Wise Up Wednesday: What No Variations?
What no Variations? As many of you know I have been in the construction industry for almost 50 years, and 20 of those were as a Specialist Contractor. And in all that time I only remember one job on which there were no variations.
What no variations? No, not a single one…
And in my last role in subcontracting, as the boss of an electrical contracting company, we undertook a detailed study of the profitability of our jobs (I think it was over a 2 or 3 year period). And what we found was that in the worst performing jobs and the most profitable jobs, variations had played a key part.
In other words when we got it right, lots of variations were a good thing, but when the variations were managed badly, they destroyed our profitability.
So, that’s why knowing what to do about variations and maximising your entitlement from variations is so important.
How To Maximise your Return From Variations
Maximising your return and getting paid for variations is the holy grail of specialist contracting and is the most common battleground for valuation disputes. But unfortunately, the ‘how to ensure you get the best out of variations’ eludes many Specialist Contractors.
What Is A Variation?
A variation can manifest itself as an addition to, or reduction in, or change to the scope of work under the contract, or the conditions under which the work is to be carried out.
The effect of variations in construction sub-contracts
Variations need to be carefully assessed in terms of: impact on the programme or time for completion, rate of progress of the work, and last but not least changes to the cost.
It’s common for Specialist Contractors to fail to properly consider and indeed administer these issues correctly. The net result is that they don’t get paid properly, or they incur costs they can’t recover, or they get clobbered for delays. Sometimes all three!
Are Specialist Contractors obliged to carry out variations?
In addition to setting out all sorts of other provisions including your scope of work, most contracts will normally provide terms for the administration of variations. If there are no terms and conditions, then getting paid for variations will be so much harder, and you might want to get some professional advice from the outset. You could put your own terms in place for instance.
So, yes ordinarily you do have to undertake variations, but whatever you do, you must ensure you don’t carry out variations unless those variations have been properly instructed in accordance with the terms of the contract.
Instructions are essential if you want to get paid
Now we all know that some Contractors will get annoyed if you insist on proper instructions. But please understand this. The contracts manager who wants you to get the job done, has probably got no say whatsoever when it comes to you actually getting paid.
Indeed, the first thing the QS (whose job it is to pay as little as possible) will say is; ‘where’s your instruction?’ This will be swiftly followed by: ‘I’m not paying for anything you’ve done without instructions.’
So, don’t allow anyone to bully you into doing additional work without proper instructions. Because the simple fact of the matter is that you won’t get paid.
You need to be careful about this, and you must understand what your contract says, because you need to ensure you and the contractor are following the correct contractual procedure.
Can we agree the price in advance?
Ordinarily the answer to this question is sadly no.
The reasons for this are historical, and beyond the scope of this article, but suffice to say; most contracts are written on the basis that you get an instruction, you do the work, and then it gets valued.
Of course, you can agree a set of terms that do provide for agree first action later, and the NEC/3 or NEC/4 as it is now, are drawn up on that basis. But the key thing is to understand exactly what the rules say!
Most contracts will describe the process under which a variation may be requested, accepted, and approved. You should read up on this and make sure both you and the Contractor stick to it.
That’s because not following the contract’s proper procedures, is a sure-fire way to not get paid. So, if the Contractor is bullying you to do work without following the procedure, then I suggest you get our professional advice.
His attitude is unlikely to get better, and you are almost certainly heading for valuation and payment problems.
Procedures relating to variations
All variations need to end up on paper. In other words, they need to be properly recorded! As mentioned above the contract will describe what documents and procedures are required for a valid variation to be approved under the contract. So, know what they are and follow them.
If your contract is less formal and there is no specified procedure, then get the request and approval on paper. This can be documented on your own Site Instruction Form, Site Diary, an email exchange, or even your own ‘Confirmation of Verbal Instruction’ form.
This kind of document can become valid contemporaneous evidence that additional work was requested and to which you agreed to carry out.
Claim for variations every month
One of the biggest mistakes made by many Specialist Contractors is holding off on claiming variations until the later stages of the job.
If you don’t make a claim for it, then don’t be surprised if the Contractor has conveniently forgotten just how much additional work was carried out. And the shock of the additional cost might well express itself in anger and non-payment.
The longer you go without documenting all the additional work, the greater the likelihood the details will get forgotten, and the harder it will be to get paid.
So, the lesson here is to claim for variations every single month in your normal monthly progress claim.
Don’t be shy, and don’t dither. Do it!
If you’re going to have a disagreement with the Contractor, then do it early rather than at the end of the job. Because at the end of the job, you will have incurred the cost of all the additional work, but may not have been paid for any of it!
Getting the most out of variations requires strength and discipline
Getting the most out of variations requires the strength to press your case against the Contractor, and the discipline to keep excellent documentation. But once you’ve done it once, it will get easier.
If you are in any doubt about how to identify and manage variations, or don’t know how to make the most money from them, then please come and talk to us.
StreetwiseSubbie’s Nationwide Network of Consultants are experts in helping you to deal with such matters.
Visit the Subcontract Variations page for more information.
Call The Helpline
If you need help, you can call us on 01773 712116 and start to solve that problem. Alternatively, you can email us via this link.
There is no charge for initial advice.