Many construction projects involve acrimonious legal fights over the contractor’s variation claims. Some of these battles drag on for months, even years, after the project is finished. They take a huge amount of time, effort and cost. Can these disputes be avoided?
In my career I’ve been involved with over 120 projects in various roles, from site engineer, to project manager, project director, and general manager of the construction division. On almost every project we lodged variation claims for both cost increases and delays. 99% of these claims were settled with the client without resorting to outside intervention or legal help. In most cases we agreed amounts which were more than satisfactory for us. Sure, on some occasions we had to concede when we were wrong, once or twice we were beaten on a technicality, and sometimes we looked at the bigger picture on the project where it was beneficial to allow the client a win in return for the benefits of other claims we settled. Some of our contracts nearly doubled in value because of variation claims, and some had extension of times agreed of several months. Despite these many and sizable claims we remained on good terms with our clients and their team, continuing to be employed on their next projects.
Now winning these claims was often vital for us, and without the wins many of the projects may have ended in a loss, or we would have finished beyond the original agreed project completion date which would have result in penalties or damages.
I was personally involved with many of these claims, some claims were at my instigation, some I put together from scratch, many I provided input and advice to those preparing the claim, and most I argued the merits of the claim with the client’s team.
So I find it alien that some project managers leave the preparation of variation claims entirely to their quantity surveyors, contract administrators, or other people in their team. Some companies even pass variation claims directly to external legal teams to put the claim together. Now I’m not saying that these people aren’t capable of preparing claims, but I believe that project managers should play an active part in the process.
I’ve written several construction books, and I find it interesting that my book ‘Construction Claims: A Short Guide for Contractors’ sells the least copies of them all, and sells only one tenth, sometimes fewer, of the copies of my top selling book, ‘Successful Construction Project Management: The Practical Guide’. Now at first I was concerned that my claims book wasn’t great. I know that there are more detailed claims books on the market, but I tried to make my book an easy read that gave a general overview to variation claims. Fortunately the claims book has received some good reviews. So why are there so few sales? I realise now that having a better title may have helped! But looking at the other construction claims and construction contract books I’m surprised to see that they also sell as poorly as my claims book, while there are many general construction management books that sell equally well, even sometimes better than my top seller. Obviously reading books about variation claims is not high on the priority list for project managers. Is it because they are boring, maybe because project managers believe that they already have a good understanding of the topic, or because project managers believe that all contractual matters should be left in the hands of others?
But, this is where many of the problems arise on construction projects.
It is vital that project managers (site managers, construction managers, site agents) have a good understanding of variation claims.
- Work on a construction claim doesn’t start when the event causing the claim happens, it should start before work even begins on the project. It’s vital for project managers to understand the contract documents. These set out the rights and obligations of both the contractor and the client. Failure to fulfil these obligations gives rise to a claim from the other party. Indeed many opportunities to lodge a variation claim are missed because project managers don’t read and understand their contract documents. But the contract document also sets out the steps and the timing required to lodge the claim. Failure to follow these steps could invalidate the claim.
- Now some project managers are of the opinion that spotting a claim should be the responsibility of their contract administrators and quantity surveyors. Why? Many of these people aren’t even full time on the project, they often aren’t at the ‘coal face’ and aren’t aware of the day to day issues and changes happening on the project – or if they are it’s often after the fact. Realising that a claim event has arisen is a team affair, and the more people looking for claim opportunities (and I mean legitimate variation claims) the less likely that they’ll be missed, or only detected when it’s too late to claim.
- But that’s not even where the problems begin. A variation claim requires substantiation. There’s often extensive records, which may include; daily diaries, project reports, construction schedules, information required schedules, early warnings, emails, drawing issue logs, site information requests, weather records, project meeting minutes, and more, that are vital to substantiating claims. Yet regrettably, much of this information is missing, or is of a poor quality, often containing conflicting information, or even information that is more beneficial to dismissing the variation claim. Ensuring that all these records are maintained, that they are an accurate representation, and that the information is consistent and unambiguous, is definitely part of the project manager’s role. All of this paperwork starts from the day the project is awarded, indeed it actually starts back when the request to price the project was received from the client.
- But, just as important as having information ready to lodge a variation claim, it’s equally important to have the information available, and to follow the correct contractual procedures to avoid, and to defend claims lodged by subcontractors or the client. Far too often project managers don’t follow the correct contractual procedures which opens the contractor up to a claim against them.
- Often changes and delays have knock-on effects. It is important to understand these knock-on impacts, and take them into account when formalising the cost and time impacts of the change or delay. Far too often contractors claim for the direct impacts of the variation and then belatedly discover other impacts which they hadn’t allowed for. Those directly involved with the day-to-day activities of the project are best placed to understand the full time and cost impacts of the variation event.
- It is important that project managers understand the logic and the background of the variation claim. They are often the first person that the client’s team discusses the variation claim with, so their ability to present the facts supporting the variation claim in a logical manner is a vital step to winning the variation claim. Presenting the wrong arguments and facts, or failing to have an understanding of the claim, can undo the hard work that’s gone into preparing the claim.
- Of course the contractor’s project manager must also ensure that variation claims submitted in their name are legitimate. Spurious and poorly thought out claims can harm the contractor’s reputation, it can damage relationships with the client, and it could even damage the project manager’s own reputation.
- Furthermore, sometimes having a sound contractual knowledge can mean that the project manager is able to provide the client sufficient early warning to avoid the variation claim arising. Variation claims may appear to be lucrative for contractors, but they take time and effort to put together. Sometimes, there are more benefits to finishing the project on time with minimal changes and interruptions.
I always enjoyed preparing variation claims, arguing their merits and winning the claims. I found it a very satisfying part of my job.
It is almost inevitable that projects will have changes and delays. It is vital that the contractor is compensated for these. However, no matter how legitimate the variation claim may appear to the contractor they must present the variation claim timeously, in accordance with the contract documents, and with all the supporting facts and documents. Contractors usually have only one opportunity to quantify the full time and cost impacts of the variation.
It’s therefore vital that project managers read and understand the project’s contract documents, that they ensure that proper systems are in place to maintain accurate records, and that they take an active role in the formulation, preparation and the presentation of variation claims. These claims can be worth millions.
It’s time that project managers brushed-up on their contractual knowledge. There are many valuable courses and books available.
What do you think?
Should project managers take an active role in preparing variation claims?
'Construction Claims: A Short Guide for Contractors' is another of Paul's useful books.
Paul has recently published 'Construction Management: From Project Concept to completion'.
These books are available on Amazon and other online book stores.
Paul publishes articles regularly on LinkedIn and his website.
Paul writes regular articles for other websites, gives lectures, mentors, and is available for podcasts and interviews.
© 2017 This article is not to be reproduced for commercial purposes without written permission from the author.