Contract variations: a short guide

Think about the rest of the contract

Where the proposed change only relates to one or two provisions of the contract, it's easy to overlook the potential knock-on effects on other provisions.

For example, in Unaoil v Leighton (2014), a dispute arose over a contract for oil infrastructure in Iraq. The original contract price was about $75 million, with a liquidated damages clause providing for recovery of about $40 million in the event of breach. However, when the price was later reduced to $55 million, no corresponding adjustment was made to the $40 million liquidated damages figure. This led to a finding that the liquidated damages clause was “extravagant and unconscionable” and could not be enforced, based on the rule against penalties. It is therefore critical to consider the impact of any changes on other provisions which may also need adjustment, such as:

• Termination provisions;
• Liability provisions (including liquidated damages clauses);
• Payment provisions; and
• Service levels/standards.
  
  

Avoid "informal" variations

Many contracts specify that all variations must be in writing, signed by both parties. In Rock Advertising v MWB (2018), the Supreme Court ruled that such clauses will usually be sufficient to prevent oral variations being regarded as valid – so if you don't comply with the formalities specified in the contract, you run the risk of the other side not being bound by the variation.

As the following case demonstrates, there are also sound practical reasons for adopting a reasonable degree of formality when dealing with variations:

Don't forget consideration

Make sure that you deal with consideration i.e. the need for each party to promise something of value in return for the other's obligations. Without consideration, a variation will not be binding on the other parties.

If all parties are agreeing to make changes which go beyond what they were originally required to do, that may be sufficient.

However, if in doubt, the safest approach is to include "token payments" of e.g. £1 (to be paid by any party which is not agreeing to undertake additional obligations). This is particularly important where some parties are only agreeing to give up rights, rather than to undertake new or different obligations.

Making the variation by deed avoids the need for consideration altogether, but this involves additional formalities – so in practice, the "token payments" approach will often be easier.

Consider restating the whole agreement

Finally, where you have a large number of amendments, it may be worth producing a version of the agreement as amended for ease of reference. This is usually done by the parties agreeing to adopt an amended and restated version of their original contract.