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The Variation Claim process

Often employers request the contractor to submit a Variation for additional work.

This request could come in the form of an Instruction, Change Order Request or

Request for Change Proposal. But more often the contractor detects a Variation when a

delay event occurs, or a new drawing is issued with information different to what was

originally priced, or the contractor notices different Contract or site conditions.

The onus is on the contractor to immediately notify the employer that there is a

Variation (see below notifications). The Claim notification often doesn’t include the

quantum of the Claim (the costs or the time impact) unless these are immediately

evident to the contractor. Rather the notification would make reference to the Variation

Claim arising and that there will be time or cost impacts which will be issued to the

employer when the contractor has calculated their quantum, or within the time period

indicated in the Contract Document. The notification serves as an Early Warning to the

employer and provides them with an opportunity to withdraw or change their

Instruction, drawings or specifications.

Once notification has been lodged the contractor has to quantify the magnitude of

the event. If there’s a time element as well as a cost element which varies according to

the amount of time granted, then, it may be relevant to first submit the Extension of Time

Claim and agree that, before submitting the costs associated with the agreed Extension

of Time. When submitting a time Claim separate from the associated cost Claim it’s

important for the contractor to note on the Claim that the costs will be submitted

separately once the time portion is resolved.

If the contractor is unable to quantify the time or costs within the time specified in

the Contract Document they need to apply to the employer for an extension for the

lodgement of the Variation Claim. Sometimes, the contractor is only able to submit an

estimate of the costs or time of the impacts, but is unable to finalise the Claim because

of missing information. These estimates must be clearly marked as an ‘estimate’, noting

that the final impacts will be submitted when they become known.

Once the employer and contractor agree on the cost and time impacts the employer

normally issues a Variation Order, Change Order, or Contract Amendment. This is

required so the contractor can be paid for the Variation. This is effectively a

modification to the Contract Document.

The Change Order is only valid if it’s signed by

the employer’s authorized person and signed and accepted by the contractor. It should

be noted that the value of the Change Order may dictate who from the employer is

authorized to sign, because some representatives might only be allowed to sign Change

Orders if they are below a specified value. A higher authority may have to sign a

Change Order with a higher value. (It should be noted that on some occasions the employer’s representative could try and circumvent this ruling by issuing two Change

Orders whose total value equates to the agreed value of the Variation but whose

individual values are less than the person’s limit of authority. Contractors should take

care agreeing to this, particularly if it’s clear this method was chosen to circumvent the

limits of authority. An audit by the employer may nullify any value that exceeds the

person’s limit of authority.)

Preferably the Change Order should have the agreed value of the Change Order as

well as the new revised Contract Value. The revised Contract Value is the sum of the

original Contract Value and all the previously agreed Change Orders as well as the new

Change Order value. It is important the contractor checks that this value is correct

because this will be the value the contractor is paid once they have completed all the

work on the project.

The employer must be notified of Variations as soon as the contractor becomes

aware of them, and certainly within the time specified in the Contract. Failure to do so

may mean the contractor loses their right to lodge a Claim.

The Claim must:

1. Be lodged within the time-frame specified in the contract.

2. Clearly state the reason for the Claim.

3. Be addressed to the correct person.

4. Be delivered to the correct address.

It’s often good practice to discuss large or potentially contentious Claims with the

employer before submitting them. This not only forewarns the employer that the Claim

is coming, but also provides an opportunity to discuss the reasons and the merits of the

Variation Claim.

In some cases the employer may try and deter the contractor from lodging the

Claim, but contractors shouldn’t be dissuaded if they believe the Claim has merit. It

may not be possible to lodge the Claim later, but it’s always possible to withdraw a

contentious Claim at any stage. I have had employer’s representatives yell at me

because they were angered by a Claim, yet, once presented with all the evidence they

understood that in terms of the Contract our Claim was valid and it was later

successfully agreed with them.

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