Variation claims: an introduction for contractors

There are four key steps that contractors should consider if they want to deal with variation claims successfully:

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.

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.

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.

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.  

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.