How to Manage Those Fearsome Project Variations

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Variations
YOU THOUGHT you had negotiated a fixed-price contract for your planned building works, only to find yourself being progressively hit with expensive “Variations” as the construction phase progressed.

So, perhaps it is worth exploring how this comes about, in a little more detail.

What is a Variation?

Variations are changes to the building contract scope of works, which occur after the contract agreement has been executed.

These changes may be directed by you (as the property owner) or the builder. Often the building surveyor may impose specific requirements.

Alternatively, they may be a result of incorrect documentation, latent conditions or certain compliance requirements. Sometimes you may simply change your mind on a particular aspect of the project.

Most building contracts usually contain provisions that must be followed to handle a variation, which alters the contract. These provisions follow the universal tenets of contract law, namely offer, acceptance, intention, certainty and performance.

The Approval Process

Generally, variations require the approval of the building owner or their contract administrator (ie: the Project Manager or Architect).

Sometimes you may not have a choice, where a variation results from changes ordered by a building surveyor.

Most contracts do not need approval from the building owner, where the variation …

  • Doesn’t require a change to the building permit;
  • Does not cause any delay; or
  • There is no adjustment to the contract price.

If approval is required, the following conditions for approval are generally applicable:

Notice: Notice of the variation must be in writing, before the work is undertaken.
Price: There must be price certainty … either a fixed price or maybe, ‘per unit’.
Time: Will the variation works require extra time under the contract? If so, an Extension of Time will need to be submitted for the variation work.
Justification: Why is the variation being made? Is it due to an unforeseen circumstance, such as rock being discovered during excavation. Alternatively, is the variation claim for a client alteration or substitution?
Approval: The written approval of the building owner or contract administrator is required.

How to avoid unnecessary Variations

  1. Ensure your documentation package (including drawings and specifications) are well coordinated and thorough.
  2. Ensure your building contract clearly spells out inclusions/exclusions.
  3. Review any latent conditions prior to starting on site. Things like … review for asbestos, hazardous materials, detailing of all authority connections, etc.
  4. Don’t change your mind!! It is well understood that changes during construction cost significantly more than during the competitive tender stage. Make sure that you spend the time upfront (prior to engaging the builder) to understand what is specified and what it looks like.
  5. Engage a competent Project Manager to administer your contract and construction process. Whilst we will not eliminate variations, we will no doubt reduce their number and value — as well as ensure they are totally justified and fair in cost.

Pearce

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