Does your commercial building contract properly address variations?

What you need to know to make a valid variation claim  

As a builder working on commercial projects, there are three different types of variations that your contract needs to cover off on:

  1. Builder’s request
  2. Owner’s request
  3. By necessity

Yet you can’t easily check online to see if your commercial contract variation claim is valid. That’s because, while a domestic contract is statutory (and covered under the Act), a commercial agreement is contractual – meaning that it will differ from project to project. 

So it’s important to check the terms of your contract well before you need to worry about a possible contract variation. 

How building contracts should handle variations

Before you claim for a variation, check your contract, and understand what it says about the scope of work to be carried out.

  • Is this variation something that was in the contract that you can’t claim for?
  • Or is it something that is outside of the contract, and can be claimed?

Ideally, your contract should have variation entitlements. This can help ensure that your cash flow is preserved if you need to make a variation claim.

If your contract doesn’t cover variation entitlements, you might be okay – until you need to put a variation request in. That’s when previously unseen problems can appear and cause you grief.  

If your contract is badly defined and things do go sour, while there is a capacity to recover for Undocumented Variations, they can be legally difficult and expensive to recover. That’s why you’re better off having variations addressed in your contract right from the start.  

The courts recognise that parties are not to be unjustly enriched, but it is timely/expensive to get through the court.

That’s why it’s a good idea to ensure your contract covers variations properly before you begin work. 

Your domestic variation claim checklist

Three examples of how contract variations can cost you

Even with the very best intentions, when not properly handled, a variation can cause you problems. Here are three common examples of how and why a variation that’s not covered in the contract can cost you: 

Example #1 – A variation by your request as the builder

In our first example, let’s say you’re happily in the middle of a commercial building project, when you notice that something the architect has stipulated is going to be impractical or is going to run up unnecessary costs.

You’re a professional and you’re justifiably proud of your reputation – so you don’t simply carry on with the work as specified when you know there’s a better way. You go to the project owner and suggest a better or more efficient solution. 

Yet – even though your solution is a good one that will save time and money, and the owner gives you the “go ahead”, there is an argument that you have broken the contract because you deviated from what was written. 

That’s why to protect yourself from litigation, you must submit a written variation request in accordance with your contract. This variation request will typically detail:

  • What/why/how much is involved,
  • How the variation affects the total contract sum, and
  • When it will be claimed for.

Example #2 – A variation by the owner’s request

Similarly to the above example, you’ll also need a variation request if the building owner asks for a change to the building project outside of your contract. 

For example, let’s say that mid-way through the build, your owner leases the ground floor tenancy to a café or another venue. They realise that this tenant will naturally create noise which may affect those above… so they ask you to build a different structure with additional glazing or soundproofing to address this.

It’s not a good idea to be overly accommodating and simply say, “no worries!” Instead, you should seek a variation in writing in the form of a Variation Request to the owner.

Example #3 – A variation claim by necessity

A third potential cause of variation claims is by necessity. For example, soil tests indicated there’d be easy/normal digging on the site. Yet when work commenced, the excavations hit hard rock.

Clearly, dealing with this changed situation can impact on the scope of your building work. You may have to change the type of excavator or crane you need to use. In turn, this different equipment might necessitate traffic control — and the associated costs.

Because of the potential complexity of the situation, there should be a written variation request with the correct process.

Submitting a variation claim

If you find yourself in any of the situations outlined above, to protect yourself, you must put in a variation request before you proceed with works under the changed circumstance. 

There should also be a time specified for variation approvals in your contract. For example, “The owner must respond within 3 days.” Without this clause, you could find yourself in an uncomfortable position with deadlines bearing down and no ability to proceed. 

Lastly, your contract should also include a process for dispute resolution. 

Need advice on contract variations? Contact MDL

As the examples above show, contract variations are something that you simply must handle correctly.

MDL’s experienced Construction Lawyers can assist you by providing a Contract Summary before you sign. We’ll look at the contract you’ve been provided, and if we see any red flags we’ll let you know.

With a Contract Summary, you could end up with a more straightforward way to:

  • Get the job done
  • Get it billed
  • Get it paid

That’s got to be a better result all round.

To find out more, contact McCarthy Durie Lawyers on 3370 5100 or fill out the contact form here.