Construction project variations – have you included all your costs?

As discussed in my earlier post ‘Are you working for free on your
construction project’ (Read more) most construction projects have changes and variations which contractors have to undertake. Contractors need to claim for the additional costs associated with this extra work. The variation work usually has to be priced before the work is carried out. Unfortunately some contractors don’t price these correctly which means that they could be out of pocket. Other contractors try and be too clever, focussing on how they can make their claim as large as possible, even inventing costs. Yet, these same contractors forget to recover some of the actual costs they are entitled to claim.

In my post ‘Understanding the real cost of delays to your project’ (Read more) I discussed some of the costs that delays cause to projects. Below are potential costs that should be considered when formulating other construction variations.

Variations could include:

1. Construction labour costs including:

a. the base wages

b. overtime

c. non-productive time such as paid breaks, travel time, time to prepare hazard assessments, inductions, and so on

d. allowances

e. statutory levies such as for training

f. leave pay, bonuses, sick leave, pension, and so on

g. personal protective clothing

h. personal small tools

i. accommodation (if applicable)

j. travel (where necessary)

2. construction material costs including:

a. the actual material cost

b. transport of the material to the construction site

c. offloading and handling

d. protection and packaging

e. quality procedures and tests

f. wastage due to breakages and cutting

g. cutting (unless this has already been included in the labour cost)

h. fixings

i. royalties

j. insurances

k. duties and taxes

3. construction equipment including:

a. hire costs

b. unproductive time

c. mobilisation and demobilisation costs

d. insurances

e. fuels and lubricants

f. wearing parts such as cutting edges, drill and moil points

g. maintenance

h. supporting vehicles such as fuel and service vehicles

i. attachments and ancillary items

4. demolishing existing structures including:

a. loading and transport of waste materials

　

b. temporary supports and bracings

c. dump fees

d. protection of finished work

5. supervision and management costs including:

a. the basic salary

b. allowances

c. leave pay and bonuses

d. accommodation and transport

e. computers and mobile phones

6. off-site staff such as Contract Administrators, and Planners

7. project insurances and sureties

8. costs of permits

9. profits and overheads

10. access equipment

11. office and facility hire

12. additional security

13. protection of existing and completed structures

14. additional design and drawing costs

15. subcontractors’ costs including the contractor’s mark-up

It’s also important to assess the effect the variation has on the schedule which may result in:

1. the overall project duration being extended

2. the variation impeding or delaying other works

3. the variation requiring resources from other tasks which then impacts on their completion dates

4. in some cases the overall project may be delayed and push the work into an unfavourable weather season such as winter or heavy rainy periods

Although it’s important to ensure that are captured it’s also petty to be claiming for a kilogram of nails on a one thousand dollar variations, or to be adding in every cent, which can be time consuming. Some of the costs may also already be covered elsewhere in the contract. Remember too that the client will often request a breakdown of how you calculated the cost of the variation so ensure that you are able to justify all of the costs. Good record keeping is an essential aid to proving your costs.

Sometimes clients may insist the variation is priced according to existing rates or other similar work. You may then have to ensure that these existing rates will cover all of your costs. If they don’t you may be able to justify to the client reasons why the existing rates shouldn’t apply.

You usually have one opportunity to include all the costs in your variation and it’s difficult, unprofessional and embarrassing to ask the client for more money after your variation has already been accepted by them. So get it right first time.

(Adapted from the book; ’Building a Successful Construction Company: The Practical Guide’ by Paul Netscher. Paul has also written the popular book ‘Successful Construction Project Management: The Practical Guide’. Both books are available from Amazon and other retail outlets)