Variation Orders in Construction Projects

Revision as of 17:14, 21 February 2021

Prepared by Özgenur Baştuğ

Abstract

Construction projects are complex long-term projects with dynamic nature. They bring together multiple parties within different disciplines and require them to work coherently in a designated area to construct a structure with a constrained budget within a specified time. Most of the construction projects are incomplete in terms of design, procurement, contracting prior to the start of the construction due to their complex nature. Project properties are determined and finalized during the construction of the project and changes are exerted within the process.

Although the ultimate goal during the planning phase would be to minimize the changes and unexpected situations, it is almost impossible to plan a construction project without subjecting it to change during the construction phase. While these changes may stem from so many different reasons like material quality, change in design, time considerations, etc. they can be minimized as much as possible with careful planning and execution.

Any deviation from the work scope agreed in the contract is considered as a variation in a project. A variation order (also called change order) is a formal document issued either by the contractor or the client for changes in the project such as changes in the project scope, design, completion date, contract price, etc.

By keeping in mind that variations will be needed at some point of the project, these possible changes must be foreseen before the start of the construction phase. To be able to protect the project from the unforeseen extra costs and disputes with the contractors, variation order format should be prepared carefully within the planning phase of the construction. Variation orders must be clear and detailed without leaving any important information related to description of the work, pricing and timing missing.

Variation Order: Definition & Content

Any deviation from the work scope agreed in the contract is considered as a variation in a project.

A variation order is a written agreement to modify, add to, or otherwise alter the work from that set forth in the contract. ^[1] In general, variation orders involve change in scope, time and material for additional work, extra costs for additional working hours. Due to dynamic and complex structure of the construction industry changes in the construction projects is inevitable and variation orders are utilized in all types of projects.

According to FIDIC Red Book, each variation may include ^[2]:

• Changes to the quantities of any item of work included in the Contract.
• Changes due to quality and other characteristics of any item of work.
• Changes to the levels, positions and/or dimensions of any part of the works.
• Omission of any work unless it is to be carried out by others.
• Any additional work, plant, materials or services necessary for the permanent works including any associated tests on completion, boreholes and other testing and exploratory work.
• Changes to the sequence or timing of the execution of the works.

It must be noted that the variations may be initiated any time before the take over certificate of the works is issued, and the variation orders are formed either by the request of the client/owner or with the recommendation for a change from the contractor.

Content of a Variation Order

Since variation orders are many times the reason for a conflict between the agreed parties a variation order must be clear, it should involve no discrepancies. It should involve the work to be done, where and when the work should be executed, the payment method and time, changes in the duration, etc. Therefore, preparation stage of the variation order should be handled very carefully. Variation orders should particularly involve below mentioned information in order not to be the source of conflict/dispute later on between the agreeing parties ^[1] :

• Identification of variation order
• Description of variation order
• Reason for change
• Change in contract price
• Change in unit prices (if applicable)
• Change to contract time
• Statement that secondary impacts are included
• Approvals by owner’s and contractor’s representatives

Causes of Variation Orders

The potential causes of the variation orders and the agents who are causing these orders are investigated by many researchers. As a conclusion of the research conducted, four main agents were suggested for the variation orders. These are clients, consultants, contractors, and some external agents. ^[3] In these agents, it must be noted that clients and consultants are the main drivers for the variation orders.

Potential reasons of the variation orders and related agents who are causing these variations can be summarized in the figure below:

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