In-Depth Guide on the Variation Claim in Construction Procedure

Procedure of Variation Claim:

In many construction and contracting scenarios, it is common for employers to request that contractors submit a Variation for additional work. This request can take various forms, such as an Instruction, Change Order Request, or Request for Change Proposal. However, more often than not, it is the contractor who identifies the need for a Variation. This realization may occur when a delay event disrupts the original project timeline, new drawings with differing information are issued, or when the contractor encounters unexpected variations in the contract or site conditions.

The responsibility for promptly notifying the employer of a Variation falls squarely on the contractor’s shoulders. In this notification, specific details about the claim, such as the associated costs or time impact, are often omitted unless these figures are immediately apparent to the contractor. Instead, the notification serves as an initial alert to the employer, indicating the existence of a Variation claim and suggesting that there will be subsequent discussions regarding the associated time or cost impacts. These detailed impacts will either be calculated by the contractor or submitted to the employer at a later date or within a timeframe specified in the contract documents. This notification process acts as an early warning to the employer, allowing them the opportunity to reconsider or modify their instructions, drawings, or specifications.

Once the initial notification has been submitted, the contractor faces the task of quantifying the extent of the Variation. In cases where both time and cost factors are involved, and the costs depend on the granted time extension, it may be advisable to initially submit an Extension of Time Claim. This approach provides an opportunity to reach an agreement on the extension of time before submitting the associated cost details. When submitting a time claim separately from the cost claim, it is important for the contractor to explicitly state on the claim that the costs will be submitted separately once the time-related matters are resolved.

Following the initial submission of the notification, the contractor usually performs the work of measuring the extent to which the variation prevails. In such instances where both cost and time aspects are found to be involved, and the price depends on the time that has been granted for extension, it is suggested that submission of Extension of Time Claim be submitted.

In situations where the contractor is unable to determine the time or costs within the stipulated time frame mentioned in the contract documents, they must seek an extension from the employer to lodge the Variation Claim. Sometimes, due to missing information or on-going assessments, the contractor can only provide an estimate of the costs or time impacts. In such cases, it is crucial for these estimates to be clearly labelled as ‘estimates,’ with an acknowledgment that the final impacts will be submitted once they are known.

Upon reaching an agreement between the employer and contractor regarding the cost and time impacts of the Variation, the employer typically issues a formal document, such as a Variation Order, Change Order, or Contract Amendment. This document serves as a necessary step to ensure that the contractor is compensated for the additional work required by the Variation. Importantly, this issuance represents a modification to the original Contract Document. The validity of the Change Order hinges on it being signed by an authorized representative of the employer and accepted by the contractor. It is worth noting that the individual authorized to sign the Change Order may be determined by its monetary value. For lower-value Change Orders, lower-level representatives may have signing authority, whereas higher-value Change Orders may require approval from higher-ranking individuals within the employer’s organization.

Contractors should exercise caution when faced with the possibility of splitting a Variation into multiple Change Orders, each falling below a specific authority limit. This practice could be employed by the employer’s representative to avoid authorization restrictions. Contractors should be cautious of agreeing to this, especially if it is evident that this approach is chosen to avoid the limits of authority. In cases like these, an employer audit could nullify any value that exceeds the authorized person’s limit of authority.

Ideally, a Change Order should include not only the agreed-upon value of the Variation but also the new revised Contract Value. The revised Contract Value represents the sum of the original Contract Value; all previously agreed Change Orders, and the value of the new Change Order. It is of paramount importance for the contractor to thoroughly verify this revised Contract Value, as it ultimately dictates the compensation they will receive upon completing all work on the project.

As such, a Change Order must necessarily encompass not just the value that has been agreed upon pertaining to the variation but also the revised Contract Value.

In conclusion, the process of handling Variations in construction and contracting projects is a meticulous and complicated one. It involves clear communication, early notification, diligent quantification, and formal documentation. The key takeaway is that both employers and contractors must navigate this process transparently and in accordance with the contract’s stipulations. By doing so, they can ensure fair compensation and project outcomes that align with the agreed-upon terms and conditions.

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