How To Address Cost Variations
Variations are a reality of building, be prepared and know what you should do once you receive one.
It is a 99% chance you will receive a variation sometime during your build with the biggest unknown, how much for.
As with all things related to your home build contract, your first step if you don't understand the claim or know what to do, seek professional and legal assistance. Doing nothing or failing to meet your contractual obligations may put you at a disadvantage and obligated to make payment for a claim you may have been entitled to refuse.
Always read any general advice in the context of your contract, as every contract is different.
Cost Variations
What is a variation
The importance of managing variations
How to manage variations
What should a variation include
How to avoid variations
Practical advice
What Is A Variation
What is a variation, and what should you do? Home building is exposed to many changes through the build stages, some of which can give rise to additional costs; a variation is the builders' claim for these extra costs.
Variations are alterations to the agreed building contract and can be instigated by either party and only actioned on an agreement with few exceptions.
They can impact the scope of work, costs and contract period. The adjustment to the contract period is addressed through an extension of time claim.
Common reasons for variations are:
Design changes
Changes in quantities
Product changes
Changes in quality
Changes in the work sequence.
If you have a fixed price contract, there is generally little reason for a builder to be able to claim variations. Variations that you often see people referring to with a fixed price contract commonly this occurs:
PC & PS items not being specific,
Engineering design incomplete
Omissions in contract documents due to insufficient checking.
Builders rely on people being vulnerable due to a lack of experience and knowledge
People rely on word of mouth agreements before contract signing.
Always check your contract first to determine if the reason for a variation is warranted.
Variations can go by several names, including cost variations and building variations.
This article is not legal advice nor a substitute for obtaining professional legal advice. Always seek legal advice before taking action, especially if you lack the professional expertise and experience to address the situation.
The Importance Of Managing Variations
Variations are the most common reason for disputes and ultimately lead to litigation. Common disputes are often due to differing opinions of
Whether the works are part of the original scope of works.
Disagreement on the cost of the variation.
Commencement of works before agreement of works and cost.
Lack of compliance with the contract and failure to put things in writing.
What is deemed a fair interpretation of the contract and documentation?
To avoid these conflicts, it is best to ensure the builder manages variations in a timely and contractually compliant time frame and you be firm but fair with their claims.
How to Manage Variations
Like many things, the best way to manage them is to have them in writing and ensure you receive a copy of the agreement. The general process for managing variations is as follows:
The builder will issue a variation price request.
You either agree and proceed, disagree and not, or negotiate scope and price to find an agreeable compromise.
Sign and agree to the variation.
Builder issues you a copy of the signed variation.
Builder proceeds with the works.
Many contracts require the builder to issue the client a copy of the variation before the commencement of works or within a stipulated time frame from when the variation is signed.
There is often an exception when work is urgent and seeking approval is not practical.
What Should a Variation include
The builder will raise a variation that can be instigated by either client or the builder. The variation should include
A clear description of the variation.
Date of the variation request.
Any delays and how long.
Cost of the variation and method of calculation.
Confirmation of when the variation is to be paid or credit applied if there is a saving.
Variations can also result in a saving of both cost and time.
How to Avoid Variations
The best way to avoid variations occurs long before you start on site. The solution is to check your contract documents carefully and thoroughly.
Check every document carefully before signing to ensure everything you want and have asked for is included. If not included in the contract, it's not included, irrespective of how many discussions and times it may have been promised.
Make sure you are confident with all your selections, as changing them is top of the list for variation claims.
Practical Advice
Always ask if you are unsure
Considering the potential for an obscene amount of total variations that may put you in a financially difficult position, try to follow this advice:
Ensure everything is in writing, and don't issue any instructions verbally.
Follow the process above when addressing the variation with the builder and get your copy for your records.
Don't accept the “it will be right, we’ll sort it out later” approach to variations. This applies to both you and the builder.
Always refer back to your contract regarding how it requires both parties to deal with variations.
If the builder doesn't follow the process outlined in the contract, seek professional and legal assistance.
Home building is complex and stressful, so make it easier on yourself by seeking more help by checking out Dreams to Reality your home build companion course, which is curated to help you navigate your journey from start to finish.
Good luck on your journey. Feel free to drop us a line at Dddreamhouse or join our Facebook group and hit us up with any questions you may have and see if we can help you navigate your home build journey.
