How to Document Variations So You Actually Get Paid for Them
Variations are part of almost every construction project. Drawings change, specifications develop, access arrangements alter and clients ask for something different from what was originally priced. Although they are frequent, they are not always simple when it comes to claims and variations feature in many of the disputes that we deal with.
In our experience, the biggest disputes are often not about whether work was done. They are about whether the work was already included in the original contractual scope, whether there was a valid instruction, whether the correct contractual route has been used and, finally, whether the amount claimed has been valued and supported properly. That is why a good variation claim should start with entitlement, not with the number at the bottom of the spreadsheet.
Start with the scope: is it actually a change?
This is the issue we see most frequently. An item does not become a variation simply because it was not separately priced. Equally, the fact that a contractor or subcontractor has incurred additional cost does not mean that the cost is automatically recoverable. The starting point is the contract. What did the contractor originally agree to provide?
That can require more than looking at a bill of quantities, subcontract sum analysis or quotation. The contractual obligation may be spread across the drawings, specification, Employer’s Requirements, Contractor’s Proposals, preliminaries, schedules and conditions of contract. There may also be wider provisions stating that the contractor is deemed to have allowed for matters such as coordination, design development, access, attendances, interfaces with other trades, temporary works or everything necessary to complete the works. This creates an important distinction between something which was not separately identified in a pricing document and something which was not contractually included at all.
Under a lump sum arrangement, the agreed price is generally for carrying out the works required by the contract as a whole. A contractor cannot necessarily establish a variation simply by pointing to an item which does not appear as a separate line in the pricing breakdown. The scope documents, the contractual obligations and any order of precedence all need to be considered.
The reverse is equally important. Broad wording requiring a complete installation, or stating that the contractor is deemed to have allowed for everything necessary, should not be used as a catch-all to absorb a genuine change. If the design, quantity, quality, performance requirement or other contractual obligation has changed, there may still be a variation even where the original scope was expressed widely.
A revised drawing is a good example. A new revision number or revision cloud is not, by itself, proof of a variation. The revised information may simply develop an obligation which was already included, particularly where the contractor has design responsibility. The question is whether the contractual requirement itself has changed. A well-prepared variation claim should therefore make the comparison clear: what did the contract require before the alleged change, and what is now being required instead?
Then establish the instruction
Once there is a genuine change, the next question is how that change arose. Most contracts identify who has authority to issue instructions and may also prescribe the form in which an instruction has to be given. This matters on projects where several people are involved in day-to-day decision-making. A direction may be perfectly clear operationally but still have been given by somebody who does not have contractual authority to vary the works.
Verbal instructions create the same problem. They are common on live projects, but if a verbal instruction is going to be relied upon as the basis of a claim it should be confirmed in writing as soon as possible and any contractual procedure for confirming it should be followed.
It is also important not to confuse an instruction with entitlement. An instruction may require the contractor to comply with something it was already obliged to provide. If so, there may be nothing additional to value. Equally, if there has been a genuine change but the instruction procedure has not been followed, an otherwise valid claim can become unnecessarily difficult.
The claim should therefore establish both points: there was a change to the contractual obligation, and that change was instructed or otherwise arose in a way which gives an entitlement under the contract.
Does the price have to be agreed before the work is done?
This is a question clients ask us regularly. The answer is – not necessarily! It depends on the contract. Some contracts contain quotation or change-control procedures which require a price to be submitted, and in some cases agreed, before work proceeds. Others allow a valid variation to be instructed and carried out even though the value has not yet been agreed, with the price then determined under the contractual valuation rules.
It is therefore unsafe to assume either that there is no obligation to carry out the work until the price is agreed, or that carrying out the work means that a quotation has automatically been accepted. A request for a price is also not necessarily an instruction to proceed. The two should be kept separate.
Where the work needs to go ahead before the price has been agreed, the position should be recorded clearly. Confirm the instruction, make clear that the valuation remains to be agreed or determined under the contract, and identify any assumptions or exclusions which affect the price.
Use the correct contractual route
Another recurring problem is that different types of cost are all put into the variation account simply because they arise from the same event. A variation may require additional physical work. It may also cause delay, disruption, resequencing or additional site attendance. Those consequences do not necessarily fall to be valued in the same way.
For example, a contractor may include additional preliminaries, supervision, extended attendance or prolongation costs within the value of a variation. Those costs may be recoverable, but that does not mean that they automatically form part of the variation valuation.
The contract may provide one mechanism for valuing the changed work, another for obtaining an extension of time and another for recovering loss and expense or other delay-related cost. There may also be separate notice requirements which have to be satisfied. The right question is therefore not simply, “Did this cost arise because of the change?” It is also, “Which provision of the contract entitles us to recover it?”
Sometimes the additional cost will properly form part of the valuation of the variation. In other cases it should be pursued through the loss and expense or other claims provisions. Using the wrong contractual route can make a good underlying claim much harder to recover.
Value the variation in the way the contract requires
Once entitlement has been established, the variation still has to be valued properly. The contract will usually contain rules explaining how that valuation is to be carried out. Under the JCT forms, for example, the valuation route depends on matters including the character of the work, the conditions in which it is carried out and whether relevant contract rates or prices can properly be applied. Bespoke amendments may change the standard position. The important point is not to jump straight from “this is additional work” to “this is our price”.
If an existing contract rate applies, identify the rate and explain why it is appropriate. If the rate needs to be adjusted, explain why and how the adjustment has been calculated. If a new or fair rate is required, provide the build-up and supporting information. If the work is properly valued on daywork, comply with the contractual daywork procedure. A quotation can be useful evidence, particularly if it has been agreed, but an unaccepted quotation does not necessarily displace the valuation rules in the contract. The variation should therefore answer two separate questions: why is this the correct valuation method under the contract, and how does that method produce the amount being claimed?
Can you support the money being claimed?
A variation claim can be contractually sound and still fail on quantum if the amount claimed cannot be substantiated. The evidence will depend on the valuation method being used. It may include measurements, contract rates, rate build-ups, labour records, material invoices, delivery tickets, plant records, subcontractor quotations and invoices, photographs or properly completed daywork sheets.
The records also need to relate to the particular change. A labour sheet proves that labour was on site; it does not necessarily prove how much of that labour was used on the variation. An invoice proves that materials were purchased; it does not establish that all of those materials were required because of the change.
The same caution applies to signed daywork sheets. Depending on the wording, a signature may confirm the labour, plant and materials used without establishing that the work was a variation, that daywork was the correct valuation method or that the resulting value was agreed. The stronger claims make the link between the contractual change and the amount claimed easy to follow.
What does a good variation claim look like?
Keep it simple! It does not need to be lengthy. For most variations, the claim should allow the other party to follow four things:
- The change: what did the contract originally require and what is now different?
- The instruction: who required the change, when and under what contractual authority?
- The contractual route: which variation provisions apply, and are any separate extension of time, loss and expense or other notices required?
- The valuation: how has the amount been calculated under the contractual valuation rules, and what evidence supports it?
Those points should be dealt with as the project progresses, not reconstructed for the first time at final account stage.
Good records do not have to mean excessive paperwork. A clear variation register, the relevant instruction, the before-and-after scope documents, the required notices and the valuation support will usually put the claim in a much stronger position than a spreadsheet of additional costs produced months later.
It also allows genuine disagreements to be identified earlier. If the parties disagree about whether something is within the original scope, that is useful to know before another ten similar items are carried out on the same assumption.
The best variation claims therefore start with the contractual obligation, not with the amount of money being sought. That approach will not remove every disagreement, but it gives the parties a much better basis for resolving the variation before it becomes part of a larger final account dispute.
How CCC can help
Contract & Construction Consultants (CCC) regularly assists employers, contractors and subcontractors with variations and change management throughout construction projects.
We can advise on whether work properly constitutes a variation, review the contractual instruction and notice requirements, identify the correct route for additional cost and loss and expense claims, and prepare or assess variation valuations.
Where variation accounts are already disputed, we can review the contract, scope documents, instructions, correspondence and valuation evidence to establish the parties’ respective positions and assist with negotiation, adjudication or other appropriate dispute resolution.
Contact us for a free initial consultation.
