Acknowledgements

We, the group member of this assignment, strongly agree that realization of this term paper will be impossible without the support of others. So it is with deep gratitude that we express our appreciation to the following, for their contributions: y To Ato Zewdu Tefera, our adorable instructor and the provider of the assignment. Once again we would like to pass our deep appreciation to Ato zewdu for giving us this opportunity to work to together and to know more about the course matter. y To Addis Ababa University Civil Engineering Department, for providing the necessary support letters for concerned offices that makes our work a lot easier. y To the staff of the Ethiopia Road Authority, Contract Administration Division, for providing the data for this assignment. This work might have not been full without their help.

Abstract
Construction projects because of their special characteristics are susceptible and they are subjected to the influence of many external and internal factors. A large number of project participants because of their actions cause variations to the scope and design of the projects. The need to make changes in a construction project is a matter of practical reality. Even the most thoughtfully planned project may necessitate changes due to various factors. In some cases natural causes also contribute to variation requests to construction projects. Identification of causes of variation, effects of variation and control for variation are the important concepts for managing variation in the construction projects. This assignment will focus extensively on literature review to point out these causes and effects of variation in the construction projects. The paper also specifies different measures that should be taken to control the adverse impacts of variation on the construction industry. This literature review also introduces the concepts of value engineering, contractual variation and variation in works. The regulation of variation under the MDB-FIDIC and PPA condition of contracts and the applicable law of Ethiopia are another area that this term paper will focus in detail. Reviewing each condition of contract and the applicable law the paper will explain clauses or articles that are related to the concept of variation. In the meantime the similarity and the difference of variation concepts in each condition of contract and the applicable law will be presented. Finally this term paper will presents a case study of three finalized road projects. The projects are selected randomly from completion report. Based on the review of the

literature and the case studies, the paper concludes that lack of coordination among the parties and changes in specifications by the employer are the important factors leading to variations. The assignment also concludes that time overruns and cost escalations are the major impact of variations in construction projects. Key worlds: variation, construction projects, Condition of contracts, Value Engineering, Causes, Effects, Types, Civil code, court

ABBREVIATIONS PPA MDB-FIDIC Public Procurement Agency

Multilateral Development Bank- International Federation of Consulting Engineer

ETB ERA ADB FDRE ICB

Ethiopian Birr Ethiopian Road Authority African Development Bank Federal Democratic Republic of Ethiopia International Competitive Biddings

1. Introduction 1.1. Rationale and Purpose of the Assignment The purpose of this assignment is to explore the concepts of variations and their regulation under the MDB-FIDIC and PPA conditions of contract and the applicable law of Ethiopia. Additionally the concept of variation under these laws will be compared to show their similarity and difference in tabular form. It is the known fact that construction projects involve different variations in their due courses. These variations arise mainly due to the dynamic nature of the projects and different factors that cannot be prevented from the construction industry. Thus nature of the construction projects generates variations to the scope and design of the projects. Engineer has the power to make any variation orders of the form, quality or quantity of the Works or part thereof subject to the approval of the Employer. Such order would result in increase or decrease the quantity of any work included in the contract. There are instances of omissions of work from the scope. Furthermore the Engineer is empowered to change the character or quality or kind of any such work. This may result in change the levels, lines position and dimensions of any part of the works. At times it becomes compulsory, on the part of the Engineer to order for additional work of any kind necessary for the completion of the work. Further the faulty designs although the Engineer fails to accept causes more concern, conflicts, cost and time over run. There are cases of interferences by the Employer results in variations. This state of affairs makes the Engineer and Contractor at tacit unease. Because of the misunderstanding created on account of variation orders, disputes and claims become a constant affair in the construction industry. In order to settle these disputes and claims clauses that are related to variation are included in construction contracts. Therefore this paper will focus on the variation concepts that are included on construction contract (international or local) and other applicable laws of Ethiopia. In this context, this paper attempts to find out different causes of variations by all the project stakeholders such as Employers, Engineers, Contractors and subcontractors, the impact of variation orders, the problems encountered because of the variation orders and the possible

resolution to the problems and issues resulting from variation orders in the construction contract. Moreover this paper will focus on the comparison of variations concepts and their regulation under the international construction contract (MDB-FIDIC), local construction contract (PPA) and any applicable laws of the country. 1.2. Objectives The main objectives of the paper can be summarized as follows: 1. To overview the concepts of variation in the construction industry. 2. To identify Potential Causes and Effects of Variations in the industry. 3. To identify the concepts of variations and their regulation under different construction contracts. 4. To examine the variation concepts in the construction industry of Ethiopia 5. To give conclusion and recommendation based on finding of the paper 1.3. Methodology followed To develop this paper the following procedure are conducted: y Literature review concerning the concepts of variation in the construction projects is conducted; y Construction contracts such as MDB-FIDIC and ICB of PPA are genuinely reviewed to find out clauses related to the subject matter, addition to these construction contracts applicable laws of Ethiopia are viewed. y Analysis of case studies related to the subject matter are conducted to support our discussion of the paper 1.4. Limitation of the assignment As this assignment is meant for semester term paper, the work conducted to develop it is not as such enough as a normal scientific research paper required. Especially the selection of case studies are not based on the concepts of sampling techniques and also the number construction projects that are selected for case study are only three, that are not represent the true nature of construction projects in the country

2. Variation in construction industry 2.1. Definition of variation

Variation in construction contracts can imply changes to the terms of the contract, changes to the scope or character of the works. There is no single definition of what constitutes a variation; usually most of construction contracts will contain a definition of variation by including a changes clause. Such a "Changes" clause is beneficial to both the contractor and employer as it increases the flexibility of construction contracts by providing for the variations without the necessity for a new contract for incorporating any addition, deletion or modification of a project requirement. Beside contractual meaning and definition of variation there are different scholars that give the meaning and definition of variation in the construction industry. Some of these definitions are given below

"Written authorization provided to a contractor approving a change from the original plans, specifications, or other contract documents, as well as a change in the cost" (Means, 1991).

"It is (1) additional or modified scope of work; (2) errors and omissions in plans and specifications; (3) changes required by governmental entities; (4) design changes; (5) overruns or underruns in quantities; and (6) conditions impacting on schedule, the time of completion or the method or manner of performance of the work," (Libor, n.d). Other important issues to note on variations:y y y y The contractor may not make any variation without an order from the Engineer, Such order must be in writing; The contractor must carry out an oral order, The contractor may confirm an oral order, and if he does so, the Engineer must contradict it forthwith if he does not agree with it; and y Contractor should always as a matter of routine confirm any oral instruction given by the Engineer or his staff ( Abebe Dinku, Prof.Dr.Ing) An effective analysis of variation requires a compressive understanding of the root cause of variation and their potential downstream effects. To manage a variation mean being able to anticipate its effects and to control, or at least monitor the associated cost and schedule

impact. Hence identification of causes of variation, effects of variation and control for variation are the important concepts for managing variation in the construction industry. The detail description of these concepts are given in subsequent subtopics

2.2. 2.2.1.

Potential Causes of Variations Employer related variation

The employer as the project initiator plays a major role in the construction project from the inception to the completion phases. As a result, employers influence the likelihood of the occurrence of variation. Employers anticipate the needs and objectives of projects, establish the scope of works and the required quality standards. During the construction stage, employers initiate variation due to various reasons. Some of these are; Change of plans or scope by Employer: Change of plan or scope of project is one of the most significant causes of variation in construction projects and is usually the result of insufficient planning at the project definition stage, or because of lack of involvement of the employer in the design phase. This cause of variations affects the project severely during the later phases. Change of schedule by Employer: A change of schedule during the project construction phase may result in major resource reallocation. Time has an equivalent money value. A change in schedule means that the contractor will either provide additional resources, or keep some resources idle. In both cases additional cost is incurred. Employer s financial problems: The employer of the facility may run into difficult financial situations that force him to make changes in an attempt to reduce cost. Employer s financial problems affect project progress and quality. Inadequate project objectives: Inadequate project objectives are important causes of variation in construction projects. Due to inadequate project objectives, the engineer would not be able to develop a comprehensive design which leads to numerous variations during the project construction phase. Replacement of materials or procedures: Replacement of materials or procedures may cause major variations during the construction phase. The substitution of procedures

includes variations in application methods. Therefore, an adjustment to the original contract value is required if there is a change in procedures. Change in specifications by owner: Changes in specifications are frequent in construction projects with inadequate project objectives. In a multi-player environment like any construction project, change in specifications by the employer during the construction phase may require major variations and adjustments in project planning and procurement activities
Impediment in prompt decision making process: Prompt decision making is an important factor for project success. A delay in decision making may hinder subsequent construction activities that may eventually delay the project progress.

2.2.2. Engineer related variation

This section discusses the causes of variations that were initiated by the engineer. In some cases, the consultant directly initiates variations or the variations are required because the engineer fails to fulfill certain requirements for carrying out the project. These are: Change in design by Engineer: Change in design for improvement by the engineer is a norm in contemporary professional practice. The changes in design are frequent in projects where construction starts before the design is finalized. Design changes can affect a project adversely depending on the timing of the occurrence of the changes. Errors and omissions in design: Errors and omissions in design are an important cause of project delays. Design errors and omissions may lead to loss of productivity and delay in project schedule. Hence, errors and omissions in design can affect a project adversely depending on the timing of the occurrence of the errors. Conflicts between contract documents: Conflict between contract documents can result in misinterpretation of the actual requirement of a project. To convey complete project scope for participants, the contract documents must be clear and concise. Insufficient details in contract documents may adversely affect the project, leading to delay in project completion. Inadequate scope of work for contractor: In a multi-player environment like construction, the scope of work for all the players must be clear and unambiguous for successful project completion. Inadequate scope of work for the contractor can cause

major variations that may adversely affect the project, leading to changes in construction planning.

Technology change: Technology change is a potential cause of variations in a project. Project planning should be flexible for accommodating new beneficial variations. This is because the new technology can be beneficial in the project life cycle, for instance, reducing maintenance cost of the project. Value engineering: Value engineering should ideally be carried out during the design phase. During the construction phase, value engineering can be a costly exercise, as variation in any design element would initiate downstream variations to other relevant design components. Design complexity: Complex designs require unique skills and construction methods. Complexity affects the flow of construction activities, whereas simple and linear construction works are relatively easy to handle. Hence, complexity may cause major variations in construction projects. Inadequate working drawing details: To convey a complete concept of the project design, the working drawings must be clear and concise. Insufficient working drawing details can result in misinterpretation of the actual requirement of a project. Thorough reviewing of design details would assist in minimizing variations. Ambiguous design details: A clearer design tends to be comprehended more readily. Ambiguity in design is a potential cause of variations in a project. This is because ambiguity in design can be misinterpreted by project participants, leading to rework and delay in the project completion. Eventually, this may affect the project adversely. Noncompliance of design with government regulations: Noncompliance of design with government regulations would render the project difficult to execute. Noncompliance with government regulations may affect the project safety and progress adversely, leading to serious accidents and delays in the project completion.

2.2.3. Contractor Related Variations

In some cases, the contractor may suggest variations to the project, or the variations may be required because the contractor fails to fulfill certain requirements for carrying out the project. These variations may be categorized into different forms, some of these are:

Lack of contractor s involvement in design: Involvement of the contractor in the design may assist in developing better designs by accommodating his creative and practical ideas. Lack of contractor s involvement in design may eventually cause variations. Practical ideas which are not accommodated during the design phase will eventually affect the project adversely. Unavailability of equipment: Occasionally, the lack of equipment may cause major design variations or adjustments to project scheduling to accommodate the replacement. Unavailability of skills (shortage of skilled manpower): This lack can be a cause for variations that may delay the project completion. Contractor s financial difficulties: Contractor s financial difficulties may cause major variations during a project, affecting its quality and progress. Contractor s desired profitability: The contractor may eventually strive to convince the project owner to allow certain variations, leading to additional financial benefits for him. Differing site conditions: Differing site condition can be an important cause of delays in large building projects. The contractor may face different soil conditions than those indicated in the tender documents. Eventually this may affect his cost estimates and schedule adversely. Lack of communication: Detrimental variations, which affect the projects adversely, can usually be managed at an early stage with strong and incessant communication. A lack of coordination and communication between parties may cause major variations that could eventually impact the project adversely. Lack of strategic planning: Proper strategic planning is an important factor for successful completion of a building project. The lack of strategic planning is a common cause of variations in projects where construction starts before the design is finalized, for instance, in concurrent design and construction contracts. Contractor s lack of required data: A lack of required data may affect the contractor s strategic planning for successful project completion, leading to frequent disruptions during the construction process. This is because a lack of data can result in misinterpretation of the actual requirements of a project.

2.2.4. Other causes Variations

This section discusses the causes of variations that were not directly related to the participants. Weather conditions: Adverse weather conditions can affect outside activities in construction projects. When weather conditions vary, the contractor needs to adjust the construction schedule accordingly. Occasionally, this may affect the project progress adversely, leading to delays in construction. Safety considerations: Safety is an important factor for the successful completion of a building project. Noncompliance with safety requirements may cause major variations in design. Lack of safety considerations may affect the project progress adversely, leading to serious accidents and delays in the project completion. Change in government regulations: Local authorities may have specific codes and regulations that need to be accommodated in the design. Change in government regulations during the project construction phase may cause major variations in design and construction. This can affect a project adversely depending on the timing of the occurrence of the changes. Change in economic conditions: Economic conditions are one of the influential factors that may affect a construction project. The economic situation of a country can affect the whole construction industry and its participants. Eventually, this may affect the project adversely, depending on the timing of the occurrence of the variations. Socio-cultural factors: Professionals with different socio-cultural backgrounds may encounter problems due to different perceptions, and this may affect the working environment of the construction project. Lack of coordination is common between professionals with different socio-cultural backgrounds. Eventually, project delays may occur that end up with vital changes in the entire project team. Unforeseen problems: Unforeseen conditions are usually faced by professionals in the construction industry. If these conditions are not solved spontaneously, they may cause major variations in the construction projects. Eventually, this may affect the project adversely, leading to reworks and delays in the project completion.

Table 2.1 below summarizes the different causes of variations and their origins contractor x x x x No Causes of variation orders

Employer

Engineer

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Change of plans or scope Change schedule Financial problems Inadequate project objectives Replacement of materials or procedures Obstinate nature of the parties Change in specification Change in design by the Engineer Errors and omission by design Conflict b/n contract document Inadequate scope of work for the contractor Technology change Value engineering Lack of coordination Design complexity Inadequate working drawings details Inadequate shop drawings details Consultant s lack of judgment and experience Lack of consultant s knowledge about available

x x x x x x x x x x x x x x x x x x x x x

materials and equipments 20 21 22 23 24 25 Honest wrong beliefs of consultant Consultant s lack of required data Ambiguous design detail Design discrepancies Non- compliant design with government regulations Non- compliant design with owner s requirement x x x x x x

others

26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

Lack of contractors involvement in design Unavailability of equipment Unavailability of skills Contractor s desired profitability Differing site conditions Defective workmanship Unfamiliarity with local conditions Lack of specialized construction manager Fast track construction Poor procurement process Lack of communication Long lead procurement Honest wrong beliefs of contractor Lack of strategic planning Contractor s lack of required data Weather conditions Health and safety considerations Change in government regulations Change in economic conditions Socio-cultural factors Unforeseen problems

x x x x x x x x x x x x x x x x x x x x x

Source: Adapted from Arain and Pheng (2006) 2.3 Potential Effects of Variations The most common effects of variation in any construction industries are identified as follow. Delay in progress of work Cost overrun Need of additional professionals Increase in overhead expenses Delay in progress payment Low quality of work Low productivity

Completion schedule delay Delay in Procurement Rework and demolition Logistic delay Tarnish firms reputation Poor communication between professional Additional payment for contractor Dispute among professionals Now let as see each effects of vibration in depth how they affect the project. Delay in Progress of works Change orders by Employer during construction significantly affect the construction progress. These changes may be changes in scope are typically requested by the employer to modify the facility to better use or any other reasons. Sometimes the change may be at the early stage the construction, these types of changes do not affect the construction process and they are not as such costly. But a change made during the actual construction period highly affects the progress of work and are expensive to the contractor. Unforeseen conditions also initiate change order during construction period. Examples of these unforeseen conditions would be unexpected soil conditions, the discovery of buried material like archeological centers, treasures, precious stones, and weather conditions and weather damage. Errors and omissions are situations where the original plans and specifications have been incorrectly drawn or represented. The result of this situation can be extremely costly, if not caught soon. The contractor should be looking at the plans from the start to ensure that design errors and omissions are minimized. The frequency and magnitude of the change orders can be greatly reduced if a great attention is given in areas of pre-planning, risk management and change order management. Cost overrun The most common effect of variations during the construction is cost overrun, change in scope by the employer or some alteration of the design contribute a lot for cost overrun of the project. This is because of high inflation/increased material price; additional cost incurred

during the interruption of work and so forth. Therefore, in any construction it is necessary to allocate a contingency sum of money to overcome cost overrun because of variation. Need of additional professionals If there is a variation or change order in the construction process, the contractor require to work over time or need to have additional human power to compensate the delay in the construction process cased by the variation order or if there is a variation in a complex projects there is a need to have additional professionals or additional human power. Otherwise variation in a complex project affects the project significantly because there is a time overrun in search of ne professionals. Increase in overhead expenses

Variations require processing procedures, paper work and reviews before they can even be implemented (OBrien, 1998). The process and implementation of variations in construction projects would increase the overhead expenses for all the participants concerned. Normally these overhead charges are provided for from the contingency fund allocated for the construction project. Delay in payment The Contractor will be compensated for damages incurred due to variation order for which the employer is responsible. Actual costs will be determined by the Engineer. Actually the employer will not be liable for damages which the Contractor could have avoided by reasonable means, such as judicious handling of forces, equipment, or plant. The determination of what damages the Contractor could have avoided will be made by the Engineer. Unless contractor has been aware of the following equation, delay in payment is a common effect of variation order. i. What is a Progress Payment Request?

A progress payment request is the process of asking your lender to pay your builder for part of the work that has been completed. The contractor and the client may have already agreed to how many payments will be made, the gap between those payments, their amount and when they are due. The lender simply makes sure that these payments are made when stipulated.

ii.

Prior to Commencement

Before the contractors begin construction, there is a need to be provided the following documents: Signed building contract. Council approved plans. Construction certificate or Building permit or Decision notice Builders Insurance (certificate of currency). Builders Indemnity You can either send these to the owner, prior to the first progress payment request or with the first progress payment request. With regard to the progress payment, the main cause is that the contractor will not submit or send the progress payment requisite ahead of the commencement of the work, and this will not give sufficient time to the owner to do so or to facilitate the payment. iii. The First Progress Payment Request

There are often delays with the first progress payment request because in many cases, the above documents have not been provided or have been lost by the lender. These documents may have been supplied during loan approval; however the construction department may not have a copy of the file from the credit department that approved your loan. iv. How to Request a Progress Payment

Simply fax the bank the following documents: A signed progress payment request form (available from your lender) or a signed letter from you authorizing payment. A copy of the invoice from the builder. (First progress payment only) A copy of the receipt from the builder showing that you have paid them the funds you are required to contribute.

(Final progress payment only) Call the lender to discuss their additional requirements prior to sending them the request. v. Your Final Progress Payment Request

For your final progress payment request, the lender will usually send a valuer to the property to confirm that work has been completed as per the contract & plans provided. If there is any unfinished work then the lender will withhold payment until the work is completed. You may need to provide additional documents such as: A certificate of occupancy from the council, A copy of your building insurance with enough cover to replace the building. This copy must also include the name of the lender, on the policy, and Other documents as per normal, such as a progress payment request, as well as an invoice from your builder. Discuss these requirements with your lender prior to requesting the progress payment. You can avoid variation order by providing all of the documents up front. Low quality of works If there is repeated variation order is there during the construction process, it has an adverse effect on the quality of the work. This is because of the fact that if variation is frequent, contractors tended to compensate for the losses by cutting corners. Low productivity Interruption, delays and redirection of work that are associated with variation orders have a negative impact on labor productivity. Construction labor productivity is typically measured as labor hours per amount of work done. Labor productivity rates and other related data are often not tracked on construction projects with any degree of precision. As a result, it substantiates a cause of construction delay. Labor productivity losses and establishing entitlement to recovery for lost labor productivity often requires analysis by a qualified construction labor productivity expert.

Labor productivity loss is some time experienced when a contractor is not accomplishing the planned production rates because of variation order. In other words, a loss of productivity due to variation order takes more labor and equipment to do the same amount of work for prolonged periods to compensate for schedule delays, thereby increasing project costs. There are many common causes for labor productivity impacts on a construction project, stemming from owners, contractors, and construction managers. Procurement delay Variations which are imposed when construction is underway may require revised procurement requests (OBrien, 1998). Procurement delays can be frequent due to variations that require new materials and specialized equipment. Hester et al. (1991) observed that procurement delays were common effects of variations related to new resources for construction projects. Rework and demolition As it is known error may be commuted during the construction process by the contractors or sub contractors as a result demolition and rework are the common phenomena in construction projects. Rework and demolition are potential effects of variations in construction, depending on the timing of the occurrence of the variations. When the error commuted is because of the fault of the contractor or sub contractor they are forced to re do it once again without any compensation. This type of variation order is a potential effect for a construction delay. Logistics delays Because of the employer interest or unavailability of the specified materials in the market, it forces the contractor to change the material in the contract document and to have a new material. But material change requires variation order and certification by the Engineer. Therefore, delays caused by material or equipment are significant effects of variation in the construction project and the process take time for the contractor to execute the work as scheduled. Tarnish firms reputation Variations are referred to as a major source of construction claims and disputes (Fisk, 1997; Kumaraswamy et al., 1998). The claims and disputes may affect the firms reputation adversely, leading to insolvency in severe cases. Variations also increase the possibility of professional disputes. Conventionally, variations present problems to all the parties involved in the construction process. Poor safety conditions

During the construction process there is a variation in construction method, materials and equipments, and these variations contribute a lot for poor safety conditions. Poor communication between professionals Variation or change order is the major cause of disputes, and the disputes are in turn affects proper communication between professionals. At the same time poor communication and coordination by the parties or Lack of communication in construction business may leads to misunderstandings, conflicts and disputes. If the owner of the project is poor in communication with parties it is a great cause for construction delay. Hence it necessitates the owners to have effective communication skills which are one of the significant skills with the project parties involving in construction projects. Additional payments for contractor Additional payments for the contractor can be a potential effect of variations in construction projects. Variations are considered to be a common source of additional works for the contractor (OBrien, 1998). Due to additional payments, the contractor looks forward to variations in the construction project. Disputes among professionals Disputes among professionals are effects of frequent variations in construction projects and it is the major causes of delays in construction projects. Frequent variation order may also leads to misunderstandings, conflicts and disputes among professionals. Variation order by the employer and discrepancies in contract documents will give rise to disputes between the various parties. Furthermore, if the disputes cannot be solved smoothly or easily it can lead to arbitration or litigation. But frequent communication and strong coordination can assist in eliminating the disputes between professionals. 2.4 Types of variation Variation can be broadly classified in to two:  Textual or Contractual variation and  Variation of works Even though variation is classified as contractual or variation of works, problems concerning variations arise in the following three areas: 1. Scope (was it a variation or was the contractor bound to do it anyway?);

2. Non-compliance with procedural requirements; and 3. Valuing the variations. 2.4.1 Contract variation Let as first start from the definition of a contract. As per Article 1675 of civil code Contract is an agreement whereby two or more persons as between themselves create, vary or extinguish obligation of a proprietary nature. Once again a contract of employment is a contract of service and comes into picture, when the contractor agrees to work for and employer in return for pay. Therefore, the employer and the contractor have to bind themselves according to the definition or conditions of contract with some terms or contract clauses. These terms of a contract are:  The rights and obligations which bind the parties to the contract.  Express terms of a contract (those which are explicitly agreed between the parties, either in writing or orally) or implied terms of a contract (those which have not been spelled out but which would be taken by the parties to form part of the contract). Terms are implied, for instance, because they are: Too obvious to mention or because the parties assumed they would be incorporated at the time the contract was entered into. Necessary to make the contract workable. For example, that an employee employed as a driver will hold a valid current driving license) The custom and practice of the business or industry, i.e.: where a custom or practice has been adopted over a period of time. Express terms may be established by referring to various sources, particularly the written statement of terms and conditions, the letter of appointment and written or oral statements made by the employer and accepted by the contractor. Express terms may also be incorporated into individual contracts by reference to other documents. Statutory terms are those implied or imposed by an act of Parliament or Statutory Instrument, Example: the imposition of an equality clause into an employees contract and the entitlement to be paid the national minimum wage or given a minimum period of notice.

Why would employers or contractors want to vary a contract?  If a change in economic circumstances or due to a reorganization of the business. Possible areas of change could include pay rates, hours or days worked duties, supervisory relationships or place of work. This is mostly done by the employer.  To bring about improvements in pay or working conditions, for instance by requesting additional holidays, or to change the conditions so that they suit him or her better, for example, by requesting a change from full-time to parttime working because of domestic responsibilities. How can contracts be varied?  An existing contract of employment can be varied only with the agreement of both parties. Changes may be agreed on an individual basis or through a collective agreement (i.e.: agreement between employer and contractor or their representatives).  An employer who is proposing to change an employees contract of employment should fully consult with that employee or his or her representative(s) and explain and discuss any reasons for change.   Variations of contract can be agreed verbally or in writing. It is preferable for any agreed changes to be recorded in writing. Where a variation in the contract has been agreed and the changes concern particulars which must be included in the written statement of terms and conditions, the employer should give written notification of the change to the employee, within a month of the change taking effect. Notice: any change made by either the employer or contractor without out the considerations as to how a contract is varied as discussed above and without the consent of the other party, by deferring the terms of a contract, it is a breach of a contractual agreement between the parties. On the other hand a contract terms may be changed by the common agreement of the parties. For what so ever the cases the change med by varying the contract terms or clauses is referred to as a contractual variation. 2.4.2 Variation in works

Shortage of material in a market or unavailability of the specified construction materials at the time of construction may initiate a change of work or variation in works. That means the contractor is forced to replace the material which is specified on the contract document a new material. Design change by the consultant or by the employer may also lead to a variation in works done by the contractor. Whether the variation of work is within the scope of the contract will depend, firstly, on the terms of the contract. In many cases, the documents forming the contract for variation order are defined. Therefore, the contractual relationship between the parties is constituted by: (a) The Formal Agreement to which these Conditions of Contract are attached; (b) These Conditions of Contract; (c) The Contract Particulars; (d) The Works Description; and (e) The other documents (if any) referred to in the Contract Particulars. Even without such explicit provisions, it is probably true to say that the court will not confine itself to the written agreement alone in determining the variation of work within the scope of the contract: specifications, drawings, correspondence, etc, all form part and parcel of the contract. Notice: Any type of works done by the contractor with the enforcement of the employer or the consultant or with the common consent of all the parties, but which are different type of work form the one stated on the contractual document as a work description of the project and the one which do not compliant with the specification and the corresponding drawings is referred to as variation due to works. 2.5 Controls for Variation Orders 2.5.1 Design Stage Controls for Variation Orders Review of contract documents: Since Contract documents are the main source of information for any project reviewing of variation clauses in the contractual document is the first to thing to do to control variation order properly. Failing to do so may cause conflicts between contract documents which is a series problem in the project execution. Detail design revision: Changing the design of the project highly affects the progress of the work and it is a cause for cost overrun depending on the time of the change. That means

design variation at the initial stage it is not as such costly but design change made in the mean time of the construction work significantly affect the project. Therefore, freezing the design is a strong control method to avoid the problems related to variation in design. Value engineering at conceptual phase: During the design phase, value engineering can be a cost saving exercise, as at this stage, variation in any design element would not require rework or demolition at the construction site. Therefore, Value engineering at the conceptual stage is good mean of controlling variation order in the construction projects, especially after the project is on the process. Involvement of professionals at initial stages of project: Involvement of experienced professionals during the design phase may assist in developing better designs. This is because of the fact that experienced professionals contribute their creative idea form their past experience. Practical ideas that are not accommodated during the design phase may affect the project adversely. Variation during the construction phase is a costly activity as it may initiate numerous changes to construction activities. Employers involvement at planning and design phase: In the planning and design phase the employer of the project has to be consulted properly in order to avoid any design change in the mean time of the construction process. This is done to clearly know the project objectives by the employer from the beginning. Hence, this may help in eliminating variations during the construction stage where the impact of the variations can be severe. Involvement of contractor at planning and scheduling process: In the planning and scheduling process if the contractor is involved it is better to develop better plan and schedule. This is done to substantiate the plan and schedule prepared by the consultant. Clearly know the project objectives by the owner from the beginning. Eventually, this may eliminate the major variations in the later stages of the construction project where the impact of the variations can be severe. Thorough detailing of design: A detail design including detail drawings is more easer to control variation order. This would also assist in identifying the errors and omissions in design at an early stage. Eventually, thorough detailing of design can eliminate variations arising from ambiguities and errors in design. Clear and thorough project brief: A clear and thorough project brief is an important control for variations in construction projects (OBrien, 1998) as it helps in clarifying the project objectives to all the participants. Eventually, this may reduce the design errors and non compliance with the owners requirements.

Reducing contingency sum: The provision of a large contingency sum may affect the participants working approaches. This is because the designer may not develop a comprehensive design and would consequently carry out the rectifications in design as variation orders during the later stages of the construction project. Therefore, reducing the contingency sum would be helpful in ensuring that the professionals carry out their jobs with diligence. 2.5.2 Construction Stage Controls for Variation Orders Clarity of variation order procedures: knowing the procedure of variation order at the construction phase is an important control mechanism of variation order. At the Early stage of the project life, the procedures should be identified and made clear to all parties. Written approvals: verbal variation order may lead the contractor at risk because there is no way to have a legal proof to get compensation of cost for the varied work. So a good way of controlling this type of problem is for every variation in the original price must be approved in writing by the owner before the actual variation order is made. Variation order scope: From the very beginning, the scope of the work has to be defined clearly. This will help to identify variation of scope form vibration due to design development and help to minimize the adverse effect of variation on the construction due to change in scope of the work made after the commencement of the construction. Thus, the effective definition of the scope of work is of paramount importance to identify and manage variations. Variation logic and justification: Good knowledge of a logical approach to settle vibration order and giving appropriate justification for a given vibration helps professionals in promoting beneficial variation and eliminating detrimental variations. Project manager from an independent firm to manage the project: If the project manager is from independent firm, process of decision making is not yet affected by external factors and design discrepancies are reduced by early reviewing of the contract documents and drawings. Thus, this helps to eliminate variations that arise due to lack of coordination among professionals. Restricted pre-qualification system for awarding projects: during the biding process to select the capable/qualified contractors using a competitive selection method and a restricted pre-qualification system for awarding projects is very crucial to control a variation order in construction. Failing to do so may allow incapable parties to bid. This may eventually lead to numerous problems in the later stages of a construction project.

Employers involvement during construction phase: Involvement of the employer during the Construction phase keep him aware of the ongoing activities. This also keeps the employer in position to make prompt decision and promptly approve the variation order. Avoid use of open tendering: Competitive open tendering usually encourages the main contractor to price very low to win the contract, especially in bad times when they are in need of jobs. This practice would give rise to the contractor trying to claim more to compensate for the low price (Chan and Yeong, 1995). Avoiding the use of open tender would assist in eliminating the risks of unfair bids. This may eventually help in eliminating variations that may arise due to the contractors bidding strategy. Use of project scheduling/management techniques: knowing the very possible effect of variation and applying a good controlling mechanism of variation in a construction industry is a good management skill. At the same time using the most known scheduling techniques in construction management just like CPM, PERT and so forth will alleviate the associated cost and schedule impact due to variation order. Comprehensive documentation of variation order: To have the right and to keep the options to pursue a subsequent claim or to defend against the claim, a comprehensive documentation of variation order is very important. This will assists in tracking the effects of the variation and claim events on time and cost. A documented source of knowledge about previous variation orders would be helpful in making decisions concerning the appropriate handling of variation orders. 2.5.3 Design-Construction Interface Stage Controls for Variation Orders Prompt approval procedures: The most series problem in process of variation order is the time elapsed between the time when the first variation order is announced and the time when the matter is finally rejected or approved. If the decision is not implemented soon there is a high cost overrun. To control this adverse effect of variations in the construction project a prompt approval procedure is required. Ability to negotiate variation: Ability to negotiate variation is the most cheaper and effective control mechanisms of handling a variation order. Effective negotiation can minimize the negative impacts of the variation. There are certain skills required for effective negotiation of variation orders, i.e., the knowledge of contract terms, project details, technology, labor rates, equipment, methods and communication skills. Valuation of indirect effects: Consequential effects can occur later in the downstream phases of a project. Therefore, it is essential to acknowledge this possibility and establish the

mechanism to evaluate its consequences. Indirect effects of variations can be substantial in the downstream phases of a complex project (Fisk, 1997).Professionals should thus evaluate the total overall effects a change may have on the downstream phases of a project, to manage the variation order effectively. Team effort by employer, engineer and contractor to control variation orders: The team effort of the most comm. construction parties is very important in controlling variation order which after the project adversely. If there is well coordination among the parties the adverse effect due to variation order is easily managed at the early stage. Utilize work breakdown structure: Adverse effects of variation order in construction especially in a complex project can be easily controlled using a work breakdown structure (WBS) and it is a power full controlling mechanisms to solve the problem related to variation of works/activities. If a variation involves work not previously included in the WBS, it can be logically added to the WBS and its relationship with the other WBS element can be easily checked. Continuous coordination and direct communication: Poor communication and coordination by the contractor with the other parties or Lack of communication in construction business may initiate variation because of misunderstandings, conflicts or disputes. If the project manager develop a poor communication skill, he /she cannot manage variation even at the early stages of construction but it can be done with due diligence in coordination and frequent communication. Comprehensive site investigation: site investigation during the briefing stage of construction is very important to develop proper plan for construction activities. Therefore, a comprehensive site investigation would help in reducing potential variations in a project. Use of collected and organized project data compiled by employer, engineer and contractor: Good documentation of a variation orders by the employer, consultant and contractor a means to control a variation order because they can be used as a reference. Knowledge-base of previous similar projects: If professionals have a knowledge-base established on past similar projects, it would assist the professional team to plan effectively before starting a project, both during the design phase as well as during the construction phase, minimize and control variations and their effects. Comprehensive analysis and prompt decision making through computerized knowledge-based decision support system: The knowledge-based system would be helpful in presenting a comprehensive scenario of the causes of variations, their relevant effects and

potential controls that would assist in decision making at the early stage of the variations occurring. 2.5.3 Valuation of variations and Value engineering Valuation of variation All extra or additional work done or work omitted by order of the engineer shall be valued at the rates and prices set out in the contract if, in the opinion of the Engineer, the same shall be applicable. If the contract does not contain any rates or prices applicable to the extra or additional work then suitable rates or prices shall be agreed upon between the engineer and the contractor. In the event of disagreement the Engineer shall fix such rates or prices as shall, in his opinion. Be reasonable and proper. Therefore, fix such rates or prices by the engineer or by the client approval for price fixation for a varied work is a valuation of variation. Value engineering Value Engineering is a systematic effort for analyzing the functional balance between cost, reliability and performance of a product, project, process or service. It is conducted by the team of multidisciplinary professionals. The value engineering team is independent of the design team, but its members must have experience in the particular field of the project in question. Working as an extension of the design team, the VE team analyses the project from a function/cost standpoint, providing alternative design suggestions that may improve performance, construction and life-cycle costs. They may also improve construction methods or schedules, and may introduce flexibility into operating or maintaining the project. Benefits of value engineering The main benefit obtained from effective value engineering is saving of the capital cost of the project and achieving a good return from the investment. Approach of value engineering A value engineering study combines a technical capability with a systematic and intensive approach to achieve creativity in identifying the lowest life cycle cost for the function required by the owner. The focus on total life of the project is critical, making due allowance for the impacts of the time cost of money on the one hand, and the escalating costs of labor, fuels, power and materials on the other. As mentioned, the original design process is (unavoidably) complex, involving many issues to be considered and reconsidered during planning, design, value engineering and construction. The composition of the value

engineering team is therefore crucial to its success. Leadership of the team by an experienced Certified Value Specialist is essential, and professionals with appropriate backgrounds and experience are necessary to cover the various facets of the project. Value engineering it conducted in three phases: 1. Pre study preparation phase 2. The project study work shop phase 3. The post work shop phase The Pre-study Preparation phase In this phase the owner, the designer and the value engineering team meet together to create a common level of understanding on the project objectives, schedule of activities and so forth. At this time there is also a review of data provided by the owner and the designer is done by the value engineering team. During pre study phase models of appropriate capital costs, energy costs and life cycle costs are prepared by the team leader. The project study work shop phase At this phase there is: Briefing on Value Engineering Presentation of project design by project designer Outline of project constraints Questions by value engineering team members for the designer

After this it is desirable for the owner and designer to invite the value engineering team on a brief site visit. The team then proceeds with the following basic job plan, common to all value engineering studies: Information Phase: Further familiarization of the project by the team. Creative Phase: The team lists creative ideas generated from its review of the project with the aim of obtaining a large number of ideas through brainstorming and association of creative proposals. Judgment Phase: Creative ideas are analyzed, and the team selects the best ideas for further development. Development Phase: The team prepares alternative designs with capital and/or life cycle cost comparisons of original designs and proposed alternatives. All recommendations are supplemented with written descriptions, sketches, basic design concepts, technical information and cost summaries.

Presentation Phase: The team presents an oral summary of its findings to the owner and the designer, explaining the basic ideas recommended their cost-saving implications and their attendant rationales. The post work shop phase On the last phase the team prepares a report for the owner, completed and submitted in a timely manner, such that the design process may continue. The owner and designer consider the value engineering recommendations, and jointly decide which items have merit for implementation in a revised design. In order to achieve a best result from the value engineering on has to consider the following important points.  Top level commitment and support from the owner  A qualified VE team leader and experienced members  A well managed value engineering program  An appropriate project approach based on function analysis and proven methodology  Cooperation between the owner, the value engineering team and the designer, along with empathy for the designers position 3. VARIATIONS AND THEIR REGULATION UNDER THE MDB-FIDIC AND PPA CONDITIONS OF CONTRACT AND THE APPLICABLE LAW 3.1 Variations under FIDIC The MDB-FIDIC specifies variations of contract from clause 13.1 to 13.8. According to MDB-FIDIC variations may be initiated either by engineer or by request proposal of the contractor at any time. The contractor is bounded by the decision of the engineer. The engineer shall cancel, confirm or vary the instructions. 3.1.1 Right to Vary Under MDB FIDIC clause 13.1, the engineer has the right to initiate variations by requesting or instructing the contractor to submit a proposal for variation, also has the right to decide on the request for variation proposed and submitted by the contractor. The contractor shall execute any of the variations unless he/she is promptly noticed to the engineer by stating that either the materials or goods which are required for the variation are unavailable or such a variation causes a great difference on the progress of the work. The engineer has the right to cancel the variation order, confirm and vary the instruction as well.

The contractor has no right to make any kind of changes, addition or omission to the progress of the work unless told by the engineer to do so. [Sub-Clause 13.1] 3.1.2 Value Engineering The variation request can be proposed by the contractor, if the proposal or draft by contractor has an advantage for the client in case of: I. If the contractor assume that it accelerate completion of construction works by using different methods or changing sequence in construction, which provides an advantage for the employer to be productive in short period of time. II. Reduce the cost to the Employer of executing, maintaining or operating the Works, III. IV. Improve the efficiency or value to the Employer of the completed Works, or Otherwise be of the benefit to the Employer.

For this case the contractors proposal can be approved by the engineer. If the proposal is approved by the engineer, the contractor shall design it unless it agreed by both parties. [Sub-Clause 13.2] 3.1.3 Variation Procedure Variation works instructed by engineers approval for the necessary work or for the proposal draft by contractor, the variation work will be assigned to contractor must be with formal description. If the Engineer requests a proposal, prior to instructing a Variation, the Contractor shall respond in writing as soon as practicable, either by giving reasons why he cannot comply (if this is the case) or by submitting a description of the proposed work to be performed and a program for its execution. A variation is usually effected through an instruction from the engineer. Such instructions are usually required to be in writing. Whether this is a pre-requisite to the contractor's right to recover payment will depend on whether the requirement is a condition precedent. This is a matter of interpretation of the contract. It is common enough to have provisions, as these are here, more or less stringent, saying that no extra work shall be paid for unless it is ordered in writing by the engineer, and if such conditions are properly made, and there is nothing fraudulent or iniquitous in the way they are carried out, these conditions would be quite sufficient and effectual. [Sub-Clause 13.3]

3.1.4 Payment in Applicable Currencies There are different types of payment applicable for the construction industry, this issue is mandatory especially for the international construction projects, because the contractor may not be interested to participate in tender with local currency. Under MDB FIDIC Sub-Clause 13.4 applicability of payment with different types of currencies the amount payable in each of the applicable currencies shall be specified. In order to clarify the applicability of payment the proportions of the contract prices of the various currencies should specified , that means the variation should be paid on the percentage proportion of the currency stated on the contract document.[Sub-Clause 13.4] 3.1.5 Provisional Sums Under sub-clause 13.5 of the MDB-FIDIC, it is stated that the provisional sum only are used in whole or in part, in accordance with the engineers instruction. The provisional sum includes the amount for the work done by the contractor or the sub contracting one, supplies or the services given .whenever the contractor hires a sub contracting, the provisional sums shall include the sum of the over head charges and profits of the contractor. The contractor should present any relevant data like produce quotations, invoices, vouchers and accounts or receipts when requested by the engineer. [Sub-Clause 13.5] 3.1.6 Daywork In case of minor works, the contractor may be instructed by engineer to do day work. MDB FIDIC clause 13.6 specify the payment to be done by the engineer by considering evidences from vouchers, accounts & receipts for any goods buy by the contractor. This clause pressed the contractor to give day to day accurate information to the engineer. But day work basis should be conducted as per schedule of contract agreement. The contractor should submit an accurate and detailed statement which includes the names, occupations and time of Contractors Personnel, the identification, type and time of Contractors Equipment and Temporary Works, and the quantities and types of Plant and Materials used, every day to the engineer in order to specify the payment. The engineer should sign on the copies and return them to the contractor. [Sub-Clause 13.6] 3.1.7 Adjustments for Changes in Legislation According to Sub-Clause 13.7 the Contract Price shall be adjusted to take account of any increase or decrease in Cost resulting from a change in the Laws of the Country, the judicial or official governments will interpret such laws.

If the contractor is suffering from delays or additional cost as a result of these changes, the Contractor shall give notice to the Engineer and shall be entitled to claim for an extension of time for any such delay or payment of any such Cost. Notwithstanding the foregoing, the Contractor shall not be entitled to an extension of time if the relevant delay has already been taken into account in the determination of a previous extension of time and such Cost shall not be separately paid if the same shall already have been taken into account in the indexing of any inputs to the table of adjustment data. [Sub-Clause 13.7] 3.1.8 Adjustments for Changes in Cost In the Sub-Clause of 13.8, there should be adjustment data for local and foreign currencies included in the Schedules. If there is no such of adjustment data, the Sub-Clause shall not be applied. But if there is such of adjustment data, the Sub-Clause applies, the amounts payable to the Contractor shall be adjusted for rises or falls in the cost of labour, Goods and other inputs to the Works, by the addition or deduction of the amounts determined by the formulae prescribed in the Sub-Clause. The accepted Contract Amount shall be deemed to have included amounts to cover the contingency of other rises and falls in costs. No adjustment is to be applied to work valued on the basis of Cost or current prices. The cost indices or reference prices stated in the table of adjustment data shall be used. If their source is in doubt, it shall be determined by the Engineer. For this purpose, reference shall be made to the values of the indices at stated dates for the purposes of clarification of the source; although these dates (and thus these values) may not correspond to the base cost indices. In cases where the currency of index is not the relevant currency of payment, each index shall be converted into the relevant currency of payment at the selling rate, established by the central bank of the Country, of this relevant currency on the above date for which the index is required to be applicable.[Sub-Clause 13.8] 3.2 Variation under PPA The SDB for ICB of PPA specifies variation of works under section 7 in clauses 39 and 40 as follows. Variations Sub Clause 39.1 of the PPA specifies that whenever the variation is produced is should include all relevant data included and in case of lump sum contracts, it should include the

activities schedule as well, and the variation has to be prepared by the contractor. [Clause 39.1] Payment for Variations According to Clause 40 of PPA, The Engineer has the right to make Variation, specified under the following sub clauses. Sub Clause 40.1 states, both for Admeasurements and lump sum contracts, the contractor should provide the variation request when ordered or instructed by the engineer and the engineer shall asses the variation request within seven days period from request is done or whenever of time duration stated before the variation is ordered. But for the admeasurements contracts, if the work in the variation corresponds with an item description in the bill of quantities and if, in the opinion of the engineer, the quantity of work above the limit stated in sub-clause 38.1 or the timing of its execution. [Clause 40.2] For both Admeasurements and lump sum contracts, if an engineer sees that the contractors estimate is unreasonable, he/she can make a change to a contract price, based on his or her experienced forecast. All extra or additional work done or work omitted by order of the engineer shall be valued at the rates and prices set out in the contract if, in the opinion of the Engineer, the same shall be applicable. If the contract does not contain any rates or prices applicable to the extra or additional work then suitable rates or prices shall be agreed upon between the engineer and the contractor. In the event of disagreement the Engineer shall fix such rates or prices as shall, in his opinion. Be reasonable and proper. [Clause 40.3, Clause 40.4, Clause 40.5] 3.3 Variation under Applicable Law (civil code) In the applicable law of Ethiopia (civil code), Variation of Contract is described in section 3 as follows: According to the applicable law, Variation of Contract could be done: By the contracting parties, contractual variation, the contracting parties, in principle, are free to create & vary their contractual agreement[Art. 1764,2]; or  By the Court, judicial variation, (as an exception Contracts may get their effect through judicial variation, by way of exception, however. Judicial variation of Contracts, as opposed to variation of Contract by the parties, is regulated by the applicable law. Under

the applicable law, the court may vary the terms of the contract under the following circumstances. y y Where it is expressly provided by law Where a special relationship between the contracting parties exists [Art. 1663, Art. 1764, 1 and Art. 1766]  By arbitration a third party, the parties may prefer to get a decision by the arbitrator relating to the variations, especially on the economic basis of their contract. [Art. 1765] Where one of the contracting parties is a state or of public institutions: Power of the court to vary contracts, in case of Administrative Contract due to official decision, Bringing the performance of the contract by the Contractor more onerous or Impossible y y This concept is important in relation to construction contract of public works nature. Judicial variation may apply, for ex., in case of Administrative Contracts. Therefore, the provisions of the Title of this Code relating to "Administrative contracts" (Art. 3191-3193).shall be applied [Art. 1767. and Art.3131.] Where it is partially impossible to perform the contract The court may reduce the obligations of the parties, either the employer or the contractor, whenever the performance of the other one is partially impossible and the contract has no any legal background to terminate it. [Art. 1768.]

Table similarity and differences of the MDB-FIDIC & the PPA Conditions of Contract with respect to variation N Considerations o 1 Definition of variation Similarity
According to MDB-FIDIC Variation means any change to the Works, which is instructed or approved as a variation under Clause 13 [Variations and Adjustments].( Sub-Clause 1.1.6.9) According to PPA A Variation is an instruction given by the Engineer, which varies the Works. (Sub-clause 1.1) Both of condition of contracts defined variation as varied work.

Differences
In the case of PPA condition of contracts variation is defined as only instructed by the Engineer, but in the case of MDB-FIDIC variation may be instructed or approved according to the conditions specified clause 13 of MDBFIDIC.

2 Constance of variation

According to MDB-FIDIC sub-clause 13.1 (a) up to(f) contents of are described as follow y Changes to quantities and quality of item of works y Changes to levels, positions and/or dimensions y omission of any work y any additional work, Plant, Materials or services y changes to the sequence or timing of the execution of the Works But in PPA there is no such clauses that defined the each variation may include
Under MDB-FIDIC condition of contract the engineer has right to initiate, order, confirm and cancel the variation(sub-clause 13.1) Under PPA condition of contract the engineer has right request and asses the variations (sub-clause 40.1)

Right and By obligation Engineer to vary

35

By Contractor

Under MDB-FIDIC condition of contract the right and the obligation of the contractor is stated (sub clause 13.1), but in PPA anything is sated about right and obligation of the contractor Under MDB-FIDIC the Employer has to approve the variation order by the Engineer(Sub-Clause 3.1) Under PPA there is no any clauses that state this case The concepts of value engineering are given in detail under MDB-FIDIC condition of contract (sub-clause 13.2), but nothing is stated under PPA According to MDB-FIDIC the procedure of variation begins with proposal request by the Engineer to the contractor, and then the contractor will respond this request in written form as soon as practicable. The response may be negative (if this is the case) or positive. It includes
y y y a description of the proposed work to be performed and a programme for its execution, modified programme of the contractor due to this variation (according to sub-clause 8.3) the Contractors proposal for evaluation of the Variation

By Employer 4 Value Engineering 4 Procedure of variation

Finally the Engineer shall, as soon as practicable after receiving such proposal (under Sub- Clause 13.2 [Value Engineering] or otherwise), respond with approval, disapproval or comments. (Sub-Clause 13.3) In the case of PPA condition of contract there is no clause that state the procedure of variation

4 Currency that is applicable in variation payment, if the contract involve various

MDB-FIDIC stated that the payment currency for the varied works should be based on the proportions of various currencies specified for payment of the Contract Price. (Sub-Clause 13.4) PPA also stated that Unless otherwise stated, all
36

currencies 5 The provisional sum 6 Variation of works on

Daywork basis

payments and deductions will be paid or charged in the proportions of currencies comprising the Contract Price. (Sub-Clause 43.3) For minor or incidental nature of varied works both MDB-FIDIC and PPA allows execution of these works based on daywork basis. The rate of price shall be paid based on the rate valued in the contract document in both cases. (MDB-FIDIC Sub-Clause 13.6 and PPA Sub-Clause 53.1 ) In MDB-FIDIC the contractor has the right to ask any adjustments regarding to cost and time whenever he feels that he suffers from additional cost as result of changes in the laws of the country, including introduction of new laws and modification of the existing one. But in PPA there is no clause that state this case Sub-clause 13.8 of MDB-FIDIC and Sub-Clause 47.1 of PPA gives us the following adjustment factor

7 Adjustments for
Changes in Legislation

8 Adjustments for
Changes in Cost

Definition of each terms are specified in the condition of the contract

37

4. Case Study of Three ERA Road Projects 4.1. General This chapter tries to cover a case study of three finalized road projects. The projects are selected randomly from completion report. One by one analysis of the three projects is presented as follows. 4.2. Project 1 4.2.1. Project information  Road condition and scope of the work. The existing road had a variable width of 6m to 7.5m and has now been rehabilitated to a 7m width carriageway with 1.5m wide shoulders in flat and rolling terrain whilst in the hilly and mountainous terrain the carriageway width is 6.5m with either 1m or 0.5m shoulders.  The rehabilitated pavement sections comprise of the following 35mm asphalt wearing course 40mm asphalt base or binder course 100mm crushed aggregate base course 50mm minimum depth of crushed aggregate stone base mixed with old milled existing asphalt surfacing for leveling course.  The new pavement consists of the following 50mm asphalt wearing course 175mm to 200mm crushed aggregate base course 250mm granular sub base material 130mm to 265mm selected sub grade material

38

4.2.2. Basic contract data a. Contract data for Construction contract Contract Name Type of project Employer Length Notification of Contract Date of contract signature Commencement date Original time for completion Original completion date Extension time Revised completion Date Actual final completion date Type of contract Project 1 Road rehabilitation project ERA 187Km 26 Nov 1999 28 Nov 2000 15 Mar 2001 36 month 14 Mar 2004 30.9 month 11 Jan 2007 18 Feb 2007 Ad measurement FIDIC Original Contract Price Revised total contract amount Total Value of variations Revision of price cost Final contract price Escalation Currencies/Proportion of payments Contractual exchange rate Funding Table 3.1 contract data for project 1 b. Contract data for Consultancy service ETB 289,838,439.05 ETB 482,117,075.20 ETB 192,908,804.00 ETB 59,963,756.22 ETB 618,637,579.59 ETB 59,963,756.22 ETB 30%, Euro 70% 1Euro=8.46425 ETB European Development Fund according to

39

Contract Name Employer Supervisor

Project 1 ERA Gauff Ingeneure GMBH & Co KG-JBG Consulting Engineers

Date of contract signature Commencement date Original Contract Price Revised total contract amount Original time for completion Original completion date Revised completion date Currencies/Proportion of payments

15 Mar 2001 27 Mar 2001 ETB 13, 706, 739.75 ETB 28, 441, 376.42 57 months 1 July 2005 15 Oct 2005 ETB 18%, Euro 82%

Table 3.2 consultancy service contact data for project 1 4.2.3. Contract Changes and variations

Reference Description

Extension time

of Amount (ETB)

Vo 1

Additional costs for the provision and Nil maintenance of 4 long wheel base vehicles and 4 double cabin pickups.

182,232.00

Vo 2 Vo 3 Vo 4

Rock core drilling at bridges b51 (Km Nil 315) sampling and testing cores Cleaning and de-silting of culverts

75,944.53 184,050.00 1,302,231.83

Nil

Provision of gabions, steel flanges, geo Nil textile membrane and perforated pipes for river training works at Km 335

Vo 5

Provision of additional Vehicles and Nil surveying equipment for the use of the supervisors representative

933,958.96

Vo 6

Provision of additional radio equipments

Nil

120,000.00

40

for

the

use

of

the

supervisors

representative

Vo 7

Provision of additional facilities and Nil equipments for the use of the supervisors representative

367,328.70

Vo 8 Vo 9 Vo 10 Vo 11 Vo 12

Excavation of discharge ditches to culverts Design update and additional quantities

Nil 24.42 month

628,650.00 92,093,703.19 -167,465.78 -1,320,578.80 -316,168.24

Omission of pavement works between km Nil 368+872 and Km 369+187 Omission of works between Km368+872 and Km 369+187 Provision of four wheel drive petrol engine Nil air conditioned station wagons instead of diesel engine vehicles

Nil

Vo 13 Vo 14 Vo 15 Vo 16 Vo 17 Vo 18

Revised type d1 pavement construction for rock sub grade

Nil

-547,635.75 -152,902.83 74,907,218.54 -146,974.63 -162,741.34 24,927,953.70

Omission of pavement works between Nil Km314+660 and Km315+020 Additional quantities, extended period of 2.98 month performance and associated costs Omission of works between Km203+580 Nil to Km 203+720 Omission of pavement works through Nil tunnel No, 1 Km 182+975 to Km 183+585 Additional quantities as a result of 3.5 month unforeseen, unsuitable materials encountered between Km 182 and Km 215 Extending period of performance and additional associated costs

Total Table 4.1. Variation orders at project 1

30.9 month

192,908,804.00

41

From this project we can relate and analysis the MDB-FIDIC clauses that are applicable for the above variations. The detail is given below in the table Table 4.2 Summery of Relevant MDB-FIDIC Clauses Sub-clause 13.1 Right Sub-clause 13.1(a) to vary, according to Sub-clause 13.1(b) this sub-clause has each Sub-clause 13.1(c) to Sub-clause 13.1(d) variation Contract changes and variations in project-1 Vo 4, Vo 9. Vo 15, Vo 18, Vo 9,Vo 13 Vo 3 Vo 10, Vo 11, Vo 14 and Vo 16 Vo 1, Vo 2, Vo 4, Vo 5, Vo 6, Vo 7 and Vo 12 Sub-clause 13.1(f) Sub-clause 13.2 Value Engineering In this project there is no any variations that proposed by the contractor. All design change are made by the Engineer Sub-clause 13.3 variation procedure From the information we get all variations are carried according to this sub-clause 13.3 of MDB-FIDIC Sub-clause 13.4 Payment in Applicable Currencies Even if the currencies of the contract is ETB(18%) and Euro(82%), the payment for all variation is taken place by ETB.

categorized under the Sub-clause 13.1(e) following units:

4.3.Project 2 4.3.1 Project information

42

Road condition and scope of the work  Rehabilitation of the existing road to a standard 2 lane bitumen double bituminous surface dressed road having 7m wide carriage way with 1.5m wide shoulders and 0.5m rounding on either side in flat and rolling sections and 2.5m paved shoulder and 0.5m rounding on either side in villages and small towns.  Improvement to the road side drainage system and other protective works.  Improvements, repairs and widening to the existing bridges wherever required and also other cross drainage structures besides providing new ones.  Reconstruction of superstructure of bridges to 2 lane standards with foot paths and modifying their substructures to the required extent.  Ancillary works such as housing and accommodation, vehicles, communication, laboratory etc, for the use of engineer during execution.  Soil conservation and other protective measures along the road.  Road side furniture

4.3.2

Basic contract data a. Contract data for Construction contract

Contract Name Type of project Employer Length Notification of Contract Date of contract signature Commencement date Original time for completion Original completion date Extension time Revised completion Date

Project 2 Road upgrading project ERA 120Km 12 Sept 2000 25 Oct 2000 7 Nov 2000 912 days 6 May 2003 6 May 2003 to 5 April 2004 5 April 2004
43

Type of contract Original Contract Price Revised total contract amount Total Value of variations Escalation Currency and proportion of payment Funding Table 3.4 contract data for project 2

Ad measurement ETB 223,651,990.00 ETB 227,975,527.52 ETB 4,323,537.57 ETB 57,332,209.35 ETB 20%, USD 80% African Development Bank and Federal Government of Ethiopia

b. Contract data for Consultancy service

Contract Name Employer Commencement date Original Contract Price

Project 2 ERA 14 Nov 2000 USD 812,775.00 + ETB 4,219,813.00

Revised total contract amount

USD

961,827.26

ETB

5,001,102.96 Final cost of completion Original time for completion USD 941,582.83 + ETB

4,999,935.66 13 May 2004+12 month (Defect Liability period) Revised completion date 30 April 2004+12 month (Defect Liability period) Table 3.5 contract data for consultancy for project 2

4.3.3 Contract Changes and variations

44

Reference Description

Extension time

of Amount (ETB)

Vo 1 Vo 2 Vo 3 Vo 4

Office and laboratory floor area Office furniture Survey Instruments

Nil Nil Nil

785,145.15 24,497.80 209,836.68 113,861.10

Common Kitchen and wash area for Nil janitor staff

Vo 5 Vo 6

Office/ laboratory fittings

Nil

111,712.01 115,000.00

Miscellaneous account for Engineers Nil office

Vo 7

Housing for junior staff and guest Nil houses

1,297,559.13

Vo 8 Vo 9

Office and laboratory furniture Cost of services for

Nil

39,690.80 139,087.53

additional Nil

prefabricated houses Vo 10 Vo 11 Additional mobile radio sets Nil 28,570.00 473,900.00

Lean Concrete (M 10), stone masonry Nil using already stock piled stones, stone masonry with cement mortar raito 1:3 and stone masonry with cement

maortar ratio 1:4 for which items did not appear in BOQ Vo 12 Jacking to gain access and examine Nil bearing of none bridge 1 Vo 13 Jacking to gain access and examine Nil bearing of none bridge 2 Vo 14 Clearing and refurbishing of bearing of Nil Bridge 3, apply epoxy paint, replace missing nuts and applying approved
45

40,394.55

40,394.55

15,131.76

grease between sliding plates. Vo 15 Clearing and refurbishing of bearing of Nil Bridge 4, apply epoxy paint, replace missing nuts and applying approved grease between sliding plates. Vo 16 Modification work of superstructure of Nil bridge 5 Vo 17 Vo 18 Vo 19 Total Table 3.6 variation order at project 2 4.4 Project 3 4.4.1 Project Information  Road condition and scope of work This road section has been completely rehabilitated during the execution of the project. The existing pavement was scarified/ milled and incorporated in the new road. The level of the road was raised over almost the full length to improve drainage conditions. The pavement construction consists of sub-base and base course of variable thickness. Asphalt concrete is laid in two separate layers to total thickness of 10cm. the road width is 7m carriage way with 1.5m shoulder width each side the shoulders are sealed with a single surface treatment. Corrugated metal pipe culverts have replaced existing culverts and additional pipe culverts were constructed. Unpaved ditches have been constructed in rural areas where required. Existing bridges were repaired, in one town of a by-pass was constructed, approximately 5km in length including two new culverts the same town through road is rehabilitated to sub-base level. 3.3.2 Basic contract data Providing and fixing of Km sign posts Providing and fixing of guide posts Numbering of culverts Nil Nil Nil Nil 57,567.60 553,665.00 20,460.00 4,323,537.57 249,976.07 10,087.84

Contract Name

Project 3

46

Employer Original Length Revised Length Notification of award Date of contract signature Commencement date Original time for completion Original completion date Extension time Type of contract Original Contract Price Revised total contract amount Total Value of variations Escalation Currency and proportion of payment Contractual exchange rate Funding Table 3.7 contract data for project 3

ERA 264.9Km 263.4 Km 25 July 1997 12 Sept 1997 15 Oct 1997 36 month 14 Oct 2000 12.9 month Ad measurement ETB 310,979,872.92 ETB 386,197,700.31 ETB 75,217,827.39 ETB 17,914,749.44 ETB 30.29%, Euro 69.71% 1 Euro=8.10198 ETB African Development Bank and Federal Government of Ethiopia

3.3.3

Contract Changes and variations

Reference Description Vo 1 Vo 2 Vo 3 Vo 4 Vo 5 Vo 6 Change of Vertical alignment at the Bridge approaches Change of base coarse thickness town section from Km 110 Check points Km 23+800 and 70+700 Provisional of additional vehicles Provision of transport stickers

Amount (ETB) 1,015,763.14 1,438,656.00 1,119,060.27 1,890,519.47 30,328.20

Provision of thermoplastic lane markings and reflective 1,728,270.00

47

road studs Vo 7 Vo 8 Vo 9 Vo 10 Vo 11 Vo 12 Vo 13 Vo 14 Road traffic signs Full width sealing shoulders Additional quantity of base course layer Km 110-Km275 Improvements to vertical alignment of a one town by pass Traffic control at a river bridge Improvement to the ring road Painting of kerbed median and traffic islands 472,654.93 296,800.00 5,815,584.00 1,375,663.60 142,485.00 2,273,567.24 202,260.60

Provision of temporary additional vehicles for the 85,500.00 supervisor

Vo 15 Vo 16 Vo 17 Vo 18 Vo 19 Vo 20 Vo 21 Vo 22 Vo 23 Vo 24 Vo 25 Vo 26 Vo 27 Vo 28 Vo 29 Vo 30 Total

HIV/ AIDS education campaign Additional as built drawings Temporary repair of rail way crossing (Km 31+500) Provision of road furniture materials to ERA stores Deletion of road section from Km 10+500 to 12+160 Change of vertical design Km 261+360 to Km262+790 section Quantity changes de to finalized geometric design Change of layout of town sections Additional bus parking lay-bys for schools outside town

324,786.00 16,583.78 13,225.10 215,459.96 -2,092,773.99 1,633,944.80

Optimizing and detailing of vertical alignment of a town 9,148,815.17

3,743,905.70 -620,977.85 165,373.61

Provision of foot ways widening of parking lanes in town 6,250,719.32 sections Additional drainage works at a town junction Additional major and minor junctions Additional minor junctions and other works Provision of heavy duty parapet railing on a bridge Partial rehabilitation of the existing one town road 927,319.52 3,675,492.93 3,256,403.48 281,763.18 684,373.41 75,217,827.39

Table 3.8 variations order at project 3

48

49

50