During contract administration,you cannot avoid situations of variations.This is why this term is more popular among construction professionals.
Variations in construction contracts plays a major role in construction cost management.It affects the cost.These cost impacts can be in a way of addition or omission,but it changes the final contract sum.
Therefore variations plays an important role in construction administration process.
In the process of variations,you will find steps such as identifying variations to the contract,issuing variation order instructions,carrying out variation work as in variation order,preparation and submission of variation claim and finally valuation of variations.
Variations and variation orders are common in construction projects followed by VO claims. However most of the time contractors struggle to get fair valuation for their variation claims as their expenses for variation works are more than what they are paid.(in additional work). Therefore variations play an important role of cost management of any construction project. At the same time, consultants like to deliver their projects within the stipulated budget. Therefore they look every ways that they can save money avoiding cost overruns.
With experience in handling variation claims and valuation of variations for major projects, in this post I want to share some of the important details regarding variations in construction projects.
What are Variations in Construction Contracts?
In construction projects the term ‘Variation’ means any change to the original contract. These variations can be in a way of addition or omission to the original scope of work.
Causes of variations
There are many causes for variations in construction projects. Below are some of the reason for variations.
Variations can be due to,
- Addition or omission from the scope of Works;
- Changes to the quantity of work in the form of increase or decrease
- Change of dimension, level or position of the Works that affect the construction cost.
- Changes for the construction quality including material quality changes.
- Removal of part of the scope or demolition of part of the work scope by the Employer which affects the total scope of work.
- Due to Changes in the schedule of completion. That is, if there is a necessity arise to complete the Work or part of the work earlier than the agreed Time for Completion, then it affect the work completion and as a result, variation to the contract.
Simply, variation to the contract means any changes to the scope of work which can be in the form of addition or omission.
Who can issue a Variation Order?
Variation order is a common and popular term in construction projects.I have experience that most of the time the terms variation order or VO are more popular to introduce any variations to the contract.However variations to the contract are the changes to the contract as we discussed at the beginning of this post.
Then what is a Variation order in construction contracts?
A variation to be valid, it must be in written and instructions should be issued by the authority person. This person can be architect, superintending officer or contract administrator who has the power to issue instructions. If the contractor received verbal instructions, he should write it to the Architect or superintending officer to get approval in order to make it a valid variation order. At the same time, if contractor finds any extra work to do which is not stated in the contract document or scope, he should write to the Architect within the stipulated time in the contract.
This is where contractor should have proper understanding on the variation clause in his contract agreement.
Valuation of Variations
Once there is a variation and it is instructed as written instruction, the contractor is required to submit his proposal for the consultants or client for evaluation. This contractor’s variation claim should include all cost implications in detail including supporting documents such as quotations and relevant details from the drawings and site records.
Valuation of Variations plays an important role in variation claim procedure. At this stage, it also can be a dispute for the contract. However if the contractor understands the procedure of variation claim preparation and submission and if he also understands the provisions for variation claims in his contract agreement, variation claim procedure is not much difficult.
Below are the most common practices in valuation of variations. However, it is necessary to refer your contract agreement and related variation clauses for exact details as contractual provisions are different in different countries. It also can be different according to your contract agreement.
Usually Valuation of Variations are carried out as below.
- If the variation work is an omission, then the rate or amount mentioned in the contract is used to evaluate the omitted amount.
- If the variation work is an additional ways, below are the methods for valuation of variation.
- If the variation of work due to changes in quantity of similar work which is under contract scope, then the same rate in contract is used for valuing the variation.
- If there is a similar work to the variation work is in the contract scope, however the variation work is carried out in different conditions then the rates in the contract for similar character work is considered as basis of valuation. However there should have fair allowances added to the different conditions which the variation work occurred.
- If any of the above situations are not met, then it is necessary to check market rates. It is necessary to obtain at least 3 quotations to establish the fair market rate for the variation work. In this situation, contractor is required to submit quotations from few different suppliers and contractors to the consultants to evaluate. He shall submit his quotations with his variation claim.
- If the parties to the contract cannot come in to a decision of fair valuation using any of the above methods, then it is necessary to evaluate actual material, machinery and labour costs needed to carry out the work. For this evaluation, it is necessary to use all site records including labour hours and machinery hours used for the work. After the valuation is done using resources used at site, it is necessary to add a reasonable overhead and profit percentage in order to compensate the contractor for his time on supervision.
Submission of Variation Claim
When there is a variation to the works and once it is instructed in writing, the contractor shall carry out the work as per instructions. Once the work is completed, he shall submit his variation claim when he submit the progress claim with necessary documents and details.
Read this variation claim submission guide which is helpful for contractors to avoid mistakes in their submissions.
There may have situations which contractor receives instructions to carry out the work under daywork. In such times, contractor should inform the Contractor administrator, superintendent officer or the respective clients representative of the time the work being carried out. It is necessary for the contractor to keep signed day work records to be submitted with his claim.
In general, this is how valuation of variations are done. Also it is contractor’s responsibility to submit his variation claim with all necessary details in order to get the payment certified within a reasonable time period.
These conditions and method of evaluation of claim can be different depending on your contract.
How do you deal with variations in construction contracts?Do you have experience in handling VO?Please share your thoughts.
Contact us any time if you need us to check your contract or if you need advice related to your variation claim.