Almost every construction project has changes, delays and extra work and invariably contractors incur additional costs. Many of these costs can be claimed back from clients when the contractor submits a variation claim. It should be straight forward, there was a change and the contractor should be paid their additional costs. But, as we’ve previously discussed the contractor must substantiate the reason for the variation claim as well as the costs.
Will you get the money you claimed in your variation claim?
Regrettably, many construction variation claims are poorly put together and clients reject the contractor’s claims.
But, even when the client approves the claim there’s no guarantee that all of the contractor’s costs will be reimbursed. In fact, compounding the problem is that contractors often don’t claim all of the costs they incurred because of a variation event – costs which they’re entitled to claim. This may seem hard to believe, after all who would work for free, or not claim legitimate costs?
But, it regularly happens because contractors forget some costs, they don’t keep accurate records, or they don’t fully appreciate the full impacts of the variation on their work, including the wider impacts of the variation on work not seen as being directly impacted by the event.
Of course, there are also some contractors who become gung-ho when they see a variation claim. They think they can add everything and anything to increase the value of their variation claim. In their excitement of adding inflated and fictitious costs they often overlook legitimate costs.
Naturally, most clients are generally wise to contractor’s ways, and any costs and delays which can’t be substantiated will be rejected and the contractor will face disappointment when they only receive a fraction of what they tried to claim from the client. In the process, they’ve also damaged their reputation as clients generally don’t like to be taken advantage of. Unfortunately, in this process, the contractor may have lost the opportunity to claim the legitimate costs that they overlooked in their rush to fabricate costs.
Costs you should add in your construction variation claim
It’s vital to understand the full impacts of the variation, which could include disruption to the construction work and reduced productivity of both people and construction equipment. Then there’re impacts on other project work, which could include blocking access, taking construction resources from these activities, discontinuity of work, underutilisation of resources, and interference with the work.
Costs to consider include:
1. Labour costs
Including base wages, overtime costs, allowances, personal protective gear, and transport and accommodation of workers where this is supplied by the contractor.
2. Equipment costs
Including the hire costs, the wages of the operator, fuel, lubricants, insurance, spares, and services where necessary.
4. Mobilisation costs for equipment and people
Of course, don’t forget that items brought to the project for the additional work must be demobilised after they are no longer required.
5. Material costs
Including transport, offloading, wastage, testing, a design where necessary, and all adhesives and fixings.
6. Supervision costs
Including salary, transport, accommodation, computers, etc.
7. Access equipment and cranes
Either additional equipment or the equipment is required longer on the construction project than planned
8. Off-site costs
Such as project personnel working from the head office.
9. Project overheads
Such as office hire, insurances, bonds, security, site facilities, etc.
10. Subcontractor’s costs
Check that they've provided all their actual costs. You don't want them to submit a further claim after you've lodged your claim with your client. Of course don't forget your costs where you've had to provide things to the subcontractor - say transport, cranes, access scaffold, transport, etc.
11. Demolished materials cost
Where demolitions are involved, then the cost to load and cart the demolished materials from the site, costs to deal with hazardous products, dump fees, temporary supports, and bracing, etc.
12. Design cost
Where required, design fees.
13. Profits and overheads on the above
14. Protection of existing and completed work to enable the additional work to be carried out.
Of course, the client can request a breakdown of these costs, so they should be provable. Often projects involve multiple variation claims and it’s important that contractors are consistent and use the same base cost for items on the variation claims. For instance, it will appear suspicious if the contractor uses $15 an hour for a labourer on one claim and $16.50 in another claim.
This article was first published on the ClockShark website. To visit this website and continue reading the article click on the link above.
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Do you want to learn more about construction claims?
Paul Netscher has written several easy to read books for owners, contractors, construction managers, construction supervisors and foremen. They cover all aspects of construction management and are filled with tips and insights.
Paul's book, 'Construction Claims: A Short Guide for Contractors' is a simple guide to construction claims, giving tips on preparing claims as well as how to avoid claims.
The books are available in paper and ebook from most online stores including Amazon.
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The opinions expressed in the attached articles are those of the writer. It should be noted that projects are varied and different laws and restrictions apply which depend on the location of the contractor and the project. It's important that the reader uses the supplied information taking cognisance of their particular circumstances. The writer assumes no responsibility or liability for any loss of any kind arising from the reader using the information or advice contained herein.
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