Wednesday, May 2, 2012


Frequently on LinkedIN individuals will ask questions about the difference in the meaning of certain terms. The most recent one was the difference between variations and contract amendments. One of the problems is there really is no common set of terms that are defined and are accepted around the world. Probably the closest there is to that is INCOTERMS, which are delivery terms that are published by the International Chamber of Commerce. Even then to be safe and to make sure that definition applies, when you use one of the defined INCOTERM delivery terms in your agreement, it is best to also point to the specific INCOTERM. As INCOTERMS are updated periodically when you refer to it in the agreement, you should also specify which revision of INCOTERMS you want to apply. For example: “All deliveries shall be Ex-Works Supplier’s dock in Taipei, Taiwan as that term is defined in INCOTERMS 2010.”

As to the original question about the difference between variations and contract amendments, “variations” is usually a clause found in contracts that follow the UK contracting approach. In the U.S. and other locations we would refer to the same thing as “Changes”. For both variations and changes there are multiple types of changes that can occur. For example, in some industries such as construction, an owner may want the right to make unilateral changes to the scope, drawings or specifications. This right is to avoid delays in construction where a decision may need to be made immediately to avoid having work performed that may need to be demolished. In those situations the owner has the right to make the change, but needs to compensate the contractor for the cost of the change and have the schedule changed for any impact the change caused. These are called “change orders” or “variation orders” to reflect that the change was ordered by the owner. They do not allow the Owner to unilaterally change the terms of the agreement, only the scope and the drawings and specifications.

There are also situations where all changes require mutual agreement of the parties. In that situation while the parties may call it a variation or change order, it is really amendment to the agreement. Variations or change orders that are mutually agreed may change the scope, drawings, specifications or terms of the agreement.

I once had an individual from the U.K, tell me that we are separated by a common language. In many situations we attach different meanings to the same words or phrases. We also use different terms to describe the same situation. Since there are no standard definitions that exist, the contract drafter needs to specifically define what each important term means in your agreement. That eliminates potential disputes as both of you have agreed on a common definition for use of that term in conjunction with the contract. You can create definitions by 1) Defining terms in a definitions section (or definitions exhibit when the number of definitions is very large), or 2) specifically definition a term at the first point where the term is used in the agreement, and 3) by incorporating by reference a definition from a source such as INCOTERMS that makes the definition clear to both parties.