Variation Orders and Provisional Sums: How to Stop Surprise VOs on Singapore Building Works

Ask owners what they dislike most about building works and many will say the same thing: the job came in at one price and finished at another. The difference arrives as a stream of variation orders (VOs), some expected, many not, often with an argument attached about whether the work was “in the original scope”.

Surprise VOs are rarely a mystery. They come from a short list of causes: scope that was never fully defined, items quietly excluded from the quotation, provisional sums used as placeholders for decisions not yet made, and conditions hidden behind walls, ceilings and floors. Economists who study procurement call this the cost of incomplete contracts, and they have measured it.

This guide explains where VOs come from, how the main pricing methods allocate the risk, the difference between provisional sums, prime cost sums and contingency, how variations should be instructed and valued, and how to compare quotes so that the lowest price is really the lowest. It refers to the public sector form PSSCOC (Public Sector Standard Conditions of Contract) where its wording is a useful model, and to Singapore case law on written instructions.

Why surprise VOs happen

Contracts are always incomplete

No drawing set or specification describes every detail of a building job. Bajari, Houghton and Tadelis studied highway paving contracts and found that contracts are routinely renegotiated after award because changes are needed. They estimated that the resulting adaptation costs were 7.5–14% of the winning bid, and that bidders anticipate this and adjust their bids strategically.² On small refurbishment work, where the existing building is part of the unknown, the incompleteness is usually greater, not smaller.

Change also drives time. In a survey of large construction projects, Assaf and Al-Hejji found that “change order” was the most common cause of delay identified by owners, consultants and contractors.¹ Our guide on the cheapest quote vs delay risk shows how scope growth and delay combine in the owner’s total cost.

The five usual sources

The winner’s curse makes the second and fourth sources worse. The term comes from a 1971 study of oil-lease auctions, which observed that the winning bidder tends to be the one whose estimate erred most in the optimistic direction.⁸ In construction tendering, the lowest bid is correspondingly more likely to have under-estimated the uncertain parts of the work. Dyer and Kagel found that experienced construction executives fell prey to the curse in laboratory auctions but did well in real tendering, partly because the industry has mechanisms that let a contractor recover after bidding too low.⁹ Variations are one of those mechanisms.

How the pricing basis allocates the risk

Lump sum, remeasurement and the alternatives

Under PSSCOC 2020, the Contract Sum is a lump sum that is “fixed subject only to adjustments expressly provided for” in the conditions, and the contractor is deemed to have satisfied itself of the sufficiency of its tender.³ Where the optional bills of quantities module is used, the quantities are treated as estimates: differences in quantity or description are treated as variations and valued at bill rates or rates analogous to them, and items marked as provisional quantities are remeasured on completion.³

The private-sector SIA suite similarly distinguishes the SIA Building Contract 2016 Without Quantities and With Quantities forms.⁵ The practical distinction for an owner: in a “without quantities” contract, the contractor takes the risk of measuring the work from the drawings; in a “with quantities” contract, the owner (through its quantity surveyor) takes the risk of errors in the bills.

The itemised quotation as a mini bill of quantities

Most small A&A and fit-out jobs are let on a contractor’s quotation, not on bills prepared by a quantity surveyor. An itemised quotation (each trade broken into items with quantity, unit and rate) does three useful things:

1. It shows what is included, so gaps are visible.
2. It provides rates for valuing variations.
3. It allows like-for-like comparison between contractors.

A single-line quotation (“Renovation works as discussed: S$85,000”) does none of these, and every later dispute about scope becomes an argument about what was “discussed”.

Provisional sums, prime cost sums and contingency

These three are often confused, and the confusion is a common source of surprise.

A provisional sum stands in for work that cannot yet be priced; it is replaced by a valuation of the work actually done, so the final account can go up or down.⁶ Industry practice distinguishes “defined” provisional sums (described enough for the contractor to allow for programme and preliminaries) from “undefined” ones (where the contractor cannot reasonably make that allowance).⁶ The distinction matters for time as well as cost.

PSSCOC 2020 defines “Provisional Sum Items” as items of work executed only on the Superintending Officer’s written instruction, who may decide the work is to be done in whole, in part, or not at all; instructed provisional sum work is valued under the normal variation rules. An instruction on a provisional sum item gives an extension of time only to the extent that it varies the work described.³

A prime cost sum is an allowance for a nominated or selected specialist’s work or goods. The contract sum is adjusted to the specialist’s actual price, plus the contractor’s agreed percentage for overheads and profit and its attendance.⁶ Owners are often surprised by attendance costs (scaffolding, power, hoisting, protection, coordination) that the main contractor adds for a specialist it did not choose.

Scope definition before tender

The cheapest variation is the one that never arises. For a typical A&A or fit-out job, a tender package that minimises VOs includes:

• Drawings: layout, reflected ceiling plan, partition types, elevations of feature walls, M&E layouts.
• Finishes schedule: every surface, by room, with product, colour and standard.
• Specification or preambles: workmanship standards, testing, protection, cleaning.
• Inclusions and exclusions list: written by the owner, not left to each contractor.
• Interfaces: what the landlord, building management or other contractors provide, and what this contractor must coordinate.
• Statutory items: which approvals the contractor must obtain and which the owner’s consultants will handle (see which approvals A&A works need and fire safety approvals for fit-outs).
• Building rules: working hours, noise restrictions, loading-bay bookings, protection requirements and deposits.
• Reinstatement obligations: for tenants, what must be removed at lease end (see office reinstatement).

Site surveys and concealed conditions

Who carries the risk of what cannot be seen?

On A&A and refurbishment work, the existing building is the largest unknown. Typical concealed conditions include services embedded in walls and slabs, previous unauthorised works, non-standard construction, deteriorated substrates behind finishes, and structural elements that differ from record drawings.

Standard forms deal with ground risk more clearly than with building-fabric risk. PSSCOC 2020 deems the contractor to have inspected the site and satisfied itself before tendering, but its adverse physical conditions clause (clause 5.2) allows extra time and cost for physical conditions that could not reasonably have been foreseen by an experienced contractor, encountered in the course of sub-surface works, subject to notice.³ That wording does not obviously extend to conditions hidden above ground in an existing building.

For a fit-out or A&A contract, the practical answer is to allocate concealed-condition risk expressly:

• carry out a joint site survey, and record it with photographs;
• where the risk is significant, pay for opening-up works before tender (small inspection openings in walls, ceilings or floors);
• name the conditions the contractor is deemed to have priced (for example, “making good existing plaster up to X m²”) and those that will be treated as variations;
• set a re-measurable provisional quantity for the uncertain item instead of a vague provisional sum.

How variations should be instructed

Written instructions

A variation should be instructed in writing by a person with authority under the contract, before the work is done. PSSCOC 2020 is a useful model:³

• A variation is any change in the original contract intention as deduced from the contract as a whole, including changes in quantity, additions or omissions, changes in character or quality, changes in levels and dimensions, removal of work no longer wanted, and acceleration to an earlier completion date. Work needed to cure the contractor’s own default is excluded.
• The Superintending Officer may instruct a variation in writing at any time. If the contractor considers that an instruction not labelled as a variation does require one, it must say so in writing within 14 days, and the Superintending Officer may then confirm, modify or rescind the instruction.
• Before instructing, the Superintending Officer may require the contractor to submit a quotation at its own cost. If the quotation is accepted, it fixes the valuation, and the contractor cannot also claim loss and expense for that instruction.

The quotation-first route is the single most effective protection against surprise VOs. It turns an open-ended claim into an agreed price, before the owner is committed.

What Singapore courts say about oral instructions

Many contracts say variations must be instructed in writing. Whether that bars payment for work done on oral instructions depends on the drafting.

Earlier High Court decisions went the other way on different wording: in Fongsoon Engineering v Kensteel Engineering [2011] SGHC 82, a written variation order was held to be a condition precedent and the variation claims failed.⁴ The lessons are symmetrical:

• Owners who want written instructions to be a precondition to payment must say so expressly, state the consequence, and set a deadline for the contractor to seek written confirmation.
• Contractors should not rely on courts reading an unclear clause in their favour. Confirm every verbal instruction in writing, the same day if possible.

How variations are valued

The valuation hierarchy

Where no quotation has been agreed, the contract’s valuation rules apply. PSSCOC 2020 clause 20.1 sets a typical hierarchy:³

PSSCOC also requires the contractor to carry out instructed variations pending valuation, sets 30-day and 60-day steps for submitting and certifying the valuation once the varied work is substantially complete, and deems the contractor to accept the Superintending Officer’s valuation if it does not give notice of disagreement within 30 days.³ A later amendment allows the Superintending Officer to replace a schedule-of-rates rate that is grossly excessive or inadequate with a fair market rate.³

Where a contract is silent on valuation, the Security of Payment Act’s default for progress claims is to value work having regard to the contract price, other contract rates, and agreed variations, or failing those, prevailing industry rates.⁷

Dayworks

Dayworks pay for work by recorded resources (hours of labour, plant and materials) rather than by measurement. They suit small, unforeseeable tasks that cannot be priced in advance, such as investigating a leak or removing an unexpected obstruction. They are expensive, because the owner pays for time rather than output.

Under PSSCOC 2020, the Superintending Officer may order variation work on a daywork basis in writing, the contractor must give advance notice whenever it proposes to carry out daywork, and submitting daywork sheets (man-hours per day, plant and materials) within 3 days is a condition precedent to payment.³ A private contract can borrow these rules: written authorisation, advance notice, daily signed sheets, and agreed daywork rates in the quotation.

Comparing quotes properly

Normalisation

Quotes are only comparable if they cover the same scope. Normalising means adjusting each quote so that it does.

Worked example (Illustrative)

All figures are Illustrative.

The lowest headline price becomes the highest once exclusions are priced. Quote Z is lowest after normalisation, and Quote Y, the highest headline, is within 2% of it. The next step is to weigh delivery record and programme, as in our cheap quote vs delay risk guide and the delay-risk simulator.

Red flags in quotations

Variations, payment and SOPA

In Singapore, variation claims usually flow through progress payment claims subject to the Building and Construction Industry Security of Payment Act. A respondent who disputes a variation must say so, with reasons, in the payment response; objections not raised there generally cannot be raised later in adjudication.⁷ Claims for damage, loss or expense must be supported by an agreement on quantum or a certificate required by the contract, or the adjudicator must disregard them.⁷ Keeping a variation register with agreed amounts makes both sides’ SOPA position clearer. See SOPA for owners and contractors.

Summary

• Surprise VOs come from incomplete scope, exclusions, placeholder provisional sums, concealed conditions and owner changes. Research estimates post-award adaptation costs at 7.5–14% of the winning bid on highway contracts.
• A lump sum is fixed only for the scope described. The more complete the description, the more fixed the price.
• Provisional sums replace undefined work; PC sums cover selected specialists plus mark-up and attendance; contingency is the owner’s reserve.
• Allocate concealed-condition risk expressly on A&A work; standard ground-condition clauses may not cover it.
• Instruct variations in writing, priced before the work starts. Whether a written-instruction clause bars payment for oral instructions depends on stringent drafting.
• Compare quotes on normalised totals, not headline prices.