Variation clause: the rule for changing the contract later

Sample clause

a two year bookkeeping services agreement between Blackbutt Ledger Services, a fictional bookkeeping firm in Geelong, and Harrow & Finch Joinery, whose owners want the flexibility to add payroll and remove quarterly reports as the business grows

18. Variation 18.1 This Agreement may be varied only by a document in writing that states it varies this Agreement, identifies the clauses or Schedule items affected, and is signed by an authorised representative of each party. 18.2 A variation may be signed and exchanged electronically under clause 38. 18.3 A variation takes effect on the date stated in it or, if no date is stated, on the date of the last signature. 18.4 Correspondence, meeting notes, invoices, timesheets and conduct do not vary this Agreement, even if they refer to a change in the Services or Fees. 18.5 If a signed variation is inconsistent with an earlier variation or with this Agreement, the later signed document prevails to the extent of the inconsistency. 18.6 Changes to the Services within a single Statement of Work are made under clause 19 (Change Control) and are not variations of this Agreement.

Sample wording, not legal advice.

Variants

What to negotiate

• Email as writing

  Requiring a signed document protects against casual changes, but in practice parties agree changes by email and then argue about whether that counted. Allowing email variations between named people, with a record kept, reflects how the relationship really works. Parties dealing with large amounts prefer a signed document for anything above a threshold.

• One sided change rights

  Suppliers on standard terms want to update prices, policies and service descriptions without consent. The Australian Consumer Law lists one sided rights to vary terms, to vary the upfront price without a right to terminate, and to vary what is supplied as examples of potentially unfair terms. Adding notice, a frequency limit and a free exit is the usual way to make such a right defensible.

• Documents incorporated as updated

  A clause saying the customer must comply with the supplier's policies as updated from time to time is a variation right in disguise. Customers ask for material updates to be notified, and for a right to object or exit where an update reduces the service or increases cost.

The risk of leaving it out

Without a variation clause a contract can be changed by any later agreement, including one made orally or inferred from conduct. That flexibility turns into uncertainty when the parties disagree about whether a conversation, a revised quote or a pattern of invoices changed the price or the scope, and each side then has to prove what was agreed and when.

Can the clause stop informal changes?

Legal systems answer this differently. In Rock Advertising v MWB Business Exchange Centres in 2018, the UK Supreme Court gave effect to a clause requiring variations to be in writing and signed, holding that an oral agreement to vary was ineffective, while leaving room for estoppel in some cases. Australian courts have been more willing to accept that parties who can make a contract can also vary it by later agreement, even informally. Either way, a clear clause shifts the burden onto the party asserting an informal change and makes the written record the starting point.

Variation, change control and new contracts

Well structured agreements separate three levels of change. Change control deals with scope, price and timing adjustments inside a project, through a request and approval procedure. The variation clause deals with changes to the agreement itself, such as the liability cap, the term or the payment terms. A change so fundamental that it rewrites the bargain may be better done as a replacement agreement. Saying in the variation clause which changes go through change control stops the two procedures competing and prevents a project manager from varying the master terms by approving a change request.

Where it sits in a generated document

The variation clause belongs in the general clauses with entire agreement and waiver, and it should cross refer to any change control and electronic signature clauses. A generated agreement numbers each clause, so those cross references can be written by number. The generated wording comes from the description and cites no cases, so the named representatives, notice periods and thresholds all need filling in and checking.

Documents that carry this clause

Master services agreementA data consultancy and an insurer sign this once and then buy work under it for three years. It is the rare contract whose whole purpose is to make the next twenty contracts short.Consulting agreementAn advisory firm reviews three bakeries over seven weeks. What makes this agreement useful is not the fee clause but the two clauses that say what the advice is not.Shareholders agreement templateA veterinary diagnostics company has just taken $1.5 million from one seed fund. The founders keep 80 percent between them, so the whole agreement turns on a single number: the 75 percent consent threshold that puts the investor on one side of every decision that matters.Freelance contractA brand designer and a bakery owner agree five weeks of work in language they can both read. It covers everything a longer contract would, and it never once says party of the first part.

Questions people ask