Variations during public works: how the contracting authority funds them

Art. 120 of Legislative Decree 36/2023 (D.Lgs. 36/2023) allows modifications without a new procedure in a few defined cases. Modifications provided for by clear, precise and unequivocal clauses in the tender documents, additional works, variations during the works due to unforeseeable circumstances (new rules, extraordinary natural events, finds that could not be foreseen at design stage, geological, water-related and similar difficulties) and replacement of the contractor (para. 1). For additional works and variations due to unforeseeable circumstances, the increase may not exceed 50 per cent of the value of the initial contract, a limit that applies to each modification (para. 2); a modification worth less than both the EU threshold and 15 per cent of the initial value of the works contract does not require a new procedure (para. 3).

The full legal regime, with substantial and non-substantial modifications, is covered from the bidder's point of view in the article on contract modifications in public contracts. What matters here is what comes next: the funding.

A variation is paid for with sums already allocated, or it is not paid for without new funding. Among the somme a disposizione (sums held at the disposal) of the stazione appaltante (the contracting authority), the quadro economico contains two lines designed to absorb what changes: contingencies (Annex I.7, art. 5(1)(e), no. 5) and the "allowances in relation to the modifications" referred to in art. 60 and art. 120(1)(a) of the code (no. 6; unofficial translation, as are all quotations in this article). The full make-up of these sums is described in the article on contingency allowances in public works.

The two lines do not cover the same thing. Allowances for modifications are tied to modifications already provided for by clauses in the tender documents, including options, and to the price revision of art. 60. Contingencies are for what, by definition, was not foreseen. A contracting authority that wants to reserve likely programme variations does well to write them as clauses from the tender stage and set aside the funding for them, rather than relying on contingencies.

The size of contingencies has a statutory reference. Contingencies and works carried out directly by the authority (lavori in amministrazione diretta) are provided "within a threshold of between 5 and 10 per cent of the amount of the works put out to tender", safety costs included (Annex I.7, art. 5(2)). It is a range shared by the two items, not a separate cap for contingencies. How to size it stage by stage is covered in the article on how much to set aside for contingencies.

The same reserve has two claimants. For price revision, the contracting authority uses, among its funding sources, the contingency sums in the quadro economico, "within the limit of 50 per cent" (D.Lgs. 36/2023, art. 60(5)). A variation that consumes all the contingencies leaves revision unfunded, and vice versa. In the RUP's dashboard, the two lines must be read together.

The chain is set by Annex II.14 and also serves to protect the budget. The direttore dei lavori (the works director) "proposes to the RUP the modifications, as well as the variations of contracts being performed" (art. 5(1)), with a reasoned report; the RUP (the official responsible for the project) assesses and the contracting authority approves (para. 3). The RUP authorises modifications and variations according to the organisation of the contracting authority (D.Lgs. 36/2023, art. 120(13)).

The works director answers for what they have carried out without authorisation. They are liable for modifications ordered or not authorised, and for a modification not ordered, reinstatement at the contractor's expense is provided for (Annex II.14, art. 5(4) and (5)). For the contracting authority, this is the guarantee that an unauthorised variation does not automatically become a cost.

Minor modifications do not affect the amount. The works director may order modifications of detail that do not change the amount, "notifying them to the RUP in advance" (art. 5(9)). The code also classes as non-substantial, among other things, works decided by the works director to resolve technical issues, within the limits of the available sums (art. 120(7)): once again, the limit is the funding.

A variation almost always brings work items not provided for in the contract. New rates are derived from the price lists (prezzari) of art. 41 or from new analyses carried out jointly by the works director and the contractor, and are "approved by the RUP" (Annex II.14, art. 5(7)). The technique for building them up and recording them is described in the article on the agreed new rates record.

The threshold that moves the decision is the quadro economico. If the new rates involve expenditure above that in the cost breakdown, they "are approved by the contracting authority, on the proposal of the RUP" (para. 8). As long as expenditure stays within the breakdown, approval of the new rates rests with the RUP; beyond it, it becomes a budgetary decision of the authority, with the time that entails.

The contractor's silence settles the price. If the contractor does not enter a riserva (a formal claim) in the accounting records, "the prices are deemed definitively accepted" (para. 8). For the budget this matters: a new rate that is approved and not disputed stops being a risk and becomes a certain cost. Claims and how they are handled are the subject of the article on claims, disputes and termination.

The quinto d'obbligo (the one-fifth rule) is a flexibility tool, but only if the tender provided for it. If the tender documents provide for it, the contracting authority may require an increase or a reduction in the works "up to one fifth of the contract amount" on the original terms, and "the contractor may not assert the right to terminate the contract" (D.Lgs. 36/2023, art. 120(9)).

For the budget, the one fifth upwards is not funding. It allows extra work to be ordered without renegotiating prices, but that work must be paid for with sums available in the cost breakdown. The one fifth downwards, by contrast, is a savings lever when the final cost forecast exceeds the budget.

A reduction must be announced in time. For a reduction within one fifth, the contractor must be informed "promptly and in any case before the fourth fifth is reached", and "nothing is due to the contractor by way of compensation" (Annex II.14, art. 5(6)). A RUP who decides to reduce the scope must therefore do so before the works carried out reach four fifths of the amount: after that, the text no longer ensures that the reduction can be made on the same terms.

There is also the route of agreement. The contract may always be modified under its renegotiation clauses; failing these, the RUP proposes a new agreement "within a period not exceeding three months" (art. 120(8)). It is a route to consider when the balance of the contract has changed, not an ordinary tool for managing variations.

The example is entirely fictional and simplified, and serves only to show the funding logic. An authority awards works with an amount put out to tender of 2,000,000 euros. In the quadro economico, contingencies and direct works are set at 7 per cent, that is 140,000 euros, of which 100,000 for contingencies and 40,000 for direct works. The contract is signed for 1,800,000 euros and provides for the one-fifth rule.

The problem is not the variation, it is what remains afterwards. The 70,000 euro variation sits comfortably within the limits of art. 120 and within the contingencies. But if in the meantime a price revision of 45,000 euros accrues, the remaining contingencies, 30,000 euros, are no longer enough, and other funding sources provided for by art. 60(5) are needed. A RUP who had provided a specific allowance for revision at no. 6 of the quadro economico would have avoided having the two expenses compete for the same sum.

The one fifth does not solve the funding. Even if the variation were handled as an increase within the one fifth, on the original terms, it would still have to be paid for with available sums. The one fifth avoids renegotiating prices, not the search for funds.

In private work a variation is governed by the Civil Code and the contract: written authorisation, the one-sixth limit, the lump-sum price, as explained in the article on variations in a private contract. In public work it is governed by permitted cases, funding in the quadro economico and a chain of approval. In both cases the practical discipline is the same: no modified work before the written decision, and every amount under discussion entered in the final cost forecast.