Dealing with Errors, Divergencies and Discrepancies in Variations

The scenario

We put forward the following scenario to Jason Farnell, Adjudicator and CEDR Accredited Mediator.

“I’m working on an amended JCT D & B Subcontract where we’re contracted to clad the entire building envelope from Ground to Roof.

An area of our scope had an inconsistency – part of the Ground Floor was designed with a toggle system but the specification called for Annealed Glass which is technically incompatible: with a toggled system you must have Heat Strengthened or better.

The Specification states that Heat Strengthened Glass is to be avoided and contractually, the specification takes precedence over the Design Intent (Toggled). Moreover, the rest of the Ground Floor is Annealed and therefore in accordance with the specification.

We submitted in accordance with the specification, but the client gave us C Status until it became critical on site. After multiple design meetings the Client insisted on the Toggle System with Heat Strengthened Glass.”

We asked Jason the following questions:

1. Given that the designed system is incompatible technically, are we correct in ignoring the C Status and if so, what should we have done when this was received.
2. The Specification is precedent and says Heat Strengthened Glass is to be avoided on the Ground floor. Despite this, the Design Intent shows toggled. is this a Variation? The client is refusing to issue an instruction confirming the change – do we need one or are Design Meeting Minutes acceptable?
3. Are we entitled to claim for an extension of time for this matter?

The overall delay will be 5 months – we’re concurrently late by 3 months on the Ground Floor. If we’re entitled to an extension of time for the full 5 months, are we only able to apply for loss and expense for the period we’re not concurrently delayed i.e. 2 months (5 minus 3).

Initial thoughts

This is a nutty little problem and revolves around the area of ‘errors, discrepancies and divergencies’ – an often overlooked source of changes in work scope and entitlements to additional payment, time for performance and compensation.

The scenario does not specify which version of the JCT D&B sub-contract applies, nor whether the amendments affect the apportionment of risk under an unamended form of contract. I will therefore base my comments on the JCT Standard Building Sub-Contract with sub-contractor’s design 2016.

Under Clause 2.10 the sub-contractor is required to give a notice if he becomes aware of an error, omission, discrepancy or divergence ‘in or between’ the various classes of documents listed (i.e. Sub-contract Documents; the Main Contract; any direction issued by the Contractor; and the Sub-contractor’s Design documents).

If the discrepancy or divergence is within or between the Sub-contractor’s proposals and the Sub-contractor’s design documents then in the notice the Sub-contractor will set out its proposal to remove it; and the Contractor will issue direction, which the Sub-contractor is obliged to comply with and to the extent that the direction relates to the removal of the discrepancy or divergence the Sub-contractor is not entitled to an adjustment in the Final Sub-contract sum (Clause 2.11.1). The Sub-contractor identifies the issue, suggests a solution to it, which the Contractor confirms, if it is acceptable, and the Sub-contractor is not entitled to any additional payment. This is not a variation and neither is it a ground for an extension of time.

Where, however, the discrepancy or divergence is within the Contractor’s Requirements, the Sub-Contractor’s Proposals shall prevail and again there is no adjustment to the Final Sub-contract Sum. The Sub-contractor identifies an issue with the Contractor’s Requirements, which is dealt with in the Sub-contractors proposals and therefore there is no entitlement to additional payment, since this is already included in the Sub-contractor’s offer. But, where the Sub-contractor’s proposals do not deal with the discrepancy or divergence in the Contractor’s Requirements then the Sub-contractor shall notify the Contractor of its proposal to remove it and the Contractor shall either agree to that proposal or decide itself how it is to be dealt with; and, in this instance that agreement or decision is treated as a Variation (Clause 2.11.2). This means that the Sub-contractor is entitled to have the Variation valued in accordance with the Valuation Rules (Section 5); and where applicable the Variation will be treated as a Relevant Event (Clause 2.19.1) and a Relevant Matter (Clause 4.16) entitling the Sub-contractor to an appropriate extension of time and to recover loss and expense associated with it.

That is what the contract provides and it is a matter of applying these principles to the circumstances set out by our correspondent!

“An area of our scope had an inconsistency – part of the Ground Floor was designed with a toggle system but the specification called for Annealed Glass which is technically incompatible: with a toggled system you must have Heat Strengthened or better.”

This seems to be a straightforward case of there being a discrepancy between two documents which would appear to be Sub-Contract Documents and from their description I take these to be documents issued to the Sub-Contractor to price upon (i.e. Contractor’s Requirements).

The area of the ground floor designed to have a toggle system should be glazed with heat strengthened glass, not annealed as defined in the specification.

“We submitted in accordance with the specification, but the client gave us C Status until it became critical on site. After multiple design meetings the Client insisted on the Toggle System with Heat Strengthened Glass.”

My understanding of what is being said is that the sub-contractor has either prepared its drawings or made a technical submission, presumably as part of its obligation under the sub-contract to ‘complete the design’. In compliance with the specification the Sub-contractor has shown annealed glass as being installed into the ‘toggle system’ element of the ground floor.

It is not made clear whether the sub-contractor had made any earlier submissions, at say tender stage showing Heat Strengthened glass was to be installed in the ‘toggle system’ element, or whether the ‘technical incompatibility’ was merely undesirable rather than unachievable. For the present purposes, I will assume that no such submissions were made and that neither was there a situation in which the specialist might have a ‘duty to warn’. In other words, it was reasonable for the Sub-contractor to have submitted its design submission as it had, showing annealed glass.

The reference to ‘C Status’ being given is presumably a reference to the design approval process under which ‘A Status’ would signify ‘approved for construction’; ‘B status’ would signify ‘approved for construction subject to incorporation of comments’; and ‘C Status’ being ‘Rejected – resubmit for approval incorporating required amendments’

The Client’s ‘insistence’ that Heat Strengthened Glass should be incorporated into the ‘Toggle System’ element appears to be a direction by the Contractor removing the discrepancy between the design information and the specification. As such it would give rise to a Variation under the Contract.

1. Given that the designed system is incompatible technically, are we correct in ignoring the C Status and if so, what should we have done when this was received.

When the Sub-contractor’s technical submission was rejected by the Client, the Sub-contractor ought to have pointed out that its submission was in accordance with the Sub-contract documents and also notified the Client that there was a discrepancy in the Sub-Contract documents and requested that the Client should decide how the discrepancy should be dealt with. That decision would then be treated as a Variation.

2. The Specification is precedent and says Heat Strengthened Glass is to be avoided on the Ground floor. Despite this, the Design Intent shows toggled. is this a Variation? The client is refusing to issue an instruction confirming the change – do we need one or are Design Meeting Minutes acceptable?

It seems to be clear that there is a discrepancy in the Sub-Contract Documents and as I have already said, by removing the discrepancy through deciding which of the competing documents is correct (i.e. annealed glass v heat treated glass), the Client will be deemed to have instructed a change, which is a Variation.

If the Client is refusing to issue a formal direction, for which there is no prescribed form in any event, then the Sub-Contractor may be able to rely upon the minutes of the Design Meetings depending upon what they actually say. If the Sub-contractor is not satisfied that the minutes might be reasonably construed as a direction then it would be better for the Sub-contractor to write to the Client confirming the terms of the direction and if the Client does not dissent then its letter will have the same effect as a direction from the Client.

3. Are we entitled to claim for an extension of time for this matter?

Where a direction to remove a discrepancy is treated as a Variation then, as set out earlier, where the Sub-contract works have been critically delayed as a result of the Variation, it will be treated as a Relevant Event entitling the Sub-Contractor to an extension to the period for carrying out the Sub-contract Works.

“The overall delay will be 5 months – we’re concurrently late by 3 months on the Ground Floor. If we’re entitled to an extension of time for the full 5 months, are we only able to apply for loss and expense for the period we’re not concurrently delayed i.e. 2 months (5 minus 3).”

It would be usual for Loss and Expense to be recoverable solely for the period where the Sub-contract Works have been delayed by the Client and not for periods where there are competing delays of the Sub-contractor’s own making.

In my experience it is easy for contractors to overlook the errors, discrepancies and divergencies clauses included in contracts and it is another clarion cry for contractors o ensure that they understand what they have contracted to provide and to be alive to changes being imposed without formal instructions being issued, particularly in design and build arrangements where change is frequently dressed up as ‘design development’.

This piece was contributed by J P Farnell, FRICS, FCIArb, Adjudicator, CEDR Accredited Mediator March 2018

About Paul Heming

Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.