Variation Orders Explained: Managing Changes, Costs and Risk in Landscaping Contracts
When writing your tender quotations, spending a great deal of time on presenting a clear, coherent, complete and comprehensive package to ensure that misunderstandings are avoided, there is often a missing element, which may best be described as the ‘unknown’. How best to deal with changes required by the customer as works progress………………
You have carefully laid out your terms and conditions, including mobilisation payment, stage payments and final settlement, you have written your method statement and risk assessments, carefully assessing the materials and length of time required to complete a task, but you can only describe what is known at the time of tendering.
All matters of specification will have been included in the Construction (Design Management) Regulations 2015 Phase Plan, where CDM plans interface with specification. Drawing etc, which will guide and regulate the process of design and construction which protects both contractor and customer. Importantly, the client is aware of this document, and the need for compliance.
Of course, an item in your quotation may be inserted regarding ‘extras’, or a contingency figure included to be drawn against if required, but without a mechanism to handle and record any altered items, you can easily lose track of events. It is no use presenting an additional invoice for works carried out at the time of final invoice without some evidence including dates, projects and costs and reasons for any variations.
By using a Variation Order system, which may be as complex as a numbered pre-printed book, or a simple written letter or note headed Variation Order, all parties can keep tabs on financial progress, but to enable this to be carried out in a professional manner, certain rules need to be in place.
Types of Variation Order
For general management reasons, there are two types of Variation Order, namely Beneficial and Detrimental. Ideally, both should be triple duplicated – one for the office records, one for the customer and one for the CDM file.
A detrimental VO may be an alteration in costs for a particular element of a project; a change in the quality of a type of paving or timber for example, which will show an decrease in the cost of the total project due to lower costs. Another example may be an alteration for whatever reason to change the progress of a project, perhaps to allow other contractors to complete unforeseen works (especially on new-build sites), necessitating a hiatus in your contracted works. All additional costs, including hired-in equipment, will require to be included in a VO assessment.
A beneficial VO may be an increase in the cost of a project due to an instruction from a client to increase the size of plants due to be supplied for example, where additional costs will be incurred by the contractor, not only for the actual plants, but perhaps transport and handling costs/larger planting pits/anchors/compost etc. with appropriate profit margins included.
First of all, the contract should have the following information (as a minimum); Name/s of the Client, Address of Site, Date of Original Documents e.g. plans etc, all of which must have an identifying number – The Job Number and the Variation Order number.
Any variations to the original contract – including reductions in quantities or material specifications – should be noted in a sequential way, i.e. the number of the Variation, together with the number of the contract.
These Variations should be priced (at the time if possible), with all items clearly identified and the reason for the variation (important, especially if directed by the designer or client) and filed against the job.
There is no obligation for either Party to agree to, or accept, Variation Orders, unless the contract provides otherwise. They are subject to express terms (not implied) in order to implement them. In other words, if both Parties cannot agree the terms of a VO, it should not stand until a new contract has been produced, agreed and signed by both Parties.
Variation Orders are only enforceable where the contract expressly provides a mechanism for them, as disputes often arise where scope, price or authority to proceed are not clearly agreed in writing.
Typical contents of a VO may be a) Description of works, b) Reasons for variation, c) Cost/time impact, d) Date of variation and e) Authorising signatures.
This discipline is essential on any project, especially if you think you may have an indecisive client – or additional/alteration/extra works are to be included. For example, the clients may return from the Chelsea Flower Show having purchased a heavy statue, which they want to incorporate into the scheme. The cost is not simply fitting the piece, but may require electrical works/conduits for up-lighting, thus disturbing completed works, and the simple act of doing the client a favour may cost you hundreds of pounds!
Beware of changes to specification in products such as fixings or types of pointing grout (for example). Without written approval – stating the reason for any such alterations – if a project were to ‘fail’ or be the subject of a complaint at a later stage for any reason, the issue of changing the type of specified item could be claimed as either neglect or breach of contract. Even changing specified brass screws to stainless steel on a timber project, if as a result of change creates problems with a chemical reaction/rust stains/discolouration (say) in oak or cedar wood, the whole item could be condemned as unsuitable.
Examples of the requirement for the existence of Variation Orders could be as simple as a request for additional works, over and above those that have already been assessed. Supposing you have contracted to reduce the height of a hedge down to (say) two metres. You have allowed for a certain amount of time, and to remove the arising from the site by means of a hired-in wood chipper on a limited time basis.
The customer then asks you to reduce the hedge by a further 200mm, having completed the job and left everything clean and tidy. How do you cope with such a request? Certainly, by writing a new quotation, and perhaps even arranging for a new date. But if that additional reduction was only a small part of a larger clearance project, the easiest way of dealing with the work is by means of a simple documented agreement, which is where the Variation Order comes in.
It may be that the additional work is going to be expensive, because the woody material is too thick for your power tools and now require a chain saw. Perhaps the wood chipper cannot cope with thicker boughs that are going to be difficult to chip at only 200mm lengths, and a different disposal method is called for. You may have to return the hired machine as it is needed by the Hire firm, and a separate visit to return and collect another machine may be required. You can easily see how the request to reduce the hedge by a further 200mm may cost as much as the original quote.
This example of increase in work volume could include rough grass cutting. A quote for topping a meadow becomes a request to reduce the grass to within 75mm of the ground which could take twice as long as topping, and require the removal of the cut grass, which may be very bulky. The amount of area to be mowed has not increased, but the job may be four times as much work. The customer may be happy to pay for the same rate as the original topping, thinking that all that is required is another pass with the mower without regard to the arisings.
Another scenario – the customer has asked for one hundred square metres of ground to be covered in 100mm deep shingle. They want to create a shingle garden to look like something from a photo they saw about Dungeness beach.
You estimate that ten cubic metres of shingle are required, allow for that amount in your quotation, and have that delivered and spread. One hundred square metres x 10cm deep = ten cubic metres. The customer decides that the shingle has been spread too deep, as they find walking over the surface to be uncomfortable. They require 25mm to be removed i.e. 2.5 cubic metres. This will take a day’s work and cost a couple of hundred pounds.
How else do you cope with such a request without involving a fresh quotation – or worse, leave the subject until presenting them with their final invoice and trying to claim money for reducing the amount of shingle used on the job. Surely, that should be a reduction in price!
The Variation Order will prove an invaluable tool in your written armoury. Once customers can see that their frivolous whims are going to cost them money, they will reduce the number of changes they make.
Treat Variation Orders as a valuable tool in your business life, an additional layer of protection. To paraphase the old television advert for insurance ‘Get the strength of VOs around you’!
