Variation Orders in Construction Projects

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

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. 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.

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.

• Client related causes of the variation orders can be summarized change in plans or scope, change in schedule, client’s financial problems and substitution of materials.

• Consultant related causes of the variation orders can be summarized as errors and omission in design, insufficient scope of work, change in design, conflicting contract documents, insufficient shop drawing detail, and design complexity.

• Contractor related causes of the variation orders can be summarized as lack of experience, lack of planning & site management, unavailability of equipment, and unavailability of skilled labour.

• External causes of the variation orders are mainly new government regulations, differing site conditions, adverse weather conditions, change in economic conditions and unforeseen problems.

Elements of a Variation Order

A variation order is formed either by the request of the client/owner or with the recommendation for a change from the contractor. Variation order should particularly involve below mentioned information in order not to be the source of conflict/dispute later on between the agreeing parties:

• 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

Annotated Bibliography

The following list provides resources for further research and study on variation orders:

• Edward R. Fisk, Wayne D. Reynolds (1997): Construction Project Administration

This book can be used as a guide for the successful management of a construction project from design phase to close out. It has a complete chapter dedicated to variation orders; in that it is very useful if one wants to learn more about it.

• Sidney M. Levy (2000): Project Management in Construction

This book aims to provide relevant information about each phase of the construction projects for the managers and general contractors.