Why do variations occur?
1. Upgrade of specifications
Should the client change their mind about the design and want the quality of finishes or the specification upgraded, a variation will be generated as it will increase the original contract sum. It is also important that the governing council be consulted once the decision to redesign is made, as the project is likely to require Section 96 approval. The Section 96 approval allows for a modification of the existing development application, and confirms the redesigned works comply with regular planning requirements and restrictions.
2. Poor documentation
One of the major causes of variations, poor documentation on a project, generally leads to variations as inconsistencies in the architectural and engineering design are realised on site. The full and thorough documentation of a project, combined with an effective contract severely limits the possibility of these types of variations occurring.
3. Unforeseen ground/site conditions
If something occurs on site that was unforeseen, and works cannot continue until the problem is rectified, additional costs will come into play as the problem wasn’t considered in the original estimate of costs. With any major building project, the vast majority of risk is held in the ground works portion of the project.
4. Unknowns in the development
until they start work. For example, they may come across white ants in the timber, or asbestos in the walls, and these things will often result in variations being generated – as walls, piers or roof structures may have to be replaced, therefore increasing costs.
5. Additional statutory/council requirements
If for example the Development Application for a building is refused, changes may have to be made in order for council to accept it. This being the case, variations will be generated due to the changes in cost. Also, if a new piece of legislation comes in to force, like BASIX in NSW, developers may have to change the design or fixtures in their development in order that it will meet legislative requirements – possibly generating further variations.
Situations When Variations Are Likely To Occur
There are a number of situations that variations are likely to occur in. These include refurbishment projects and projects where inexperienced clients are involved.
Refurbishments
As mentioned previously, variations are likely to occur within refurbishments due to the unknown nature of the existing works. Despite accurate research on the building prior to purchase or construction, an element of risk due to unforeseen factors remains until works start on site. Often the first stages of demolition uncover onerous conditions, such as the previously mentioned white ants or asbestos, resulting in many variations being generated.
Inexperienced Clients
Variations are likely to occur where the client is inexperienced. Often when the client doesn’t complete enough research on possible costs and design documentation is low, there is potential for variations to occur. This becomes clear when owner builders and publicans in particular, decide to develop. With no experience in dealing with construction, many owner builders (including publicans) find themselves struggling to cope with the demands of sub contractors, financiers and consultants.
Variations and Contracts
As the majority of construction projects will incur some variations during the course of construction it is imperative that the contract specifically states how variations will be advised, assessed and priced within the contract. Some methods used to perform this include:
-
Variations are valued using rates or prices agreed to in the contract;
-
Variations agreed between builder and developer may have an agreed percentage included or excluded for profit and overheads; and
-
If a bill of quantities forms part of the contract the rates in the bill of quantities shall apply.
The Impact of Variations on BMT & ASSOC Reporting to the Financier
In most instances, financiers set aside a contingency margin (commonly 5% of the construction cost), to allow for variations during the construction process. At times, and particularly with inexperienced clients as noted above, the contingency allowance may be exceeded resulting in the project cost increasing beyond all expectations. This then leaves the financier with the option to either extend the limit of funding available, or leave the developer with the responsibility to privately arrange funding for the variations exceeding the contingency. BMT & ASSOC report diligently on any variations being requested by the builder to the developer, and in turn the developer to the financier. BMT & ASSOC keep a record of variations throughout the project, by ensuring the builder completes a variation sign off sheet when they submit a progress claim. Our reports feature a section that comments on variations, and also a variation schedule that lists variations made to date – a quick, easy to read chart for financiers.
Please contact Bradley Beer, Tom Plenty or Pedro Cardoso at the office for further information.
|
