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Luis Lozano. Sr Quanity Surveyor. Mansons Consulting Ltd

Contract Variation
Management
Luis Lozano 2 articles
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Senior Quantity Surveyor

September 3, 2018

10 recommendations for a successful change

management

1.      Understanding your Contract Terms & Obligations

The starting point should be that your actions are

orientated to comply with the contract terms & conditions.
Having clear understanding of the contract requirements
will outline a healthy path to be followed by the project
team. There is no point in having a change management
process specified in the contract if you don’t have the
internal resources to do it or if those resources don’t
understand what they are doing or what the contract says.

For low value and low risk contracts, you might include a
simple clause which states (i) who can agree a change; (ii)
how and on what basis any additional costs would be
calculated; and (iii) that for a change to be legally binding it
has to be in writing and signed by authorised persons. On
high value and high risk contracts like the NEC contracts
there is an established and detailed process. The NEC has
timescales related to agreeing individual variations (known
as compensation events); time bar penalties are also
included for not agreeing compensation events within the
contractual timescales. In the NR suite of contracts there
are no penalties, but within the ICE Conditions, timescales
and procedures are established. Per example you should
start with an Alteration Request Form to agree the principle
of the change, the client has 14 days to respond, then you
place and Alteration Assessment Form to seek agreement
(instruction) in price and programme impact if any. The
purpose of all these methodologies is to allow both parties
having clear visibility of the magnitude of the events and
act accordingly.

2.      Understanding your Contract Technical Scope

Every contract will have grey areas. From the change

management point of view, it is important to understand
how the Technical Queries (TQs) and Request for
Information (RFI) documents might become valid variations
of the contract scope. I have obtained swifter "Instruction"
from the client if both parties have previously discussed it
from a "Technical" point of view. This way the client has
confidence that the final solution is the most convenient
and fit for purpose and not only an expensive one in which
the contractor find room for additional profit.

3.      Early Warnings

The NEC 3rd Edition published in June 2005 makes

provision for early warning procedures. "Both parties must
give early warning of anything that may delay the works, or
increase costs as soon as they become aware of them... If
the contractor fails to give early warning of an event that
may give rise to a possible delay to the works, or increase in
costs, within 8 weeks of becoming aware of the event, they
will not be entitled to a change in price, completion
date or key date". (design building wiki)

In NR contracts, Early Warnings are not a contract

requirement, however but you must notify the client within
5 days of being aware of a potential event that could have
an impact to the scope of works.
When Early Warning is not a contract requirement like in
the case of NR Fixed Price contracts, if considering to
produce one, I will recommend to discuss this previously
with your commercial contrapart. Make clear that your
genuine intention is to avoid or mitigate impacts on the
project, and not substantiating a future claim.

4.      Regular Commercial Meetings with the Client and

Subcontractors

Most of the forms of contracts define clear reporting

timescales but not meeting timescales. This is usually
established by both parties at the start of the project. I
would recommend to liaise with your client and
subcontractors not later than in a fortnight basis. This will
become a good habit if its done since the beginning of the
project. You’ll be able to capture and measure your
subcontractor’s variation account in good time and address
them to the client if applicable. Good communication is key
to manage the inevitable arising variations.

5.      Change Register

Keep a tidy and updated change register for your client and
your subcontractors. It might seem obvious, but you’ll be
surprised of how many big companies with plenty of
resources fail in this simple task. Your register should have
at least, consecutive allocation numbers to link to your
records, name of the variations, submission date, response
date, programme impact, submitted value, agreed value
and comments. This is a very basic approach, the ones I
usually produce are adapted to the specific suite of contract
to allow clear visibility and monitoring of the variation
account and its various stages.

6.      Pricing Variations

One of the biggest issues for clients and contractors is how

to substantiate claims and variations. This is not easy
matter. Many things must be considered to produce a
robust assessment, per example, the nature of the contract:
design, design & build, procurement, etc. the type of price
structure: bill of quantities, pricing schedule, etc, the
disciplines involved, the programme analysis and
implications, etc. Depending on these specific conditions
and many more, a variation could take several days to be
accurately assessed. Also, time is always against the
contractor, you don’t want to proceed with additional
works without an instruction, but at the same time, you
don’t want to delay the schedule works. The quantity
surveyor or commercial manager should liaise with his
project team or subcontractor to understand the nature of
the change and should be able to explain it in a clear way
to the client. Also, the amount of detail is to be considered,
most times, the client will request a full breakdown of costs.

7.      Be very close to your project planner

Always assess the programme implications. The NEC suit of

contract look at the compensations events from this point
of view, every event is assessed from a time and cost point
of view and the programme should be updated straight
away to reflect this. A change could be minimal, but several
of these little ones could have a catastrophic impact. If you
are burning float, it might not be an issue but if its
impacting the critical path, it must be treated as an urgent
matter. Some changes might have such a big impact that
might trigger a whole re-sequence of works exercise, or
even more an acceleration or delay and disruption claim. It
is of sum importance to investigate this when assessing a
variation. You don’t want to agree a price and realise later
that your originally planned works won’t be achieved in the
same way. If you waste your opportunity window to deal
with a claim it won’t improve your employer and the client’s
trust on your management.

8.   Keep good records

At the end, is all down to what you can prove. Keeping

good records is the blood and life of the variation account.
Encourage your team to keep records in the best way
possible, always accessible and easy to get. Emails, minutes,
diaries, reports, letters, etc, don't leave anything behind.

9. When things start to go wrong!

If your variation account is growing and you are not

reaching agreement it might be time for you to consider:

► Discuss methods of collaborative working

► Use of conflict avoidance and early intervention
techniques

► Hold events that support the development of a “mutual

trust and co-operation” culture

► Use of industry expertise via leading organisations and

their professional members to avoid and resolve disputes

10.  The ultimate Goal

From my point of view, the ultimate goal is not necessarily

getting a sum of money. The goal should be to make profit
delivering a job on time but also to keep a healthy
relationship with your client. If money is your ultimate goal,
you might see yourself fighting for long time in dispute
resolution scenarios. In these cases, the time, effort and
costs are so high that makes every company reconsider its
management procedures. This is also the intention of this
article, to mitigate the chances of you being in any of those
extreme and costly scenarios, although we all agree is not
always possible.

© 2018 This article is published solely for informational

purposes and as such the information contained herein is
necessarily brief. The information contained in this
document is provided for guidance purposes only and is
intended to offer the user general information of interest.
The information provided is not intended to replace or
serve as a substitute for any professional advice,
consultation or service.

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Luis Lozano 2 articles Follow
Senior Quantity Surveyor
Published • 4y

#mansonsconsulting #changemanagement #contractmanagement

#contractadministration #disputeavoidance #clientrelationship #neccontracts
#nrcontracts #quantitysurveying

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 Luis Lozano
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