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ASSESSING THE TRUE COST OF VARIATIONS – A
CASE STUDY
P.A. Tilley
CSIRO Building, Construction and Engineering, Brisbane, Australia
D. Gallagher
Hutchinson Builders, Brisbane, Australia
Abstract
Variations and changes to construction projects are considered to be a normal and
common occurrence within the Australian construction industry and although they can
be a beneficial component of any project, they also possess the potential to be quite
damaging for all parties involved. Although clients and owners generally view
variations as a convenient way to change the project requirements after a contractor has
been engaged, most contractors see them as necessary evils which generally result in
delays, additional cost and disputation.
This paper aims to investigate the effects of variations on building construction
projects from a contractor’s perspective. In addition to providing an analysis of
previous research identified through academic and industry literature, the results of an
industry case study are provided, with particular reference to the cost implications of
variations for contractors.
The findings from both the literature and the case study suggest that variations
possess a large and volatile potential to create delay and disruption to projects and
adversely effect a contractor’s cash flow. One of the main factors causing the disruptive
effect of variations is the extended period for both the agreement of value and payment
for the variation works. The paper recommends that in order to minimise the negative
cost impacts of variations, contractors need to maintain accurate and detailed records of
all events which occur on site throughout the course of the project in relation to the
variation works.
Keywords: Variations, Delay, Disputation, Disruption, Impact Cost, Valuation.
Paul A. Tilley is a Construction Systems Researcher with the CSIRO, investigating
issues relating to construction process re-engineering. He has extensive industry
experience in construction planning, contract administration and project management.
Daniel Gallagher is a Contracts Administrator with Hutchinson Builders and recently
completed his Degree in Construction Management from Queensland University of
Technology.
Proceedings of the Second International Conference on Construction Process Reengineering, Sydney,
Australia, July 12-13, pp. 487 – 498.
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INTRODUCTION
Variations and changes to construction projects are considered to be a normal and
common occurrence within the Australian construction industry. They are seen by
some as a convenient way to change the project requirements after the engagement of a
contractor and thereby remove the need for attempting to produce the ‘perfect’ design,
which in practice would be very costly and likely not to be fully achieved. Others see
them as a necessary evil resulting in delay, additional cost and disputation. Depending
on the project and the participants involved, variations can be both of these things.
Although variations can be a positive component of any project, they also possess
the potential to be very damaging for all parties involved. For the purposes of this
paper, attention is mainly focused on the negative aspects of variations, namely their
ability to cause delay, disruption and additional cost for contractors. The paper also
highlights the underlying causes and effects of variations, their nature, the impact they
have on the project participants and ways of guarding against them.
BACKGROUND
Generally, the various parties and individuals involved with construction projects base
their opinions of variations on past experience. If they have been involved with projects
that have benefited from variations, through enhancement of the design or useability of
the project, or through increased profitability of the project, then such experiences serve
to form a positive opinion. However, when people are involved with projects that were
not profitable, were difficult from a management or administration perspective or
involved dispute situations as a result of variations, then obviously such experience will
form a negative opinion of variations.
Unfortunately, the analysis of construction project data is rarely undertaken and as
a result, the full extent of the impacts of variations is not fully understood. Very few
would know the real costs involved in a project with a large number of changes. Whilst
it can be seen at completion if the project has made or lost money, it is substantially
more difficult to accurately identify and quantify the additional costs incurred as a result
of variations. The reason for this difficulty is due mainly to the complexity of the direct
and indirect relationships of activities within the project, which are disrupted by
variations. However, before we look at the effects of variations, we first need to define
what variations are, why they occur and how differences in interpretation of what
constitutes a variation can impact on how project participants interact.
There have been numerous definitions put forward; all being based on the same
principle. One of the simplest of these was put forward by Hibberd, (1986) and states
that variations include:
“any alteration to the basis upon which the contract was let.”
A further definition is offered by Stawell (in Dorter and Sharkey, 1992) who said
variations are:
“works which are not contemplated by the parties at the execution of the
contract, and are not provided for (in the contract).”
A more detailed description of variations is put forward by Fisk (1992) who
describes variations as:
“modifications, additions, deletions or alterations to the work set out within the
contract documents at the time of signing the contract for the performance of
the works.”
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According to Fisk, variations serve to provide a means to legally change the
contractual agreement between the parties, after the contract has been formed. Through
variations, the client is able to obtain, delete, modify, or alter items of work to be
performed by the contractor under the scope of the original contract agreement. One of
the most common causes for the need for variations, is deficiencies or inadequacies with
the contract drawings and/or other documentation (Tilley & Barton, 1997). This
situation generally occurs when time constraints determine that contracts are let prior to
the completion of the necessary documentation.
It is important however to note that a limitation on what is deemed to be a variation
must also exist. Without such a limitation the client would have a contractual right to
change the entire scheme of a project, and the contractor would be required to comply
with that change (ie. a 3 storey walk-up project could become a 15 floor residential
building). This concept is discussed by Walker (1991) who determined that there is “a
difference between a change in the contract and changes beyond the realms of
reasonableness.” Walker draws reference to a contract let on 22 drawings which
became frustrated when the number of drawings expanded to 162. Such an increase
was held to be beyond the scope of variations and mere changes, but was rather “a
distortion of the substance and identity of the contract”. Herein lies the source of many
potential problems and disputes between parties to a construction contract, because the
lines between mere changes and changes causing distortion of the contract, are rarely
clear.
In discussing the role of variations, Staugas (1995) states that variation clauses
serve the following functions:
• to give the client the power to order a variation of the work by right, rather than
having to rely on the readiness of the contractor to agree to execute the varied
work;
• to give the contractor the right to seek payment for the variation; and
• to provide a mechanism for determining and valuing a variation.
From the above, it would be easy to conclude that variations exist primarily for the
client’s benefit by enforcing a contractor’s compliance to vary the work, regardless of
the contractor’s wishes. However, while variation clauses also make provision to
ensure a contractor is paid for the variation works undertaken, this would appear
secondary and conciliatory to their first function – that of forcing the contractor to
perform the variation.
In respect of attitudes toward variations, Cushman and Carpenter (1990) consider
that contractors fall into one of the following two categories:
• those who believe variations provide the only opportunity to make a profit on the
job; and
• those who wish only to build what they bid to build, without variations.
Both viewpoints hold true for various reasons, with the difference in opinion only being
a reflection of past experiences with variations. Clients on the other hand, often state
that they cannot afford any variations due to budgetary requirements and therefore
proclaim the position that the project must be completed with no change orders
whatsoever. Such statements are criticised strongly by Cushman and Carpenter, who
state:
“the owner who undertakes a project not appreciating the disingenuous nature
of that goal has already taken the first step down the road to litigation”; and
“no construction of any significance has ever been built without changes”.
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Variations are the cause of many construction disputes and it is often argued that
they are the primary cause. Fisk (1992) proposes that these disputes generally centre on
differing interpretations of the plans, specification and contractual conditions to the
agreement. Typically a dispute may begin when the contractor claims that the client has
changed the contract requirements by doing, or failing to do something they are
compelled to do under the contract, (ie provide an adequate and complete design)
entitling the contractor to compensation. More often than not however, the client
disagrees that the contract requirements have been changed. Not surprisingly, each
party interprets the contract in a manner that best suits their purpose – the client
following an interpretation that most benefits the project, while the contractor follows
one that minimises his expense. This situation of two interpretations of documentation,
often with considerable amounts of money depending upon which interpretation is
proven to prevail, generally leads to costly and time consuming conflict.
Variation disputes also arise when the formal and orderly process for the raising of
a variation does not occur in the correct sequence and the contractor acts on a verbal
instruction. As a result the contractor is often left with the problem of securing payment
without a written change order, which is required in accordance with the contractual
provisions regarding variations. This is a common problem, and is discussed by
Cushman and Carpenter (1990) who argue that the contract containing the variation
procedure will almost always also contain a provision stating that the contract may not
be amended by oral agreement, only by written order. The recommendation of Rubin et
al (1983) is that all variations, where at all possible, should be accompanied by a written
change order.
Another area where disputes arise, involves works that are required but which are
not necessarily defined within the contract documents. According to Dorter and
Sharkey (1992), contract documents rarely include and specify the project works in their
entirety. This is mainly due to the fact that designing building projects today is a
complex and intricate undertaking, and that the cost and time required to produce a
‘perfect’ design prevents any such design from being produced. Based on this industry
characteristic, courts tend to hold the view that a contractor’s obligation extends beyond
that which is included within the contract documents and extends to those items, which
although not specifically referred to within the documents, are “indispensably necessary
for completion and for the satisfaction of the general obligation” (Dorter and Sharkey
1992).
Another major cause of dispute rests with interpretation of whether additional
works are a variation, or are the responsibility of the contractor in terms of ‘design
development’ and ‘contractor co-ordination’. The problem is most often brought out in
situations where the client’s representatives continue the process of design development
after the contract with the contractor has been formed. According to Roadhouse (1997),
this generally occurs where the design as drawn and specified can not work and as a
result requires modification. Usually this type of modification occurs on-site, with the
foreman and subcontractors liaising on a verbal basis with the client’s representatives to
modify the design to meet the site requirements and create a workable design. If the
design modifications are substantial and costs are involved, a variation claim is
invariably submitted. However, here lies the problem, for on receiving the variation
claim, the client’s representatives will invariably reply:
• where is the written order or site instruction to authorise this change?; or
• this change was only brought about due to inadequate co-ordination between the
contractor and subcontractor trades.
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Obviously the required information can be compiled and presented to the client’s
representative, however in practice this rarely occurs to the extent needed, resulting in
assessments of variations which state the opinion that the claimed ‘variation’ has no
cost effect above the original contract requirement. In this situation, the client’s
representative is saying they will not recognise, or will not pay for the time and effort –
which is often substantial – spent coordinating and re-designing the existing scheme to
make it workable. While the larger scale changes are usually processed in the correct
manner, it is the smaller scale changes that are often instructed on site verbally. On
projects with large numbers of these smaller type changes, the result in additional
administration required to sort, compile, submit and substantiate those claims for the
purpose of being reimbursed can be an exhaustive process for the contractor.
According to a report produced by the National Public Works Conference Joint
Working Party (1990), no party really benefits from variations – particularly urgent
variations – despite the common belief that variations provide contractors with an easy
profit source. “It is in the interest of all parties for the number and extent of variations
to be kept to a minimum.” (NPWC/NBCC, 1990). The most effective way to avoid this
type of conflict would be to prevent it at the source. By providing complete
documentation prior to any agreement being signed, a client can ensure there is no room
for different interpretations of the contract documents (Franks, 1984).
In the case of traditional contracts, Fisk (1992) believes that as the documents are
prepared by the client, the contractor’s rights are often few, whilst their obligations are
many. Despite this, the contract should not be written to “assist owners avoid the
economic consequences of the changes they make” (NPWC/NBCC, 1990). Under such
clauses, contractors also bear a responsibility to ensure that the client is given full
opportunity to mitigate or reduce the additional expenses incurred, by providing
adequate information to the client’s representatives in relation to the time and cost
effects of instructions and variation orders that are issued. This information allows the
client and the client’s representatives to decide if the variation is worth the effects it will
produce, or how the change can be effected to incur least cost. It could be argued that
this responsibility represents a requirement of the contractor to provide a free quote
service to the client, as the costs of providing quotes and information for potential
variations are never reimbursed to the contractor when the proposed work does not
proceed.
When considering the cost impacts of variations, Bromilow (1970) showed that
despite the large increases in administration costs required to manage a project with
many variations “the net value of variations is, by and large, relatively small even
though the number of variations can be very high”. However, the reason for this
conclusion is unclear. It could be that there are large numbers of trivial changes, or the
resulting net effect of several large positive changes offset by roughly equal negative
changes. It is worth noting that a deletion followed by an addition of equal monetary
value can have substantial cost effects on the works and the programme, even though
the contract sum may be altered little.
Regardless of whether one considers variations to be either beneficial or
detrimental to the construction process, they are and will continue to be a part of the
industry. Through better understanding these issues, it is hoped that all parties will
benefit through a better ability to reduce the adverse effects associated with variations.
CASE STUDY ANALYSIS
The case study analysis focuses mainly on the additional costs involved where variation
works are completed and paid for by the contracting parties but where the client fails to
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provide reimbursement for extended periods, due to the fact that agreement to the value
of the variations has not been reached. The case study involved extraction of data
relating to the project variations and presenting this data in graphical form.
Case Study Project
The project used for this case study analysis, is a recently completed Brisbane inner city
commercial refurbishment and extension project, which was subject to over 1000
variations and changes. While the project’s original contract sum was in the order of
$13.6 M, the final contract sum – estimated to be around $15.05 M – is yet to be
determined, as agreement on the several hundred outstanding priced and submitted
variations (in addition to the delay and disruption claims) has still not been reached.
In addition to a new 9 storey prestige development – incorporating function rooms,
restaurants, apartments, retail shops, offices, a gymnasium and an international standard
size swimming pool – the project also involved extensive refurbishment and extensions
to a sixty year old brick and structural steel framed building. As the original structure
was finished internally with high quality ornate materials, these high quality finishes
were also used throughout the new building and the extensions. The extensions were
built directly over and around the existing building and created numerous difficulties in
terms of matching in new and old building and services elements.
The project commenced in August 1995, with the original completion date set for
November 1996. However the actual completion date did not occur until July 1997 due
to the numerous changes and continual delays and disruptions to the work progress. To
highlight the extent of the changes made on the project, architectural drawing increased
from an initial 150 drawings issued at the beginning of the project to 398 by project
completion. In addition to this, 412 drawing revisions had also been issued. However
the problems were not just confined to the architect, as the drawings provided by the
engineering disciplines increased from an initial 92, to 142 by the end of the project,
with 281 drawing revisions also being issued. While the majority of the engineering
revisions were mainly due to the numerous changes to the architectural drawings, the
results would appear to indicate major deficiencies with the design process and that the
initial issue of drawings was insufficient to carry out the scope of works.
One of the adverse effects associated with the changes was the effect it had on the
cash flow and the cash position of the parties contracted for the work. This generally
occurred due to the inordinate amount of time taken to have variation claims approved
and paid for. This is the main effect that has been selected for investigation and
analysis within this case study.
Methodology
As with most projects, the project staff administering the case study project used a
simple but comprehensive variation register to notify and record variations to the works.
It was from this register and the supporting information in the project files that the data
was obtained. The first task was separation of all variations to the project into seven
main trades, which were considered to give a broad range of activities of work carried
out on the project. The trade areas selected were:
• Head Contract • Fire Services
• Plaster and Painting • Hydraulic Services
• Joinery • Mechanical Services
• Electrical Services
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Once the variations were separated into the above trades and separate registers created
for each trade, the details of each variation were examined in three different ways:
• Value of Outstanding Variation Works Pending Approval;
• Analysis of The Most Common Effects Associated with Variations; and
• Analysis of Approval Periods for Variation Claims
CASE STUDY RESULTS
Value of Outstanding Variation Works Pending Approval
Each variation was examined in terms of it’s value and the period of time it remained
unapproved and unpaid. This was achieved by recording the following data:
• the value of the variation work as claimed;
• the date that the claim was submitted for approval;
• the date that the value was agreed to and contract sum adjustment was issued.
From this data, the monthly average value of the completed variation work pending
approval and payment was able to be graphed on a cumulative basis for all variations
applicable to each trade. Figure 1 shows the combined monetary value ‘carried’ by the
contractor and subcontractors for extra works completed and pending payment; an
average of $171,486/month for the 23 months. In August 1997, the total amount
outstanding, was $433,483.
These figures illustrate that there are substantial amounts of money held over long
periods of time for unpaid variation works, mainly due to no value being agreed for the
variation work. Few could argue that any contractor could afford to have this amount of
money outstanding. The effects on cashflow for both small and large organisations are
obvious. Not being able to utilise this money for other works can be economically
crippling. Consider the cost of this money in a money market sense, in terms of the
interest that could (and possibly should) be charged on this outstanding money. The
problem is even more critical when you consider that many of the subcontractors, who
carry the cost of this unpaid work, are relatively small companies often operating under
tight cashflows.
$500,000
$450,000
$400,000
$350,000
$300,000
VALUE
$250,000
$200,000
$150,000
$100,000
$50,000
$0
O N D J F M A M J J A S O N D J F M A M J J A
95 95 95 96 96 96 96 96 96 96 96 96 96 96 96 97 97 97 97 97 97 97 97
TIME
Figure 1. Combined value of completed variation work pending approval (monthly
averages)
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It should be noted that for most of the trades, the maximum value of variation work
pending approval and payment occurred in August 1997, following completion of the
project. Generally it is not until the project is complete that contractors and
subcontractors have the time to compile and submit claims for all the variation works
that have been completed. As a result the completion of a project is often accompanied
by a drastic increase in variation claims, as all parties rush to submit claims for
reimbursement of variation work. However, by notifying and claiming variations as
soon as possible, providing complete an comprehensive information and consulting
regularly with those responsible for approving the claims, subcontractors can help
minimise the time taken in the approval process.
Analysis of The Most Common Effects Associated with Variations
The ten most common effects associated with variation work were identified. These
effects are set out below and each variation was analysed in respect of involvement with
these ten effects. The purpose of this was to determine what were the most common
effects associated with variation work.
Effect 1. - Extended Period of Approval of Varied Work
An extended period of time elapsing between the date the cost of the variation was first
claimed, and the date that approval of those costs was issued by the client or their
representative. Note that this analysis only considers the delay in receiving approval on
these costs. Additional time is generally expended after the date of approval, where
variation orders are required to be issued to subcontractors. This includes the time
required to issue and approve invoices for the now approved variation and the time to
receive the actual payment.
Effect 2. - Urgent Variation Work
The variation work was carried out as a matter of urgency, to prevent or reduce delay to
the works. Urgent variations usually have to be undertaken prior to being properly
planned and co-ordinated, therefore limiting their ability to be performed in the most
effective manner and in proper sequence with other trades and work. This situation
generally means there is not sufficient time to submit or agree upon a price for the
variation works prior to it commencing, thereby increasing the chance of disagreement
over cost at a later date.
Effect 3 - Rework to a Completed Area
The variation requires a change to an area which has already been completed by a
certain trade. The variation requires the trade to leave the area they are now working in
to go back and make the alteration, disrupting their, and other trades work flow,
continuity and sequence.
Effect 4 - Additional Design, Supervision and Reprogramming
The variation has altered the works in such a way that additional management input is
required to reorganise the work so that it continues to flow in the most effective manner
possible. This is one of the largest and most significant effects of variations.
Effect 5 - Redrafting Costs to Reflect Changes
The change involves costs in updating drawings to reflect the new conditions resulting
from the variation.
Effect 6 - Loss of Bulk Purchase Discount due to Deletions
The cost of deletions in projects are often not considered. Material suppliers offer
discounts for bulk quantity purchases. If large quantities are deleted, that discount may
be lost to the subcontractor, and therefore the cost of each item may be greater in a
deletion situation than in an addition situation
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Effect 7 - Handling & Storage Costs
Indicates the effect of deletions in terms of materials not used, resulting in costs due to:
• Suppliers charging handling and storage costs for cancelled orders or materials
returned for credit.
• Subcontractors incurring costs to transport and store unused materials.
Effect 8 - Major disagreement on Value
A disagreement has occurred in regard to the variation, often resulting in large
administration costs associated with writing letters, attending meetings and preparing
documentation to prove the claim for the variation. Also means delay in approval and
payment for the varied work.
Effect 9 - Rejection due to “lack of on-site co-ordination” assessment from certifier
The variation claim was rejected due to the assessment that the additional work was
only required because the contractor failed to adequately co-ordinate the works, rather
than due to an inadequate or unworkable design. (An assessment often strongly rejected
by the contractor.)
Effect 10 - Variation Work Requiring Multi-Trade Involvement
The variation work was not single trade based and required co-ordination and
sequencing between a number of different trades to complete the work.
Table 1 Analysis of the most common effects associated with variations
Total No. Effect Number Most
of 1 2 3 4 5 6 7 8 9 10 Common
Variations Effects
Head 123 78 71 79 79 0 0 0 40 0 0 3&4
Contractor
Electrical 117 95 104 76 111 79 3 7 38 0 0 4&2
Fire 67 42 52 49 57 53 0 1 9 9 0 4&5
Mechanical 73 29 59 51 60 0 0 0 3 2 12 4&2
Hydraulic 85 50 61 55 52 1 0 0 11 6 25 2&3
Joinery 45 38 25 22 22 0 0 0 6 0 0 1&2
Plasterer/ 69 56 46 45 32 0 0 0 13 2 4 1&2
Painter
Totals 579 388 418 377 413 133 3 8 120 19 41
Table 1 provides an analysis of the most common effects associated with variations.
These were determined by counting the number of times each of the ten effects
identified was present in the variations of a particular trade. This number was then
compared with the total number of variations to the particular trade, which gave the
most common effect for that trade and in turn, the project in general.
For the case study project, Table 1 shows that the most common effects caused by
variations related to the problems produced by urgent variation work and additional
design, supervision and reprogramming. In relation to urgent variation work this may
be due to the fact that design inadequacies are generally only discovered when that
component of the work is about to be undertaken. When it is found that the design does
not work, the project is delayed until a new methodology is determined. This must then
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be executed as a matter of urgency to prevent further delay to the project. Due to the
large number of changes on this project, the number required to be carried out urgently
would be expected to be quite significant.
Although one would expect all variations to require additional design, supervision
and reprogramming, with urgent variation work there is usually insufficient time
available to properly plan and sequence the work to enable it to be performed
effectively and efficiently. Overall, the result of both urgent and non-urgent variation
work is delay, disruption, rework and additional supervision and planning. This all
amounts to additional costs for all parties, however due to the difficulty in accurately
quantifying and proving these costs, it is also difficult to obtain reimbursement.
Analysis of Approval Periods for Variation Claims
The third analysis performed was on the approval periods of variations in terms of the
comparison between the time taken to agree and process a deletion variation, as apposed
to an addition variation. In order to perform this study, each variation for each trade
was examined, with the submission date and approval date considered to give the period
for which the variation was outstanding. The sum total of days addition variations were
outstanding for each trade was then divided by the total number of variations to the
trade, which gave the average approval period for addition variations applicable for that
trade. The same procedure was then carried out for deletion variations applicable to
each trade.
Table 2 shows the calculations used to determine the average approval period for
deletion and addition variations on the case study project.
Table 2 Analysis of the average variation approval periods
TRADE ADDITIONS DELETIONS
TOTAL SUM TOTAL AVERAGE TOTAL SUM TOTAL AVERAGE
OF DAYS NUMBER OF APPROVAL OF DAYS NUMBER OF APPROVAL
ADDITION ADDITION PERIOD FOR DELETION DELETION PERIOD FOR
VARIATIONS VARIATIONS AN ADDITION VARIATIONS VARIATIONS AN DELETION
WERE FOR TRADE VARIATION WERE FOR TRADE VARIATION
PENDING FOR TRADE PENDING FOR TRADE
APPROVAL APPROVAL
Head 13728 days 116 118 days 348 days 7 49 days
Contractor
Electrical 8329 days 107 78 days 403 days 10 40 days
Fire 5429 days 66 82 days 104 days 1 104 days
Mechanical 3721 days 72 52 days 109 days 1 109 days
Hydraulic 5389 days 80 67 days 172 days 5 35 days
Joinery 4394 days 37 119 days 1222 days 8 153 days
Plaster/ 9226 days 67 138 days 58 days 2 29 days
Painter
Overall Average 93 days Overall Average 71 days
Approval Period for an Approval Period for a
Addition Variation Deletion Variation
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Note the following data taken from Table 2 in relation to average approval periods of
variations:
• average approval period of an addition variation was 93 days;
• average approval period of a deletion variation was 71 days.
This situation shows that clients and their representatives are generally more able to
authorise a change to the project that will save them money, than to give authorisation
for a change that will incur additional cost. This is not an ideal situation for contractors
and subcontractors, and could not be viewed as fair or acceptable by anyone.
CONCLUSIONS AND RECOMMENDATIONS
Variations are a part of almost every construction project undertaken in the industry
today and while some see them as a co-ordination and administration nightmare that
cost everyone a lot of money and lead to disputes and the loss of good working
relationships. Studies have been undertaken to examine the causes, sources and nature
of variations and how they can best be administered to reduce the adverse effects for all
parties. However, regardless of how variations are perceived, variations will occur and
parties need to understand and appreciate their full impact before any change in industry
practices can take place to reduce their adverse effects.
This paper has primarily focused on the effects of variations for contractors and has
shown that despite the attempts of contractual clauses, the administration of variations
rarely occurs in the manner prescribed, due to the complexity and rate at which works
proceed on a typical construction project. As a result the agreement and payment for
variation work is sometimes a difficult, costly and time-consuming process.
Research has shown that variations involve and often cause delay and disruption to
the progress of the work, which results in additional costs that often exceed the direct
costs of the changes themselves. This concept of indirect or ‘impact’ cost of variations
is difficult to define and quantify and is often not well understood by either contractor
or client and as a result variations often leads to dispute.
The case study used in this paper, has shown that variations have substantial cash
flow implications for contractors due to variations being carried out and paid for by the
contracting parties without any reimbursement for extended periods. This occurs
because the valuation and agreement of variation costs can be a slow and tedious
process, particularly when a large number of variations exist. A project subject to many
variations can be a costly undertaking and every effort should be made to adhere to the
correct administration procedures to mitigate the effects.
The importance of keeping and maintaining accurate and complete records of the
events that transpire on site can not be stressed strongly enough, as things occur on
building projects at a rapid and constant rate. Unfortunately, decisions and agreements
made on site can also be quickly forgotten, if the details are obscured or are left to
memory alone. Accurate records are also extremely difficult to compile after the event.
The only way to prove a position or opinion is with documentary proof, which must be
kept throughout the project and in a system which makes retrieval and comprehension
easy. Maintaining and administering a system such as this is difficult due to time,
personnel or budgetary restrictions. However in a claim or dispute situation, it is
difficult to convince anyone of an entitlement to extra money without such records.
All parties should adhere to the requirements imposed upon them by the contract
conditions. Variation claims should be kept as simplistic as possible. Complexity in a
claim serves to slow its approval. As much information as possible should be provided.
The more information the client’s representative has in regard to the claim the better
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they are able to see the contractor’s entitlement to an extra as claimed and the faster
approval will be given.
Perhaps some time limit restrictions should be included within the standard form
contracts in regard to approval periods of variations. The monetary value of outstanding
approvals on projects such as that used in the case study, continues to be economically
damaging for the contracting parties involved and could surely have been substantially
reduced had some time limit obligations for certification and payment been imposed on
the client and their representatives in terms of of the extra work.
REFERENCES
Bromilow, F. (1970) The Nature and Extent of Variations to Building Contracts, The
Building Economist - The Journal of The Institute of Quantity Surveyors of
Australia, vol 9, no.3 pp 93-112.
Cushman, R. & Carpenter, D. (1990) Proving and Pricing Construction Cliams, John
Wiley and Sons, U.S.A.
Dorter, J & Sharkey, J. (1992) Building and Construction Contracts in Australia, The
Law Book Company, Sydney.
Fisk, E. (1992) Construction Project Administration, Prentice Hall, New Jersey.
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