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
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.