As a construction project progresses you can say with a high level of certainty that there will be variations and there can often be differences in opinion between what the parties to a Contract believe they are worth.
Why Do Differences Occur
There are many reasons why differences in variation accounts can arise:
- There are no valid instructions for the change / variation requested.
- The Contractor / Client is not familiar with the scope, detail or obligations of the Contract.
- The Contract is unclear or ambiguous.
- The Contractor / Client is not correctly using the variation rules set out in the Contract.
- There are time bars in the Contract for notifying a Client of Variations and hence the entitlement to claim.
- In some cases, a Contractor might inflate their valuation of a variation or claim something they are not entitled to claim for.
- The Client / Clients Representative might undervalue or not value the variation at all.
- Time pressures from the person preparing or certifying the variation account mean ‘on account’ or rushed figures have been prepared.
- Lack of resources to effectively deal with the volume or complexity of changes.
These are just some common examples and there may be other factors that lead to differences in a variation account. However, if one person believes their variation account is worth one figure and the other believes it is worth less, then this can lead to disputes, legal action, damage to your reputation, and bad relationships which can fester for the duration of the project and beyond.
No one wants this situation to arise and it is one of the main causes of frustration for Contractors, Sub-Contractors and Employers.
How To Manage Your Differences
The are several simple steps that should be undertaken to help avoid and manage variation differences and reduce the chances of expensive disputes:
STEP 1 | Check your entitlement – ‘Am I entitled to claim costs for a Variation’:
- Ensure the person dealing with the account and variations has a clear understanding of the scope and Contract.
- Check if the item being considered falls under any definition or explanation of what a ‘variation’ or ‘change’ is under the Contract.
- Has an instruction been issued or does one need to be requested to comply with the Contract?
- Does the instruction constitute a variation to what was included in the Contract or is it just a clarification?
- Are there rules in the Contract for notifying the Client of a change or variation that needs to be followed? There may be a change order management protocol. Some of these rules may have a time bar and affect your ability to claim.
STEP 2 | Valuing the change:
- Follow the valuation rules when valuing the variation described under the Contract. Most Contracts set out the principles as to how a variation should be valued.
- Provide build-ups and substantiation where possible to variations as the project goes along and submit these with the interim valuations. A kind of ‘Day 1 Final Accounting’.
STEP 3 | Keep talking and provide clear variation schedules
- Arrange regular variation meetings to discuss the variations and agree on what both parties require to agree with each variation.
- Prepare and update a clear variation schedule to be submitted with each interim application for payment.
- Include items such as cross-references to the relevant Instructions. This will help speed up an agreement or identify where instructions are missing.
- Have separate columns for claimed amounts and for what has been certified. Include a variation difference column on the same schedule.
- Include further explanation and actions required of each party against each variation difference.
- Insert a column for the status of what variations are ‘agreed’.
- Try to obtain an agreement in writing progressively.
These are just some of the things that can be done to help you address differences in payments or claims in your variation account.
Correct Project Resourcing
There may have been insufficient resources included within your Tender or Fee Proposal to deal with variations methodically. However, this should be planned for as early as possible and the Contractor / Sub-Contractor / Employer should aim to resource adequately to deal efficiently with variations. If this isn’t managed during the course of the project it will only lead to more resources being required at the end of the project for the Final Account Process. So overall the same resource ends up dealing with the account differences, but it just takes longer to resolve.
Conclusion
Always ensure that whoever is dealing with your variations is competent and that you have sufficient resources to deal with changes throughout the project duration. Do not underestimate the time that should be spent when dealing with Contract changes. This may be difficult when time or resource pressures exist on construction projects but it will pay dividends later if these things are addressed as the project progresses.
- Know your Contract
- Prepare and manage clear variation schedules and build-ups
- Provide sufficient resources for variation / change management
- Keep dialogue going between the parties
- Make agreements progressively
If you require help with putting together a variation schedule, evaluating your entitlement, reviewing your current variation processes or require help understanding your Contract this is something we can assist with.
