VARIATIONS

Thomas, “The Value if Whatever I Say it is: Determinations by the Principal Under Construction Contracts” (2008) 24 Const LJ 481, (2009) 25 BCL 246. 136 See, eg, Select Plant Hire Pty Ltd v John Holland Construction & Engineering Pty Ltd [1998] VSC 102. 137 See, eg, JCT Standard Building Contract, 2011 Edition, clause 5.6 and AS 4000-1997 clause 36.4. There may be a certain element of value judgment on the contract administrator’s part in deciding whether particular rates ought to be applied: AJ Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2009] VSCA 310 at [72]. The fact that certain parts of the contractor’s works are valued on such a basis does not, however, mean without more that the whole of the contractor’s work is to be measured on such a basis, especially where the contract price is expressed as a lump sum: London Steam Stone Saw Mills v Lorden (1900) Hudson’s BC (4th Edition, volume 2) 301. 138 See, eg, JCT Standard Building Contract, 2011 Edition, clause 5.10; ICE Conditions (7th Edition, 1999) clause 52; FIDIC Red Book (1999) clause 12.3. In some cases, it may be appropriate for variations to be valued using a so-called “star rate”. A “star rate” has been described as a rate which is “derived from sources outside the terms of the contract but it must be a rate which sits reasonably along-side existing contract rates and is one which, when applied to the varied work, will not throw the whole pricing structure of, or the financial return from, the contract out of balance”: JDM Accord Ltd v Secretary of State (2004) 93 Con LR 133 at 194 [171], per HHJ Thornton QC. See also Ruttle Plant Hire Ltd v Secretary of State for the Environment [2007] EWHC 1773 (TCC) at [9] and [19], per Jackson J. 139 Mears Construction Ltd v Samuel Williams (Dagenham Docks) Ltd (1977) 16 BLR 49 at 68-69, per Judge Stabb QC (considering the ICE Conditions (4th Edition)). Compare Galliford (UK) Ltd v Aldi Stores Ltd [2000] All ER (D) 302 [TCC, HHJ Bowsher QC] (considering the JCT Intermediate Form of Contract, 1984 Edition). 140 Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [2000] BLR 247 at 251, per Lord Lloyd, at 257, per Beldam LJ (considering clause 52 of the ICE Conditions, 6th Edition). Lord Lloyd held that “[i]f the Engineer were free to open up the rates at the request of one party or the other because they were inserted in the Bill of Quantities by mistake, it would not only unsettle the basis of competitive tendering, but also create the sort of uncertainty in the administration of building contracts which should be avoided at all costs” (at 251). Ward LJ (dissenting) held, however: “Little mistakes or even big mistakes can and should reasonably be disregarded. But to use a rate based on a gross error which produces a ludicrous result cannot be a reasonable use of those figures” (at 255). See also Duncan Wallace, “Variation Valuation: No Correction of Pricing Errors” [2001] ICLR 221; Hong Kong Housing Authority

the event of variations being directed will, in the case of additional work, ordinarily be taken to countenance the contractor being paid the direct costs of performing the additional work,141 plus a profit margin.142 Furthermore, where the effect of a variation order is to prolong the work period of a contractor, or otherwise to cause the contractor to incur additional overhead costs, it is ordinarily expected that a contractor’s entitlement to additional remuneration will include a component for overheads.143 Further still, where the effect of a variation being ordered is to require a main contractor, in turn, to cancel an order with a subcontractor or supplier (in the absence of a power to do so), and the subcontractor claims its loss of profit from the main contractor (as damages), a fair valuation of the variation under the main contract will usually include a component for the subcontractor’s loss of profit.144