle allows one party}

to give the right to the other party to unilaterally change a certain aspect of the contract.7

On the other hand, some people might argue that there are more realistic ways to explain why the unilateral change orders in construction contracts are permitted under

English law; because if the unilaterally made variation changes the works so significantly, the above explanation would fall short since one may argue that such a significant change in the

3 Christoph Fischer, “Unilateral Variations in Construction Contracts” (Construction Law Journal, 2013 29/3) 211, 212

4 Richard Wilmot-Smith R, Construction Contracts Law and Practice (Oxford University Press, 2006) 274, par. 14.04

5 Christoph Fischer, “Unilateral Variations in Construction Contracts” (Construction Law Journal, 2013 29/3) 211

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works would sure to constitute a change in the contract itself. In this case, it can be argued that change orders under construction contracts are an exceptional case where English law permits the unilateral amendment of the contract.8

Regardless of the argument one adopts, unilateral change orders, usually used by the employer, do not face the obstacle of being invalid and unenforceable just for being unilateral; because they are not considered to be a contract amendment. The scope of the change order however, may affect the enforceability of the clause which will be explained below.

In addition to the foregoing arguments, it can be argued that the connecting reason why English law exceptionally permits unilateral variations when construction contracts are concerned is because they became a common practice in the construction business where there is a special need for unilateral interference in the contract.9_{Similar to all contracts that}

have a larger span of execution period, construction contracts need a certain amount of flexibility; because, it eliminates some part of the uncertainty future may hold in contracts such as these.10_{Construction contracts tend to have variations that have a greater magnitude}

and importance than any other contract which reflects the element of the unknown in engineering operations.11_{Thus, these clauses became a common practice in construction}

business.

2.2. Impacts to Certainty of the Contract

English contract law requires the parties to express their agreement in a sufficiently certain way for the courts to enforce in order to create a binding contract; so that the parties, and not the courts, make the contract.12_{However, this does not necessarily mean that all}

aspects of the contract have to be set out at the moment of execution of the contract. It is possible, for example, to leave certain aspects of the contract to be determined in the future.13

Additionally, it can be argued that the contract is certain at the time of its execution including the scope of works. Variation clauses only entitles the enforcer, in this case the employer, to

11 John Uff, Construction Law (Sweet & Maxwell, 9th ed., 2005) 273

12 Ewan McKendrick, Contract Law (Palgrave Law Masters, 12th_{ed., 2017) 48}

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change the originally agreed content of the contract which is not related to certainty of the agreement.14

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3. Second Issue: Lack of Consideration 3.1. New Promise New Consideration

General rule of English law was if there is a new promise that was not originally undertaken in the contract, then performance of the existing contractual duties is not enough to be regarded as consideration for the new promise.15_{This rule traces back to the case Stilk}

v. Myrick [1809] 2 Camp 317 where after two of the 11 seamen deserted the crew during their voyage, the master (employer) of the ship failed to find replacements and agreed to distribute the wages of the 2 seamen between the remaining crew members if they finish the journey. Upon arriving to the destination port, the master refused to pay the extra amount he promised, and the plaintiff made a claim for such amount in court. However, the plaintiff was

unsuccessful in his claim and did not become entitled to extra money promised to him by his employer because he did not perform any additional work outside of what they originally agreed in consideration for the extra money. Even though this rule became controversial because it contradicted with the benefit/detriment analysis of consideration, which will be explained below, due to the fact that the employer clearly benefited from the completion of the works, it was still widely accepted and mostly unchallenged by the courts.16

However, a more recent case Williams v Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 QB 1 challenges this rule significantly. In this case, the sub-contractor of a house construction was not able to finish its contractually undertaken work in time due to reasons attributable to him. Main contractor, who would be late to deliver the finished house to the main employer if the sub-contractor did not finish the flooring in time, did not want to become liable against their employer and agreed to make additional payment to the sub-contractor so that the sub-sub-contractor can finish the flooring in time. When the main sub-contractor did not make a portion of the agreed additional payment, the dispute went to court to be settled. The Court of Appeal found that the main contractor had a practical benefit in the sub-contractor completing the works in time.17_{Glidewell LJ stated that “(i) if A has entered into a}

contract with B to do work for, or to supply goods or services to, B in return for payment by B; and (ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional payment in return for A's promise to

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perform his contractual obligations on time; and (iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B's promise is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B's promise, so that the promise will be legally binding.”18

Therefore, even though the scope of works undertaken by the sub-contractor did not change, the court found the re-promise of completing the works in time sufficient to

constitute as a consideration. In other words, at the end, performance of existing contractual duties was regarded as consideration unlike the original rule proposed in Stilk v. Myrick [1809] 2 Camp 317 even though the court insisting that the judgment limits and refines the original rule rather than overruling it.19

If we look back at the unilateral variation clauses that are subject to this paper, it is not likely that the contractor would have any practical benefit in employer’s change order; therefore, regardless of which of the aforementioned rules we follow, it can be assumed that the employer would have to make a new promise in consideration for the extra work if the contractor has no practical benefit in the change.

If we follow the understanding of the original rule as presented in Stilk v. Myrick [1809] 2 Camp 317 the employer would have to make an additional promise; because, there is a new promise on the account of the contractor to complete the new works requested by the

employer, and if the employer does not undertake to compensate this additional works in any way that would mean the employer will only perform his existing obligations in the contract which would be against the aforementioned rule from Stilk v. Myrick [1809] 2 Camp 317. If there is a new promise, such promise will not be supported by consideration if the other party only performs the existing contractual duties.

Similarly, if we follow the understanding of Williams v Roffey Bros. & Nicholls

(Contractors) Ltd. [1991] 1 QB 1, the employer would have to make an additional promise as a new consideration if the contractor does not gain any practical benefit from the variation of the works. It is more likely in practice that the contractor’s costs in completing the works would increase as a result of a change order by the employer which would make it hard to argue that the contractor has any practical benefit in the matter. However, that is of course not an absolute conclusion since it is possible that the employer’s change order would result in

18 Williams v Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 QB 1 [15-16] (Glidewell LJ) 19 Williams v Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 QB 1 [16] (Glidewell LJ)

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favour of the contractor by, for example, reducing its costs in order to use a different material. In that case, it can be argued that the contractor has a practical benefit in the employer’s change order. The reduced costs would constitute the practical benefit, and therefore, there would not be a need for the employer to make an additional promise as a new consideration.

3.2. Consideration under English Law

In light of the foregoing explanations, there would be a need for the employer to make an additional promise as a consideration for its change order if the contractor does not gain a practical benefit from such variation; therefore, it is essential to examine consideration according to English law in order to determine the extent of the employer’s this new promise. Does the employer have to give additional money or simply giving an extension of time would be enough to be sufficiently considered as new consideration?

Definition of consideration in the classical sense was given in Curri v Misa as follows20_:

“A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or

responsibility, given, suffered, or undertaken by the other…”21_{Shortly in other words,}

according to this classical definition, in order for something to be regarded as consideration, it must be beneficial to a party of the contract or detrimental to the other party of the contract.

On the other hand, more flexible approaches were also taken regarding consideration.22

Leading case, showcasing such an approach, was the abovementioned Williams v Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 QB 1 where the dispute in question was indeed stemmed from a variation to the contract. It is stated in this case that: “Consideration there must still be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflect the true intention of the parties.”23_{A new approach of the court to consider the intent of the parties was seen on}

this case which made it difficult to determine the purpose behind this new approach to the consideration doctrine, or its function within the contract law in general.24

21 Currie v Misa [1875] LR 10 Ex 153 [162] (Lush J)

23 Williams v Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 QB 1 [18] (Russell LJ)

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The definition of consideration as we know it i.e. the benefit/detriment analysis of consideration suggests that it is not necessary for the contractor to benefit from the variation if the variation causes a detriment to the employer, and vice versa. Creating a situation where only one (benefit or detriment) of them occurs would be sufficient as a new consideration. Giving additional money to the contractor would be to the benefit of the contractor and a detriment to the employer while giving only an extension of time to the contractor to

complete the works would only be a detriment to the employer. Since, only a detriment to the employer would be sufficient as a new consideration, only giving time extension to the contractor would likely be considered as a new consideration; because, the employer will suffer from the late delivery of the works.

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4. Limitations

We have established so far that the employer is entitled to unilaterally change the works if the variation clause in the construction contract enables it to do so, and in consideration for this request, employer will most likely only have to give an extension of time to the

contractor. This brings out another question on morality and fairness. Surely, there must be a way to limit the requests the employer can make without even needing the permission or consent of the contractor? As stated by Simon Whittaker of University of Oxford "the absence of a principle of good faith (and the absence of any general theory of abuse of rights) in English law means that in principle a party to a contract may exercise any right created by the contract—whether under an express contract term or by the law—freely and without reference to his motive or any consequential fairness to the other party."25_Contracts

in general do not limit the permissible extent of variations since the usual provision suggests that no variation is to vitiate or invalidate the contract.26_{However, that does not mean that}

there are no limitations on these requests whatsoever. Such limitations will be explained below.

4.1. Major Changes

As per US law, change orders outside the general scope of the works set out in the contract are called cardinal changes and they entitle the contractor to damages. Even though there is not yet a specific rule on English law like the cardinal change rule in US law, there is an implied limit on changes that may be ordered.27

It is worth noting that the works that fall outside of the general scope of works set out in the contract as mentioned in this section refer to the general scope of works set out in the contract i.e. they do not refer to the works that fall within the general scope of works of the contract but outside of the agreed specifications set out in the contract which constitute variations. If it had to be clarified in a very simplified and unlikely explanation, in a contract regarding construction of a gated housing complex consisting of four individual houses in a vacant land that belong to the employer, it is within the general scope of the contract if the employer changes the house plans to include an additional room in each house which may delay the contractor’s completion of the works and create extra design costs to the contractor 25 Simon Whittaker, "Price Variation Clauses", in Fabre-Magnan M, Ghestin J, Jourdain P, LabrusseRiou

C(eds), Etudes offertes à Geneviève Viney (2008) LGDJ 891, 894.

26 John Uff, Construction Law (Sweet & Maxwell, 9th ed., 2005) 277

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which would be a variation as reviewed in this paper, assuming of course the contract clauses are drafted accordingly. However, it will be outside the general scope of the construction contract if the employer requests construction of a fifth house when the agreement limits the houses to four, or requests something irrelevant to construction of houses e.g. a wind turbine generator to supply electricity to the houses. Changes like these are the major changes referred herein that fall outside the general scope of the contract.

On a change order subject to English law, it is important to determine whether the requested change is under the general scope of the works of the contract. Unlike the damage -based US system where the contractor becomes entitled to damages after doing the work, under English law, the contactor is entitled to refuse to perform these works or agree to do it and claim additional remuneration on a quatum meruit basis.28

The bar to determine what would fall outside the scope of works was set by the court in Thorn v London Corp. [1876] 1 App. Cas. 120 which was related to a bridge building

contract where the completion of works was not possible by using the construction method suggested in the contract drawings and the court decided that the contractor had to complete the bridge at the same price by using new and correct methods; however, it also set a high bar for the determination of the scope of works by saying that the work must be “so peculiar, so unexpected, and so different from what any person reckoned or calculated upon”29_{to be}

considered outside the general scope.

4.2. Cumulative Changes

Similar to the cardinal change law above, US law has again developed a doctrine English law has so far could not regarding the significant impact of the change orders cumulatively. Even if the individual change orders are considered as within the limits of the contract and therefore valid, if the collective impact of multiple change orders raise to a level that creates a significant adverse effect then the changes will cumulatively constitute a cardinal change.30_{Similar to cardinal change rule, each circumstance and all its conditions}

must be evaluated separately to determine when the change orders become cumulatively so detrimental.31

28 Thorn v London Corp. [1876] 1 App. Cas. 120 [127], [128] (Lord Cairns) 29 Thorn v London Corp. [1876] 1 App. Cas. 120 [127] (Lord Cairns)

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On the other hand, under English law, it is not clear whether the collective impact of individual change orders can cause the changer orders to be invalid.32_{An important case for}

English law in this regard is Mcalpine Humberoak Limited v Mcdermott International Inc. [1992] WL 895673. The case was related to a construction contract of four massive steel pallets for an offshore oil platform. The contract price was originally £900,000. The

construction work cost around £3,500,000 in total even though the construction was reduced to two pallets because there were 83 change orders in total. The contractor sued the employer for the additional costs incurred due to the change orders. The contractor demanded its costs as a sum due under the contract, or alternatively as damages for breach of contract. The court decided that the change orders were not outside the scope of the contract and they did not caused a variation in the contract significant enough to be considered invalid. The identity and substance of the court was still related to the construction of pallets. The Court of Appeal also considered whether the change orders frustrated the contract.33_{The fact that the Court of}

Appeal considered the cumulative impact of the change orders may be interpreted to suggest that the English courts might also consider a rule similar to US cumulative change doctrine. However, it may also be interpreted as cumulative impact of change orders will not constitute significant change in the contracts under English law; because the court did not mention the collective impact of the change orders at all, instead simply stated that there was not a significant change in the contract. Different possible interpretations on this case and lack of any other case law clearly stating the English law’s respective perspective makes it unclear whether English courts will consider cumulative impact of change orders as a collective change so significant that they fall outside the scope of the works set out in the contract.

4.3. Reasonableness

Another possible limitation to the employer’s unilateral change orders would be the basic reasonableness test, which would be an integral part of the contract as it is an implied term.34_{Inherently, this brings out the question of what would constitute “reasonable”. Alfred}

A. Hudson argues that “The project as a whole and, if necessary, the pre-contract

33 Jonathan Miller & Lewis Cohen, “One change too many! Is there any position for the American concepts of “cardinal changes” and the “cumulative impact doctrine” in English law? (Construction Law Journal, 2002) 388-389

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correspondence, must be looked at, it is submitted, and a common - sense view taken of the variations ordered.”35

In increasing number of cases, the courts have stated that the “discretionary powers should not be exercised in an unreasonable way”.36_{The variation clauses that entitles the}

employer to change the works unilaterally without needing the consent or permission of the contractor can be understood as the employer’s discretionary power.37

The description of the scope of works is vital for the contractor to argue that anything omitted from the contract description is a variation in which case the scope of works will be examined by being reasonably interpreted.38_{In Williams v Fitzmaurice [1858] 157 E.R. 709}

the contractor was undertaken to build a house for a fixed price, and the specifications of the works did not include floorboards so the contractor claimed that they should be considered as extra. Pollock C.B. stated that “It is clearly to be inferred from the language of the

specification that the plaintiff was to do the flooring, for he was to provide the whole of the materials necessary for the completion of the work; and unless it can be supposed that a house is habitable without any flooring, it must be inferred that the flooring was to be supplied by him. In my opinion the flooring of a house cannot be considered an extra any more than the doors or windows.”39_{In other words the court made a reasonable interpretation}

of the works and decided that floorboards are an essential part of a house and therefore it must be interpreted as included as a part of the works.

At the end, it does not seem possible to set out clear cut rules on what would constitute “reasonable”, each circumstance and its conditions must be evaluated separately. The

conditions and evidence on which the change order is made by the employer must be

considered.40_{The courts are yet to establish decisions where the reasonableness was used as a}

tool to determine the limitations on variation clauses in a construction contract.41

35 Alfred A. Hudson, Hudson’s Building and Engineering Contracts, (12th ed. (2010), para.5-041

36 See for instance Abu Dhabi National Tanker Co v Product Star Shipping Ltd (No.2) [1993] 1 Lloyds Rep. 397 (CA) (shipowner’s right not to load at certain ports); Paragon Finance plc v Staunton [2002] 2 All E.R. 248 (CA) (power to vary the interest rate); Clark v Nomura [2000] I.R.L.R. 766 (QB) (award of discretionary bonuses to employees).

38 John Uff, Construction Law (Sweet & Maxwell, 9th ed., 2005) 274 39 Williams v Fitzmaurice [1858] 157 E.R. 709 [851] (Pollock C.B.)

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5. Drafting Options

Variations are not included in the contract price of the construction contracts. Contract price is only in consideration for the works set out in the contracts. The whole purpose of the variations is to be able to request something other than the originally agreed works. If we were to assume that there is no need for the employer to present a new consideration because the contract price includes unilateral variations, then that would mean the changes requested by the employer through change orders are included in the works agreed in the contract. Ultimately this would mean that it will not be a variation if it is included in the works set out in the contract which is what the contract price is for.

On the other hand, if the employer foresees some changes it will likely to make, the parties can negotiate and draft the contract in a way that clearly states that certain requests of the employer is included in the contract price, and the contractor would not request anything other than the agreed contract price. This would mean that the parties negotiated on a specific chance of some change being made by the employer and the contractor had time to evaluate the risk of that change happening and to adjust the contract price accordingly before the contract is executed between the parties. However, this cannot be done generally for all unilateral changes to be made by the employer; it has to be specific. Otherwise the certainty of the agreement at the time of execution would be affected. For example, the employer can be contractually entitled to request changes to the original house plans that are smaller than 5 square meters, and the parties can agree in the contract that such changes are contemplated by the contractor and included in the contract price so that the contractor will be obliged to comply with such request without requesting additional time or money. However as explained above, changes the employer makes to the original house plans that are smaller than 5 square meters would not be variations; they would simply be part of the works set out in the contract that the employer had the discretion to create.

It may be harder for the contractor to argue that a work is extra if the description of the work is shorter and simpler.42_{In Sharpe v San Paulo Railway Company [1872-73] L.R. 8 Ch.}

App. 597 the contractor who was to build a railway had to redesign due to as a result of certain difficulties confronted during the construction. James L.J. stated that “(the plaintiff argues that) the original specification was not sufficient to make a complete railway, and that it became obvious that something more would be required to be done in order to make the

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line. But their business, and what they had contracted to do for a lump sum, was to make the line from terminus to terminus complete, and both these items seem to me to be on the face of them entirely included in the contract. They are not in any sense of the word extra works.”43

The contractor was not entitled to additional payment; because, the contract was simply for the construction of a terminus in consideration of a lump sum payment. Therefore, it is essential for the contractor to lay out the complete specifications of the works in the original contract so that there will as little need as possible for reasonable interpretation of the scope of works.

If the contractor agreed to complete the works for a fixed price, the general rule is that he would be obliged to complete the works regardless of the difficulty and costliness of the works turn out to be.44_{In Bottoms v York Corporation [1892]}45_{the contractor was to build}

sewerage in unknown ground which later turned out to be marshy. It was decided that the contractor who abandoned the project when the engineer of the project declined to authorise extra payment by giving written orders was held in breach of contract.46_{Reason he was}

deemed in breach of contract was that the employer did not give any express warranty in the contract regarding the quality or the nature of the respective ground; therefore the contractor was to undertake the additional costs that later arose due to the nature of the contract.47

Therefore it is also important for the parties to the contract to agree on provisions regarding unforeseen circumstances such as the abovementioned, and negotiate and decide which party shall bear the risk of the unknown as much as possible before the execution of the contract.

43 Sharpe v San Paulo Railway Company [1872-73] L.R. 8 Ch. App. 597 [608] (James L.J.) 44 John Uff, Construction Law (Sweet & Maxwell, 9th ed., 2005) 278

45 Bottoms v York Corporation [1892] (Hudson’s Building Contracts, 4th_{ed. Vol. II) 208}

46 John Dorter, “Variations” (Construction Law Journal, 1991) 295 47 John Uff, Construction Law (Sweet & Maxwell, 9th ed., 2005) 278

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6. Conclusion

Construction contacts are exceptional cases under English law that the unilateral variation of a certain part of the contract is permitted. There is a specific need for flexibility in the market for these types of long term contracts. Therefore, it is permitted for the

employer to change the works originally agreed in the contract on its own without the consent or permission of the contractor if the contract entitles him to do so. It is a consequence of freedom of contract that the contractor granted this right to the employer in the contract and it does not affect the overall certainty of the agreement of the parties.

Although the general rule in English law requires that if there is a new promise then performance of the existing contractual duties is not enough to be regarded as consideration for the new promise. However, if the other party is gaining a practical benefit as a result of the new promise then that practical benefit is sufficient to be considered as consideration for the new promise as well. In our case, it is not likely that the contractor has any practical benefit in employer’s change order; so, even though these rules for the requirement of a new consideration essentially contradict each other, we can assume that the employer has to make a new promise as well. However, the employer’s change order may reduce the contractor’s cost; in that case, we can say that the contractor has a practical benefit in the employer’s change order and therefore, there is no need for additional consideration.

In the event that the contractor does not have a practical benefit, we look at what consideration under English law is to determine the extent of the employer’s new promise. Classic definition of the term says that in order for something to be regarded as consideration, it must be beneficial to a party of the contract or detrimental to the other party of the contract. More flexible approaches are also taken as can be seen in Williams v Roffey Bros. where the court considers the intention of the parties. Benefit/detriment analysis of consideration suggests that the contractor does not need to benefit from the change order. A detriment to the employer is enough which means that only giving time extension to the contractor may be considered as a sufficient consideration because the employer will suffer from the late

delivery of the works.

Even though English law is yet to set clear rules on limiting the requests one party, in this case the employer, can make unilaterally, there are signs of certain limitations implied by court similar to US legal system. Aforementioned cases suggest that English courts would limit the extent of change orders made by the employer if the changes are individually or

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collectively changing the general scope of works drastically. However, it is worth mentioning that the limit set by court for a change order to be deemed outside the general scope of works are quite high; since the change order has to be so radically different from the works in the contract that no one could have calculated or foreseen it in order to be considered as outside the general scope of works. Additionally, there is always a blanket of reasonableness

expected from the parties while they use they use their discretionary powers, in this case the employer’s contractual right to unilaterally change the works at its own will may be

considered as a discretionary power which would mean English law would expect the employer to act reasonably while enforcing this unilateral right at its own discretion.

Finally, variations are not included in the contract price of the construction contracts. However, it is possible to strengthen the drafting to the benefit of the employer in a way that excludes specific change orders from the variation perspective and let them be included in the contract works. In this case, such changes would not constitute a variation as they would be included in the original contract which is what the original contract price is for.

Parties can agree to limit the variations in certain ways in the contract as well. They may agree to set a limit for the variations to be made and the contractor will be entitled to additional payment when such limit is exceeded, or they can agree a certain proportion of the value of the works cannot be exceeded without consent. Otherwise, as explained in chapter four above, there will ordinarily be no limit, if the changes fall within the terms of the contract.48

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Williams v Fitzmaurice [1858] 157 E.R. 709

Williams v Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 QB 1