Variations are a common part of any service contract or contract for works, allowing for changes to a scope of work. However, disputes over when a variation has occurred can cost you valuable time and money.
Unsuccessful claims can hit your profits, seriously damage your reputation and destroy relationships. This can also lead to the loss of future business.
All of this can be avoided by following these steps when entering contracts:
1. Deploy appropriate skill and personnel at the outset
- Don’t just have the scope of work reviewed by engineers/operational personnel. It only forms one part of your contract and should not contradict other parts, especially remuneration/T&Cs.
- Ensure your legal/commercial people conduct a review of the whole contract.
- If there are contradictions/ambiguity, it may be that other parts of the contract take priority due to precedence provisions – which may be more preferable for your client.
2. Ensure the written scope of work is clear and comprehensive
- Is it clear what you are committing to for the price agreed? Most contracts oblige contractors to do “everything necessary” to deliver the service/product.
- Are there activities that could reasonably (or unreasonably) be assumed to be part of the scope?
- Do you intend to perform those tasks as part of the agreed price/schedule?
- Should they be excluded and be subject to additional payment/time?
- Never assume that your client will have the same view on what is “necessary” to deliver.
3. Follow the variation process to the letter
- Variation claims are often rejected because the process hasn’t been followed.
- Don’t sign up to a process you can’t follow or isn’t appropriate for the scope.
- Once agreed, follow the variation process to the letter:
- Time limits;
- Who and how you need to notify; and
- When and what you need to advise them of.
Companies are sometimes concerned about appearing too contractual because it suggests they are setting themselves up for variation claims or to be difficult. I think that is a dangerous view to take.
Time and effort should go into your contracts and shouldn’t then be wasted by simply ignoring what was agreed. Start as you mean to go on, don’t wait on a dispute arising. Don’t lose valuable profit by focusing only on doing the job and forgetting how you agreed you would manage the contract.
The worst criticism you will face is that you are professional, prudent and commercially aware.
