Articles

Variation claims – how to effectively claim

Change can appear inevitable, but when it comes to variation claims on a construction project, it can also be costly and confusing for all parties, including contractors, owners and financiers.

Morrissey Law + Advisory have prepared an insight into what actually constitutes a variation and the way in which variation claims may be substantiated.

What is a variation?

Put simply, variations to the contractual scope of works are:

  • ‘works which are not contemplated by the parties at the time of the execution of the contract’[1]; and/or
  • Works not expressly included in the contract but essential to the completion of the works[2].

Despite these common law definitions offering an apparently simple formula for distinguishing what is and isn’t a variation, proving the value and validity of variation claims can be very difficult, especially in the context of ambiguous documentation or latent conditions.

The circumstances in which a variation will be established are outlined in most of the standard form contracts, for example:

  • Under a standard form AS4000-1997, the representative of the owner (the superintendent) may direct that the works be varied by any one or more of the following (provided that the variation is capable of being carried out):
    • increase, decrease or omit any part of the works;
    • change the character or quality;
    • change the levels, lines, positions or dimensions;
    • carry out additional work;
    • demolish or remove material or work no longer required by the principal.
  • Under a MBA Residential Building Head Contract (BC4), the works may be varied by such things as:
    • Written instructions from the principal;
    • The supply to the builder of post contract details such as drawings;
    • The discovery of an otherwise unknown or latent condition; and or
    • An instruction issued by a relevant regulatory authority which makes a variation necessary to ensure the works are compliant;

which alters the work either done or to be done.

Scope of works

Where the contract does not specifically outline the ways in which the works may be varied, it is critical that you understand exactly what is allowed for in the scope of works and, in these circumstance, the devil will be in the detail.

The scope of works may be defined by reference to a quote, a tender submission, drawings and specifications, or a schedule in the contract itself.  Whichever it is, it is critical that both parties are aware of what works and materials are included and which are not and this means clear drafting to outline when changes arise, what is involved with the works, and what is excluded from the works.

Be sure to carefully read the clauses in your contract that details exactly which documents make up the contract. Although they may seem like unnecessary detail at the tender stage, the contract clauses covering the quantities, quality and kind of materials to be used on the project may become vital to your right to claim a variation.

Do I have to undertake the requested variation?

The limits on a party’s power to direct a variation broadly include:

  • a contractual variation power is not unlimited and a variation cannot go beyond what was contemplated at the time of the contract[3];
  • a variation instruction must be reasonable[4];
  • the general power to direct a variation has been held not to apply to a direction to perform additional work which has been expressly excluded under a contract[5].

What is the process for requesting variation claims?

Once again, this question will largely depend on the contract, however generally, these are some simple tips to protect your right to be paid for variation claims:

  • As soon as the need for a variation arises, notify the owner in writing. Such a notification should:
    • Be executed by both parties, or persons able to act on behalf of each party;
    • Be on a company letterhead (if applicable) to avoid confusion on larger jobs with numerous contractors;
    • Clearly state words to the effect of “Variation Request” or “Request for approval to vary the works” and detail clearing showing the change and the nature of the change;
    • Clearly state the name and/or location of the project;
    • Provide a breakdown of the additional costs associated with the variation. It is critical that you spend some time detailing the scope of the variation to ensure the principal does not expect more work to be done than you do; and
    • Detail any delay that the variation will have on the date for practical completion of the works.
  • If you or one of your workers are verbally instructed to vary the works on site, be sure to formally request written confirmation of the works to be performed. This is a common requirement under many standard form contracts and is included to ensure the builder does not misinterpret informal instructions given by the owner or its representative.

Tips for ensuring variation claims are clearly substantiated

We have found that there are some simple ways in which you can

  • Define the contractual scope of works clearly and comprehensively – this means dotting the ‘i’s and crossing the ‘t’s on all elements of the works to be undertaken. Although this will equate to spending more time during the tendering and contract negotiation process, it could save you thousands in the long run. You should also consider the most appropriate contract for the works, more detail found here
  • Ensure you follow your contractual obligations regarding notifying the owner of a proposed variation. This includes giving a precise and comprehensive breakdown of the costs associated with any additional work.
  • Maintain a detailed variation register – record the date of each variation, which party requested the works and the status of each variation claimed (i.e. pending, rejected, approved). This will allow you to better assess your risk that the principal may claim the costs of variations already paid as “paid on account, without admission as to liability”.
  • Chase up approvals – depending on your contract, you may not be entitled to proceed with the varied works until you have received a written direction and the delay caused by not receiving one may result in another dispute with the principal.

This article was prepared by Michael Morrissey, Principal + Founder, and Pat Ireland, Lawyer.

[1] Barter v Mayor of Melbourne (1870) 1 ALJR 160

[2] Williams v Fitzmaurice (1858) 157 ER 709

[3] Bush v The Trustee of the Town & Harbour of Whitehaven (1988) 52 JB 392.

[4] Wegan Constructions Pty Ltd v Wodonga Sewerage Authority [1978] VR 67.

[5] Wren v Emmet Contractors Pty Ltd (1969) 118 CLR 697.

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.