Understanding Variations and Additional Costs
In a construction project, a variation refers to any change to the original scope of work agreed upon in the contract. This could be due to changes requested by the owner, design team, or other external factors. On the other hand, additional costs are other expenses incurred outside the original contract scope, which are not covered by the contract price. Understanding variations and additional costs is crucial as they can significantly impact the cost and duration of the project. It is important to document and agree on any variations and additional costs to avoid any disputes.The contract should also contain provisions that address variations and additional costs, including the process for requesting, pricing, and documenting them.
Common Issues and Disputes
Despite efforts to document and agree on variations and other additional costs, disputes can still arise in construction projects. Some common issues and disputes include:
- Ambiguities in contract terms: Vague or unclear contract terms regarding variations and other additional costs can lead to disputes over their meaning and interpretation.
- Failure to properly document or agree on variations and additional costs: When variations and additional costs are not documented or agreed upon in writing, it can be difficult to prove their existence or legitimacy, leading to disputes over their inclusion or payment.
- Disagreements over the necessity and pricing of variations: Parties may disagree over whether a variation was necessary, and if so, how much it should cost. This can lead to disputes over pricing and payment.
- Disputes over the allocation of risk for additional costs: Parties may dispute who should bear the risk for additional costs, such as unforeseen site conditions or delays. This can lead to disputes over the allocation of risk and the payment of additional costs.
It is important for parties to address these issues and disputes as soon as possible to avoid delays and additional costs. Having a clear understanding of the legal framework and contractual provisions governing variations and additional costs can help parties prevent and resolve disputes.
Mitigating the Risks
To mitigate the risks associated with variations and additional costs, it is important to follow some best practices.
- One of the most crucial practices is to document all variations and additional costs in writing, including the reasons for the variation and the agreed-upon price. This documentation should be signed by both parties to ensure that there is no dispute about the variation or additional cost later on.
- It is also essential to have a clear understanding of the contract terms and the legal framework that governs variations and additional costs. Parties should seek legal advice and assistance to ensure that their contracts are clear, and they are aware of their rights and obligations.
- To avoid disputes over variations and additional costs, parties can adopt a collaborative approach, with regular communication and cooperation between the parties. This approach can include agreeing on a variation and the cost before the work is performed and seeking to resolve disputes through mediation or arbitration. Parties can also agree to use an independent expert to determine the price of a variation if a dispute arises.
By following these best practices, parties can mitigate the risks associated with variations and additional costs and avoid disputes that can be costly and time-consuming.
Managing Variations and Other Additional Costs: A Legal Perspective for Homeowners and Builders
Properly handling variations and other additional costs is crucial to the success of any construction project. As we’ve discussed, the legal framework and contractual provisions governing variations and additional costs can be complex and fraught with potential disputes.
Homeowners and builders must take steps to mitigate these risks by properly documenting and agreeing on variations and additional costs, seeking legal advice when necessary, and adhering to best practices for managing these issues. As a construction lawyer with over 10 years of experience, I urge homeowners and builders to prioritise these issues to avoid costly disputes and delays.
As an added resource for our readers, I recommend downloading our Request and Compare Builder Quotes Checklist to help homeowners navigate the process of obtaining and comparing quotes from builders. As a solicitor and construction lawyer who regularly advises homeowners on this process in NSW, I believe this resource can be a valuable tool to ensure that homeowners are making informed decisions when selecting a builder for their construction project.