It is common within the construction industry to see confusion between claims and variations, as the word claim is often, misunderstood in a construction context.
In the terms and conditions of a construction contract, a claim is not an assessment of a variation as the two provisions operate differently because they are utilised in a contract for different reasons.
This post will look to bring clarity to the differences between a claim and a variation so that moving forward the reader will be confident to identify when either are applicable.
Please be advised that the procedures for variations and claims differs between contracts, so one must review the terms of the contract and follow the specific provisions therein.
What is a variation?
The variation clause in a contract gives the employer the right to order changes to the works as originally defined.
The employer can activate the variation clause for many reasons, with most variations taking the following forms:
- An instruction to delete works;
- An instruction to carry out additional works; and
- To change a specification, location, method or sequence of works.
A variation is determined by receipt of the relevant instruction from the engineer and/or employer, drawing, specification etc.
The evaluation of a variation is normally straightforward, as most, if not all forms of contracts have a clear and precise way to calculate the evaluation of variations.
These evaluations would include labour, plant and materials, which are required to carry out the variation including an agreed level of overhead and profit.
What is a claim?
On the other hand, a claims clause is there to compensate the contractor for unexpected events or discoveries that are outwith the contractor’s control, and are agreed under the contract as being the employer’s risk.
These could take the following forms:
- Effects of carrying out variations;
- Problems of disputes regarding payment (or the lack thereof);
- Timing of instructions and/or approvals of the engineer/employer; and
- Impacts caused by the employer or statutory bodies on the progress of the works.
The evaluation of such claim events is treated differently from that of a variation because it may include the request of an extension of time and/or reimbursement of prolongation costs, potential loss of productivity/disruption and in some cases, loss of profit.
In all circumstances the onus is on the contractor to submit its evaluation to the engineer or the employers representative for his determination in compliance with the prescribed obligations under the contract.
A claim is therefore a mechanism provided within a contract through which the contractor can seek redress due to the effects of events for which is considered an employer’s risk under the conditions of contract.
These events, in the contractors opinion, have critically delayed his ability to progress the works or has caused the contractor to incur additional cost which cannot be recovered through other provision of the contract.
One should note, that the employer may raise such a claim against the contractor, through the contractors own failings or delayed completion of the works.
Claims from the employer may include various heads of claim, such as delay damages, liquidated damages in addition to reimbursement of actual loss.
Differences between variations and claims
As such, there are important differences in the way the variation and claim provisions operate.
Both provisions require formal procedures to be operated and are normally activated in different ways.
For a contractor to be entitled to compensation for a variation it will normally need to point to a formal instruction that the employer has issued.
The contractor’s right to claim will only be activated, if notice is given. Such a notification process allows the employer the opportunity to mitigate the impact of the claim events identified by the contractor.
As the employer and/or engineer, normally initiate a variation by issuing an instruction, notification by the contractor is not normally required.
A variation will normally alter the permanent works.
On the other hand, a claim will normally involve a change to the manner in which the permanent works are delivered. E.g.
- The discovery of unforeseen ground conditions may result in a change to the plant or equipment that is being used on site;
- Late handing over of the site may result in a delay that effectively results in the same permanent works being undertaken but over a longer period of time.
A further difference relates to how variations and claims are valued when being compensated.
Variations are usually assessed by reference to a schedule of rates and prices that are incorporated in the contract.
Claims on the other hand, are normally compensated by reference to cost because the nature of the change is often more unpredictable and the purpose of such a provision is essentially compensatory to the party making the claim.
A comparison between variations and claims is interesting for a number of reasons, not least because of the possibility that the contractor may have a right, in certain circumstances, to choose which provision it relies upon to claim additional compensation.
In conclusion
Variations are typically, instructed to the contractor and are clearly identified and evaluated following the rules provided for in the contract.
Claims however, require that the party making a claim comply with the detailed contractual and procedural requirements, which places the burden of proof on the claiming party if the remedy sought is to be maximised.
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