Changes in building contracts governed by the YSE 1998 terms
The Finnish General Conditions for Building Contracts (YSE 1998) govern the majority of construction contracts concluded in Finland. One of the most relevant issues covered by the terms is how to deal with changes to building plans during a construction project. Depending on the type of project and the level of detail of the plans the typical amount of modifications occurring during a construction project is estimated at 2-10% of the contract price.
The most common types of disputes involve
whether the requested works constitute a modification,
whether the requested change is permitted under the contract or under the governing law,
and ultimately the contractor’s right to claim additional compensation.
Obligation to implement a modification
Changes to the design, deficiencies in the plans or surveys or changes in construction regulations may, among other things, trigger the need to make changes to a construction contract in the course of the project. The YSE terms stipulate a procedure which applies when the original contract does not contain a mechanism to handle changes to the building plans or other additional works.
The YSE terms draw a distinction between modification works and additional works. Modification works result from a change in a plan referred to in the contract. The modification may be either a change, increase or reduction of works. Additional works, on the other hand, are works carried out by the contractor which did not originally form part of the obligations agreed under the contract. For example, if the parties agreed on the installation of piping in a building, piping works in the yard area would likely qualify as additional works. On the other hand, the addition of further piping interfaces to the systems installed inside the building could be considered as modification works.
Under the YSE terms, the contractor is obliged to carry out the modification works requested by the client. The contractor may refuse to do so only if the requested modification would significantly alter the nature of the building contract work.
Under the YSE terms, the contractor is entitled to an increase in the contract price provided that there is an increase in contractor’s obligations due to modification of the building plan. Such modification must be first indicated to the contractor by the client. In order to agree on the price adjustment, the contractor must submit a tender for the modification work. No modification work may be commenced before agreement in writing has been reached on the content of the modification and its effect on the building contract – unless execution of the relevant works is instructed as disputed works (see below).
The YSE terms contain no obligation to implement requested additional works. The parties may freely agree on the price, the time of completion and the impact on the project schedule. If no agreement is reached the contractor is not obliged to carry out the additional works – again with the exception that disputed works may be instructed.
If the parties are in dispute over the nature of the work – i.e. whether it qualifies as modification or additional work – or if the parties cannot agree on the consequences of a modification in terms of price and/or schedule, the YSE terms provide that if the client so requests the contractor must complete the requested work.
The idea is that the dispute should not endanger the project under any circumstances. The consequences in terms of costs and schedule must then be determined later – if necessary, in litigation or arbitration.
If the client orders the execution of disputed work, the contractor should in any event provide the client with an offer in respect of the work the contractor regards as additional. The client then bears the risk that the work is to be compensated as if an agreement regarding reasonable compensation has been achieved.
If it is entirely obvious that the work demanded by the client is additional work, the contractor may also in some cases have grounds to terminate the contract instead of carrying out the additional work. But this is a risky road to take.
In practice it has often proven difficult to follow the formal procedural rules and the written requirements of YSE terms at the construction site. There could be several reasons for the parties to deviate in practice from YSE’s formal requirements. For example, the project schedule may be so tight as to make it impossible for the parties to follow the formal agreement procedure, the client may have failed to indicate a modification to the contractor, or the parties have decided to agree on the modification verbally.
If no written agreement on the price of the modification is concluded, the contractor risks losing the right to claim payment for the work done – even if it is not disputed that the works were modifications to the original plans.
Furthermore, even if the client fails to indicate a modification to a contractor, the contractor may under certain circumstances lose its right to claim payment if no written agreement is made. The Supreme Court has highlighted the contractor’s responsibility to identify and price the modifications involved.
The parties may, however, agree on a procedure that differs from the YSE requirements. Whether, and to what extent, a verbal agreement or an established site practice for contract modifications can overrule the formal written requirements laid down in the YSE terms, depends on the factual circumstances. The previous practice of the parties, the necessity of carrying out the work, and the benefit of the work to the client may all be of importance when considering setting aside contractual procedures.
Obviously, these considerations are mostly relevant for evaluation after the fact. In a prudently managed project, if it is anticipated that it will be impossible to follow the requirements set out in the YSE terms (or the contract), it is advisable to agree in advance in writing on any deviations from such requirements.