What causes variations on projects?
Now this one is a doozey!
Just the word “variation” has developed stigmas not to unsimilar to yelling “bomb” in an airport or relieving yourself in a full elevator.
Okay, maybe not exactly but it does make many people cringe and sometimes for good reason.
The fact of the matter is construction is a practice with varying levels of certainty with endless amounts of variables. When compared to an industry such as car manufacturing who produce the same product repeatedly millions of times, who implement the use of robots to mitigate human error and still have quality issues to manage, makes it seem like a miracle that projects ever get completed. Let alone mitigate mistakes that will end up costing someone money.
So where do the variations come from?
For this explanation we have categorised variations into the following types:
· Strategic Variations
Of-course as builders, when participating in a tender we can ask questions to attain clarity on the extent and completeness of a project. Remember, we are in a competitive tender and in this environment the aim of the game is to win work and business, so often a little more strategy is applied…
Here’s the juicy bit. The reason why builders get a bad name and why clients have horrible experiences:
One strategy far too commonly used is the “low ball and sting” method. This is where there is a clear list of variations that will be easily justified after the contract is signed and the project has commenced. The builder/contractor is contractually entitled to the variation’s and they are hyper inflated to then recoup (and then some) the lost profit in the original contract value.
This unfortunate and industry tarnishing strategy means that the cheapest price should be looked at with a grain of salt.
· Documentation Flaws
This is quite an obvious reason for a variation. Being the foundational basis of the overarching contractual agreement the documentation and the degree to its completeness is often a key contributor for contractual variations. Documentation flaws can be a result of many different factors:
o Poor performance from the designers / mistakes
o Giving the designers unrealistic deadlines to undertake their role
o Trimming out designers’ scope i.e. asking for BA documentation only and going to construction without construction ready documentation.
o Failing to engage a building certifier in the design process to raise certification issues before they are included in the head contract.
o Failing to brief service’s design. Often in smaller fitout projects the services go out to a design and construct market without a clear brief. The services contractors will make allowance for what they deem satisfactory (noting that they are also often at a competitive tender) and then the client will provide clarity towards the end of the project when service runs are more difficult to achieve without significant rework.
· Builder/ subcontractor relationship
This one is a little sideways, but you should be aware of it. While the contract between the subcontractor and the head contractor would not seem to impact the client/head contractor in any way… it often does.
If there is a relationship breakdown, misunderstanding or problem generally this will permeate though to affect the client. The head contractor may actively attempt to recover costs in any area possible, potentially delaying the project and of course may lead to shortcuts that impact of the build quality.
This is especially the case when the head contractor has won the job with the best price. Reason being… the head contractor doesn’t have enough allowance to absorb said issues.
· Latent Conditions
These are the legitimate issues and by nature are still painful but mutually acceptable. They arise because of an unknown site condition that impacts time and/or cost to the delivery of the project.
· Client directed
These are the fun ones. “We have a bit of money left over and we wouldn’t mind if you could add a slide from level 3 all the way down to ground?”
These are perfectly acceptable requests that come from the client because they have changed their busy mind.
“Great… you’ve done a great job of scaring the living s#*t out of me, so how do we avoid them?”
Well when they say that construction is risky, this is part of what they mean… the good news is that there are a number of things that you can do to mitigate your chances of being overwhelmed with variations.
Mitigation Tools
1. Make the commitment to completely document your project and engage an organisation as a lead consultant (with this experience) to coordinate the various disciplines.
2. Engage a builder with early contractor experience to challenge, rationalise and flush out problems, create efficiencies, find you potential cost savings and find potential variations. Have the designers use this information to close issues out before they become a more variation down the track.
You can make this relationship a commercially viable transaction so that you don’t owe the builder the commitment of undertaking the build once complete.
3. Ensure that the entities that will end up being responsible for certifying the end product such as the building certifier and the fire engineer if necessary are included in the design process to capture any compliance issues upfront.
4. Give adequate timeframes to all parties to undertake their role. Gauge this by surveying these parties before you select them and frame it as “what would be the optimal timeframe to turn something like this around?”.
5. Meet the builders that you put on the tender list. Use this initial interaction to get a gut feel from the way that they answer any of questions you have.
6. Undertake reference checks with previous clients of the builders and do it before you put them on your tender list.
7. Ask for the details of the subcontractors that will be used and contractually bind them to using said contractors or seek approval to change them. Undertake due diligence on the quality and capability of the proposed subcontractors in your tender evaluation.
Additionally, request that the working history between the builder and subcontractor be provided.
8. Always interview 2-3 of the tenderers and be sure to ask provoking questions such as “did you find any gaps in the documentation that are still unresolved?” or “what are the risks on this project?”
Consolidate this response and use this knowledge to ask informed questions about the extent of their inclusions in follow up post tender interviews.
Record these responses and include this in the head contract for your benefit.
9. Consider the use of a client-side project manager to manage this process for you.
All of your leverage exists before you sign the contract and proceed with the works. The most painless projects are those that have been most thoroughly planned.
There you go. Don’t mess this up!
If we can be of any assistance, make sure you get in touch.
