Nouman Qadir MCIOB, from law firm Quigg Golden, provides contractors with an overview of how to start navigating variations claims effectively.
What are variation claims?
When construction professionals talk about variations, they are generally referring to changes or modifications in the original scope of work. From a contractor’s perspective, this arises from an instruction from the client and will require adjustments to the contract price and potentially the project timeline. To secure entitlement for these changes, the contractor has to submit a formal claim (a ‘variation claim’).
Why are variation claims important?
CRUX Insight report into construction claims identifies “the change in scope” as the second biggest cause of disputes in Europe in 2022 and 2023. And a 2023 report by King’s College London on construction adjudications found that 32% of all construction disputes in the UK were related to changes made by clients.
How to handle variation claims effectively
There are four key steps that contractors should consider if they want to deal with variation claims successfully:
1. Identify variations
The first step is to properly understand the original scope of works. If there is an instruction from the client – or when the original scope becomes inexecutable – this will help the contractor identify what is necessary to change, and how to price it.
2. Beware of condition precedents
Another important step is to ensure that whatever the contract requires the contractor to do, payment will follow completion. This could be done by obtaining authorisation from the client – for example, a verbal instruction confirmation or issuing of a more formal notice.
Often, these are condition precedents, sometimes referred to as time bars. These are contractual requirements that must be fulfilled before a party’s entitlement under the contract kicks in.
In Construction Contract Claims, Reg Thomas and Mark Wright are of the view that non-compliance with these condition precedents is one of the primary causes of loss of entitlement to variation claims. Therefore, it is important to get these right and an effort should be made to comprehensively understand contract documents, especially the key clauses, and to keep on top of the regular updates such as amendments to the contract, waivers, or changes in relevant laws.
3. Price accordingly
The third step is to comprehensively analyse the new scope of works, identifying the changes from the original scope, and an evaluation of how these changes impact project costs and timeline. The differences should then be priced taking into account the cost of the additional work and time. This pricing should include any kind of markup for indirect costs, profit and overhead, as well as preliminaries like site management, supervision and temporary works.
Contractors are advised to invest time and resources in identifying variations, addressing and analysing the differences in cost and time, through a proper risk assessment.
4. Submit contractually
Once the differences are clear, the next step would be to submit a detailed claim based on the extension of time and/or associated costs, again following the provision of the contract.
Throughout this process, a contractor should maintain comprehensive and precise records, and document every aspect of the work and associated costs. These records are vital to substantiate the claim and tipping the balance of probabilities in the contractor’s favour when it comes to the determination of the claim or formal dispute resolution.
Avoiding misconceptions
It is a widely held belief that some contractors consider variation claims as an opportunity for financial gains due to underpricing or poor project management, which is a misguided approach.
Unfounded claims are counterproductive because the employer will assess the claim based on the contractual merits. Therefore an unsubstantiated claim would harm the contractor’s relationship with the employer and put future opportunities at risk. Therefore, it is crucial that a contractor approaches such claims with transparency, accountability and responsibility.
To conclude, a contractor should monitor and track a claim once submitted to ensure all aspects are thoroughly reviewed and managed. In addition, once a claim is resolved the contractor should do a post-claim analysis to learn and improve from their mistakes, if any.
Nouman Qadir MCIOB is a junior associate at Quigg Golden.
