YOU SHOULD KNOW BETTER! Preparing variation notices that GUARANTEE payment

How much money are you leaving on the table each project? 

Construction projects can be unpredictable. Unexpected site conditions, changes in scope due to local or state authority requirements and uncoordinated designs are commonplace.

To cope with this uncertainty, construction contracts need mechanisms to change the scope and price of the work. Almost all commercial construction contracts (particularly, Australian Standard contracts) allow the principal to adjust or vary the scope of the works throughout the project. If there is no variation clause, then the contractor is under no obligation to vary the works unless there is an express agreement about the scope of the new work and price for work: Ettridge v The Vermin Board of the District of Murat Bay [1928] SASR 124.

All variation clauses must allow additional payment for work once a direction has been given. Unfortunately, contractors often fail to properly claim for the work carried out pursuant to a variation and therefore, are left holding the bag. This leaves contractors with no choice but to perform the works as directed for FREE, with no compensation.

Here are 3 steps to guarantee payment for any variation claim.

1. Identify what is a ‘direction’ under the contract

A contractor is only required to carry out additional work that has been directed. At common law, a direction can be anything which requires the contractor to carry out additional work. This includes a formal written direction (such as a variation notice), an informal written direction (such as emails from the superintendent or principal’s representative), being provided with plans or specifications which require different works to what is specified under the contract etc.

Well drafted contracts contain clauses which prevent contractors from being able to claim for any works that are not issued in a formal variation direction. These clauses are designed to put the onus back on the contractor to claim for any work.

For example, say a principal provides a new excavation plan which requires an additional 100m3 of detailed excavation. Under one of these clauses, if the contractor did not provide notice of its intention to claim a variation in accordance with the contract – then it would have to do the work for free.

2. Identify if there are any time limits or bars for providing notice of an intention to claim for variation works

Modern commercial construction contracts are littered with time bars which prevent contractors from being entitled to claim for variation works, unless a notice is provided within the specified time. Often, contractors provide notice of their intention to claim a variation when they submit their progress claims (rather than in accordance with the terms of the contract). Unfortunately by this stage, their entitlement to claim is often lost.

Whilst these clauses can be harsh, they are designed to allow the principal the opportunity to inspect the works on site relatively close to when a variation is being claimed and assess the extent of the claimed variation.

3. Provide notice that you intend to claim additional costs for the work associated with the direction

Contractors often confuse providing a ‘notice’ of an intention to claim a variation with actually claiming payment for a variation. Modern commercial contracts often bar the claiming of a variation unless the correct notice has been given.

Whilst the requisite notice is contract specific, contractors will satisfy most notice requirements if they set out:

• a description of the original scope of works under the contract (including references to drawings, specs or the NCC/Australian Standards);
• identifying the direction to carry out work that is different to the original scope of works;
• an explanation of what additional work is required pursuant to the direction; and
• a breakdown of the costs or estimated costs to carry out the new works.

Remember that in most contracts, it is not necessary for there to be an agreement about the price of the work before it is carried out. Often, if there is a dispute then the contractor MUST proceed with the work with the price to be determined AFTERWARDS by the superintendent. If that price is unfair or unreasonable, then an Adjudicator or the Court can step in and adjust the price of the works.

Conclusion

Getting paid for variations is easy. Unlike EOT claims, they are usually simple to explain and require little paperwork.

Yet, each project contractors leave large sums of money on the table by failing to claim for variations or losing their right to claim for variation works because they don’t comply with their contracts. Essentially, they carry out this work for ‘free’ and lock themselves into a dispute at the end of the project when they’re in the red.

Unless you have a properly drawn contract that protects your rights, a notice of an intention to claim a variation should be given EVERY TIME a direction is given that results in additional work. Commercially, it is not necessary to claim payment for the variation in each progress claim, but to preserve any right to claim, the correct notices need to be given under the contract.

Request your FREE template variation notice at [email protected] that if completed correctly, will GUARANTEE payment for any valid variation claim.

If you found this article helpful, please like, share and leave your comments below about whether you’ve encountered any of the above issues on your projects.

*All my articles are drafted with references to case law and legislation. This is not to bore you with the intricacies of the law, but to allow you to rely on my material when resolving your own disputes – should it not be feasible to instruct a solicitor such as myself.

As a disclaimer, the content does not constitute legal advice and should not be relied upon as such. Appropriate legal advice should be obtained in actual situations. Feel free to contact me at [email protected] should you require any assistance in resolving a legal dispute.