15 June 2018

How to claim a variation under a construction contract

Construction contracts usually contain specific procedures for claiming a variation - which, if not followed, can result in your entitlement to claim being lost. There are six basic steps to follow when claiming a variation, as summarised below.


 

1. Characterise the nature of your entitlement.

The first step is to identify whether the change in scope is in fact a 'variation' within the meaning of the contract.

When a contract refers to a 'variation', it typically means a change in scope that has been directed by the principal or superintendent.

Depending on the terms of your contract, there are a number of other events that could give rise to an entitlement to claim an extension of time (EOT) or an adjustment to the contract price. (Latent conditionsdiscrepancies between design documents or changes in legislative requirements are examples). Although you might think of these as a 'variation', they might not actually be a 'variation' for the purposes of the contract.

This distinction can be critical because there might be different procedures for claiming different types of entitlement. 

2. Check the contract.

Once you have determined the nature of your entitlement (and therefore the type of claim you need to make), you will need to look to the relevant clauses of the contract to see what is required.

It is important to consider all potentially relevant clauses, noting that there may be more than one that applies to your situation.

For example, if you have been directed to perform a true 'variation', you will most likely need to consider the clauses in your contract that deal with variations, EOTs and delay costs (potentially 3 separate provisions). Often you will be required to submit more than one notice in respect of the same entitlement.

If your contract includes time bars, you will need to comply with all relevant timeframes. Otherwise you could potentially lose your entitlement to some or all of your claim.

If different parts of your contract prescribe different timeframes for the same thing, the safest course is to assume that the shortest timeframe applies. 


3. Notify the client.

The best way to avoid a dispute is to maintain transparency throughout the project.

Many contracts will expressly require you to notify the superintendent or principal as soon as you become aware of anything that might constitute a variation (including a direction received from the superintendent or principal, even if it is not stated to be a variation).

This applies even where you might not have all of the information to provide the complete picture. Particularly where your contract contains time bars, a failure to provide a notice at all can put you in a much worse position than submitting a notice which is qualified to reflect a lack of relevant information.

Before sending any notice, you should again check your contract to confirm:

  • who the notice must be sent to; 
  • what needs to be included in the notice, and the level of detail that is required; 
  • how the notice needs to be sent (eg email, Aconex, fax etc); and
  • to whom the notice needs to be sent.

Read our blog here to find out when a contract notice sent via email will be valid.

4. Prepare your detailed costings and other substantiating information.

You must be able to substantiate your claim. The type and level of information that will be required to achieve this will depend on the nature of the work and the amount of time and cost involved.

Some contracts will require this information to be included in your initial notice (step 3 above). However, many will contemplate an initial, abbreviated notice or estimate, with the detailed information to follow separately. You will need to check your contract to see which applies.

When setting out your entitlements, think carefully about:

  • all work that may be required to effect the change;
  • the impact (if any) this will have on the program, and whether an EOT may be needed (and if so, whether delay costs may apply); and 
  • your entitlements to claim additional preliminaries, overheads and/or margin.

These different entitlements should be addressed separately, so that the superintendent or principal can understand the basis for your claims.

If you are submitting a claim for an EOT, you will need to be able to demonstrate that the variation affects an item on the critical path of the current construction program. An impacted program, based on an accurate baseline program, is typically the best (and sometimes the only) way to demonstrate this.

Where you are claiming an EOT, the contract may require you to explain the steps you have taken to minimise or mitigate it. Even if this is not a requirement under the contract, including this additional information in your claim may improve your chances of success.

5. Wait for a direction to proceed before starting work.

Before commencing work on a variation, and subject to the terms of your contract, you should wait to receive a written direction to proceed from the superintendent or principal. It is critical that this direction is given after you have given them written notice of the time and cost that will be involved (per the previous steps above).

The idea here is to ensure there is a clear paper trail to demonstrate that, when they directed you to proceed with the work, they were on notice (in writing) of the potential time and cost implications of the direction.

Most contracts will require a direction to proceed with a variation to be in writing, and will place the contractor in breach of the contract if it proceeds with a variation without a written direction.

If you proceed with the works without a written direction, you run a much greater risk of not being paid.

6. Perform the work and claim payment (and an EOT if needed).

Once you have completed the work, you should claim payment for it. 

If your variation involves a delay, make sure you have followed the process for claiming an EOT and any delay costs (if applicable). 

Once the work has been done, from a legal perspective, there is nothing to prevent you from including the claim in your monthly payment claim.

Concluding Comments

As always, the terms of your contract will be critical.  They will explain the exact process you should follow.

If your contract is a particularly complex one, it may be worth creating flowcharts and forms at the beginning of the project (or you could consider engaging someone like us to do this for you). Not only will this save you time later, it will also increase the likelihood of you capturing all of your entitlements, and reduce the risk of you missing critical dates and becoming time barred.

 Construction lawyer

About the Author

Morgan McIntosh | Lawyer

Morgan is a commercial lawyer whose practice is mainly focused on transactional matters in the construction space.


morgan.mcintosh@turtons.com | (02) 9229 2901

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in privately owned construction and technology businesses.

Morgan McIntosh | Lawyer

Author

Morgan McIntosh | Lawyer

morgan.mcintosh@turtons.com

Morgan is a commercial lawyer whose practice is mainly focused on transactional matters in the construction space.


morgan.mcintosh@turtons.com | (02) 9229 2901

Senior construction lawyer

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