Is your business managing construction variations effectively?
April 14, 2018
Variations management comes in different forms, getting paid often has much to do with your teams escalation method and progress claim follow through. From my experience, construction companies that manage project change well have a drastic advantage.
3 Traits of Successful Contractors that get Variations (change orders) Paid
Work off estimating database rates when pricing variations
This strategy will depend on the business structure to a large degree. Whether your PM’s are estimators and project managers or the estimator hands over projects to the PM. Either way knowing and using your estimated rates is key. If the PM is pricing variations without the use of qualified rates it’s highly likely your company is leaving money on the table or the variation claim will be kicked back because the rate doesn't match the orgiinal awarded rate.
Thorough documentation and prompt pricing
Does your business have a process that links issues, RFI’s towards communicating potential variations? Are site instructions being executed without variation approval? Successful contractors rarely perform variations without a signed approval. The key is, get the variation priced accurately and quickly to support the customer’s needs. Emails are not the tool of choice here. The more documentation that can be linked through to the variation pricing and approval process the greater the ability to rebut a dispute.
Don’t let a claim go by uncontested
It’s easy to get cynical here but don’t let industry habits get in the way of legal rights. Most contracts are managed under state or federal laws that mandate response times on claims issued. Two key strategies here: Append all unapproved variations to monthly invoices and clearly state all approved variations independent to the original claim structure. Finally, demand a confirmation of the claim values that will be paid each month. This will protect you if the customer decides to adjust the variation amounts to be paid on future claims. This is where purposed build job costing software really shows its value and where spread sheets often come unstuck.
3 Traits of Contractors that Ethically Dispute over Claimed Variations (change orders)
Have intimate knowledge of the design drawings the variation is being issued against
Having a qualified drawing register and the ability to tie emails, RFI and documented issues to a specific drawing version is a must. Understand what version your subcontractors have priced against and continually provide the most current and relevant drawings to each subcontractor. Made for purpose construction project collaboration software is heavily valued and a great solution to assure all construction documentation is up-to-date.
Understand the scope, construction law and contract the project is managed under
Have a clear understanding of each trade package and the scope of works requested for pricing. Understand state and federal law the project contract is construed under. Manage subcontract relationships effectively with a view towards building a construction team through effective communication.
Have a process to manage each variation and understand the effect on budget
The first part of this very important element is an accurate budget. Not a forecasted budget or conceptual estimate budget but a clear knowledge of break-even project costs. Subcontract variations require specific tracking numbers that connect communication and escalation through to customer approval or denial of the variation claim.
Regardless if your company focus is getting variations paid or works to protect developer’s interests. The key to successful variation management is communication and clear audit trails. That each project change is evaluated on its merits and neither subcontractor or head contractor leaves variation as a negotiation piece at the end of the contract.
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