Bitesize Boilerplate: Small Clauses, Big Impact - Focus On Variation

In today's fast-moving business world, things change quickly, so your contracts need to be able to adapt. This is especially important for long-term arrangements, where future business needs, market conditions and operational priorities are often difficult to predict at the outset. Having clear, effective mechanisms to manage and control contractual change as circumstances evolve can be critical to preserving commercially viable arrangements, maintaining strong working relationships and reducing the risk of disputes. That said, where certainty is paramount and favourable terms have been secured from the start, the strategic priority may instead be to limit or prevent amendments altogether.

This article explains what contract variation clauses are, why they matter, and how to handle them in a way that protects your interests and keeps your contracts flexible.

What is a contract variation?

A contract variation (sometimes called an amendment, modification or contract change) is simply a change to the terms of an existing contract that everyone involved agrees to (more on what that agreement could consist of below). These changes can be minor, like updating contact details, or much bigger, such as changing the scope of work, the price, the timeline for delivery/performance, or various compliance requirements (such as in order to comply with changes in law).

Why is it important to consider and address contract variation in your contracts?

For a supplier: Typically, a supplier will have secured a specific deal with a customer at the outset of the contract, potentially with a view to winning their business. At that point, they will have agreed to a specific risk allocation, for example, liability for delivery costs, import fees, tariffs (in each case through agreement on applicable Incoterms or equivalent), costs of labour, risk of inflation, compliance with laws etc. If the supplier is concerned about external conditions which affect its cost base, the supplier will be motivated to secure the ability to amend at least certain aspects of the contract. In particular, the supplier may seek a price review mechanism and a change control process to manage specific changes.

For a customer: A customer, on the other hand, will typically be keen to fix a good (or at least certain) deal for the duration of the contract (and any extension) but often with the ability to flex, for example, to remove services if they are no longer required.

For both parties: Both parties will want to know how variations can take place to ensure that contract modifications are not agreed to inadvertently and potentially lead to a dispute.

Therefore, each contracting party should be motivated to ensure that it is clear how and when the contract can be amended.

What does the law say?

What if the contract is silent?

If the contract does not include a "variation clause" then the parties will have to rely on common law principles to determine the requirements. To be valid, the variation would need to meet the same basic requirements as the original contract: there must be an offer, acceptance, something of value exchanged (consideration), and a clear intention to create legal relations. Most importantly, all parties to the contract must agree to the change. If only some people agree, or if one side tries to make changes on their own, the variation usually won't be effective and, if acted upon, could even be a breach of contract.

Bear in mind that, in this case and as with all contracts, agreement does not necessarily mean a formal written agreement- it could include modifications made through informal communication (including verbal, by email etc.) or by conduct.

What if the contract includes a "variation clause"?

Recent court cases have made it clear that "no oral modification" clauses, those that dictate a formal written process for the modification of the contract, are enforceable and should be followed. In 2018, the Supreme Court in Rock Advertising Ltd v MWB Business Exchange Centres said that an oral agreement to reschedule rent arrears wasn't valid because the contract required written, signed changes. The Court said that parties are free to set their own rules for how contracts can be changed, and that sticking to those rules helps avoid disputes.

However, the High Court case of Integral Petroleum S.A v Bank GPB International S.A. 2022 highlights the requirement for those clauses to be unambiguous and specific in order to be effective. In that case, the formal requirement was that the amendment was "in writing" but it did not require any other formality such as the need for signatures. This case highlighted that simply stating that amendments must be "in writing" may not be sufficient to prevent informal modifications, such as those made via email or other less formal written communications.

Best practice tips

Contract variations are a normal part of business, but they need to be managed carefully.

Key contract tips to help you stay in control:

Bear in mind that only requiring variations to be "in writing" may inadvertently allow variations by less formal written communication, such as email. Depending on the nature of the changes contemplated, consider a more detailed change control process e.g. setting out how changes to price or changes in law will be managed.

• Always insist on written variations that follow the contract's variation clause. If you are the party seeking to rely on the amendment, don't rely on verbal agreements or informal emails.
• Make sure changes are signed by people with the right authority to bind the organisation.
• Keep a clear audit trail of all variation requests, discussions, and agreed changes.
• Review variation clauses in your existing contracts to make sure they're up to date and offer enough protection.
• Train your teams on why following variation procedures matters and the risks of informal changes.