Contracts decoded: Claims and Variations simplified for the beginners.

In the dynamic landscape of construction projects, the terms "claims" and "variations" can be puzzling for beginners venturing into the realm of construction contracts. As foundational elements of project management, a grasp of the distinctions between these two concepts is essential. This guide aims to unravel the details surrounding claims and variations, providing beginners with a clear pathway to navigate the complexities of construction contracts.

In this introductory exploration, we'll unravel the basics of "Contracts decoded: Claims and Variations simplified for the beginners" to provide newcomers with a solid foundation for comprehending these concepts. From activation mechanisms to the valuation of compensation, this guide aims to demystify these terms and empower beginners to navigate the dynamic landscape of construction projects with confidence.

Activation Mechanisms

Variations and claims are triggered through different mechanisms, reflecting their distinct purposes in a construction contract. A variation is initiated by the employer, who issues a formal instruction altering the scope of works. This alteration can stem from a myriad of reasons, including a change of project specifications or a shift in design preferences. Conversely, a claim requires the contractor to give notice, signaling unexpected events or discoveries that fall within the employer's contractual risks. Unlike variations, notification is essential for claims, affording the employer an opportunity to mitigate potential impacts.

Variation as per FIDIC 1987: The Engineer shall make any variation of the form, quality or quantity of the Works or any part thereof that may, in his opinion, be necessary and for that purpose, or if for any other reason it shall, in his opinion, be appropriate, he shall have the authority to instruct the Contractor to do and the Contractor shall do any of the following:

• (a) increase or decrease the quantity of any work included in the Contract,
• (b) omit any such work (but not if the omitted work is to be carried out by the Employer or by another contractor),
• (c) change the character or quality or kind of any such work,
• (d) change the levels, lines, position and dimensions of any part of the Works,
• (e) execute additional work of any kind necessary for the completion of the Works, or
• (f) change any specified sequence or timing of construction of any part of the Works.

Nature of Changes

The nature of changes implemented under variations and claims further distinguishes the two provisions. Variations typically result in alterations to the permanent works, reflecting shifts in project specifications or design elements. On the other hand, claims often involve modifications to the manner in which the permanent works are delivered. For instance, unforeseen ground conditions may prompt changes in on-site equipment, while delayed design approvals may extend the project timeline without altering the permanent works. Weather-related challenges may necessitate temporary protection measures, showcasing the diverse nature of changes encompassed by claims.

Claim is a legitimate request for additional compensation in terms of time and/or cost due to breach of the terms of Contract as per the Contract or otherwise. Claim can be by the Contractor or Employer.

Compensation Valuation

A critical disparity between variations and claims lies in how compensation is valued. Variations are typically assessed using a predetermined schedule of rates and prices incorporated into the contract. This structured approach provides clarity and predictability in determining the cost implications of variations. In contrast, claims are compensated based on costs incurred, as the unpredictable nature of unforeseen events requires a more flexible and adaptive valuation approach. The purpose of a claims provision is essentially compensatory, aiming to reimburse the contractor for additional costs incurred due to circumstances beyond their control.

Choosing the Right Provision

The ability of a contractor to choose between variations and claims for seeking additional compensation adds another layer of complexity to construction contracts. In certain circumstances, the contractor may have the autonomy to decide which provision to rely upon. This choice may be influenced by factors such as the nature of the change, the impact on project timelines, and the overall financial implications.

In the intricate landscape of construction contracts, variations and claims serve distinct yet interconnected purposes. While variations empower the employer to modify project specifications, claims provide contractors with a mechanism to seek compensation for unforeseen events. Recognizing the activation mechanisms, the nature of changes, and the valuation methods associated with variations and claims is essential for effective contract management. Contractors navigating these complexities must carefully consider the circumstances at hand to choose the most appropriate provision for seeking additional compensation, ensuring a fair and equitable resolution in the dynamic world of construction projects.

CLAIMS UNDER THE NEW FIDIC CONDITIONS OF CONTRACT - DOWNLOAD

MORE READS ON CLAIMS

1. What is a Global Claim: Click here
2. Construction Claims: Click here
3. Acceleration Claims: Click here
4. Delays and Disruptions in Construction: Click here
5. Extension of Time and Prolongation Costs: Click here
6. A Guide to Claims Procedures in FIDIC 1999: Click here
7. The Claims Process under FIDIC 2017: Click here
8. Causes of Construction Claims: a Pragmatic Approach: Click here
9. Proactive Strategies to Avoid Construction Claims: Click here
10. The Role of Construction Document Management Solutions in Claims Resolution: Cick here

The Writer: Chathurka VINDANA, the founder of MrQS; the newsletter for sharing the QS and Contracts Management wisdom around the Globe for FREE!

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