20 October 2021
By Chris Jakovljevic

Construction and building remediation plans are a veritable moving feast. The best laid plans may drift due to unforeseen events, or worse, change completely due to something totally out of your control. The cause for either may be something as simple as the delay in one trade being able to get to site on time or a delay with a delivery, through to something more complex such as products being delayed overseas, to latent defects being discovered once on-site.

Contract administrators do their best to keep projects on track and cost deviations to a minimum, but the truth is, at times, there is little they can do. We wanted to take a look at some of the factors involved with project delivery from our perspective and explain why, at times, there are cost variations.

Scope of Work

At the start of a project, we determine what needs to be undertaken, the time frames and how we might schedule the work. Pulled together, the scope of work (SOW) (sometimes called a statement of work), is one of the most important aspects of the contract outlining the agreed to works.

It outlines all the above and as such is normally utilised in project management to help track progress and show accountability. As the most fundamental piece of a construction contract, our team relies on this document to ensure that we deliver to the highest standard possible.

Defects

At the outset, prior to the tendering process, our team will attend the site to review the works. In most instances this is with a third-party such as a building manager, strata manager or engineer, though at times it may be with the Owner’s Corporation. The purpose of this meeting is to understand the works, identify anything that may not have been picked up previously and to ascertain how we may undertake to provide the required works.

Through reasonable inspection, most defects are identified and will generally form a large part of the scope of work under a contract. What these inspections aim to do is identify all work to be undertaken, however, what often happens is things below the surface go unnoticed due to the fact they cannot be seen, or the scope of damage is not completely evident. It may be that water damage has penetrated an internal skin we cannot access until such time as we remove something else, or that we find corrosion is much worse than was first visible. These are what we call latent defects.

Latent defects are often inadvertently built into new buildings, remaining undetected (sometimes after years) until such time as they cause other issues, or they are discovered as part of a remediation project. At other times, latent defects can also be progressive; that is as time passes, a structure or its system are subjected to natural forces including wear and tear.

The part that no one can predict sadly, is how latent defects, supply chain issues or other affects will impact a project. Latent defects post the most considerable issue and it is due more often than not to hidden issues, that we have contract variations.

What is a variation order in construction projects?

A variation sometimes called a variation instruction, change order or variation order (VO), is an adjustment to the scope of works in a construction contract as an addition, replacement or omission from the original scope of works. In other words, when a project is found to have an element of work that is above and beyond the agreed to scope, we will supply a Variation Order.

We pride ourselves on undertaking to fully understand and challenge the SOW prior to engaging with a project, thus limiting the potential for variations, but the truth is, sometimes there is nothing we can do. Naturally, these variations can be significant in larger engineering projects but relatively minor for smaller contracts.

What is variation in construction?

Variations may include alterations to; the design, quantities, quality, working conditions and sequence of work. Variations may also be deemed to occur in case the contract document does not properly and expressly describe the works required. It should be noted that variations may not (without the contractor’s consent):

Change the fundamental essence of the works
Exclude workso that it can be completed by another contractor
Give instructions after practical completionby the contractor
Require the contractorto undertake work forming the subject to a prime cost sum.

At Remedial, we will never undertake a change order without communicating it to the superintendent in charge and as necessary, to other parties relevant to the project and its finances.

Cost variation process

Essentially, variations may lead to increments or deductions from the contract sum. The valuation of variations may include incorporating not just the remediation work within the variation instruction, but the costs associated with it, such as Scaffold hire, council permits for ongoing Hoarding requirements and so forth. It may also where necessary require adjustment of the project completion date.

Provided the work is of a comparable nature and carried out in comparable conditions, the rates and prices provided by us in our tender are the foundation of the valuation of any variations. This is communicated up-front and for the purposes of complete transparency.

All Remedial staff are aware that there are obligations they need to meet in tendering a VO to you. This is for both our professionalism and to comply with the Home Building Act, which states any Variations to Works must be recorded in writing and signatures appended by or on behalf of each party to the Contract. Central to this we comply with the critical components relating to Variations and Provisional Sums Adjustment under a Contract, especially:

Section 7: Forms of Contracts (other than small jobs)

Amongst other formal requirements, it requires that a Contract for building work relating to Residential Building Work (other than small jobs) must be in writing, dated and signed by and on behalf of each party to the Contract.

Section 7E: Terms of Contract required

This Section critically requires that Contracts to do Residential Building Work must contain certain terms :

(1) Plans and specifications (all plans and specifications for work to be done under this Contract including any Variations to those plans and specifications are taken to form part of the contract); and

(2) Any agreement to vary the Contract or to vary the plans and specification for work to be done under this Contract must be in writing signed by or on behalf of each party to the Contract.

A final thought

As Robert Burns wrote in 1786 “The best-laid schemes o’ Mice an’ Men” often go awry. Despite the planning, precautions, best practice and ongoing communication, projects often are hit with unforeseen circumstances. We will always communicate these with our clients, but depending on the nature of the issue at hand, sometimes need to introduce contract variations that will alter the timeline, the project cost or both.

Why projects sometimes have contract variations