Variations and Additional Preliminaries
One of our Distance Learning students raised an interesting question on preliminary costs (preliminaries) and variations recently, which was:
‘If a variation causes the contractor to incur additional preliminary costs, should these be claimed as part of the variation, or should a separate claim be submitted?’
I am sorry, but I am going to have to give a lawyer’s answer. On the one hand, it could be this, but on the other hand, it could be that. By way of explanation, let’s look at a few different scenarios relating to variations:
Variations are normally measured and evaluated using contract rates and prices. In most cases, the quantity surveyors would be able to carry out the exercise and this would be the end of the matter.
What if the variation requires extra preliminaries? For example, if the contractor needs to bring an item of plant to site, to carry out the variation? Possibly, as in the case of excavation, the contract rates will include for the plant time. However, it is unlikely they would include for the mobilisation and demobilisation costs. Another scenario could be where the contractor has to pay extra for shipping or freight for materials or equipment to avoid delaying the project. In such cases, I would suggest that such costs be added to the evaluation of the variation and submitted with the variation claim.
What if the variation is for a substantial amount of additional work, or is instructed at a late stage in the contract period and will delay the time for completion?
In such a case, besides payment for the extra works, the contractor would also be entitled to an extension of time. There would also be an entitlement to associated prolongation costs. This should compensate the contractor for the additional preliminaries, site and head office overheads incurred during the period of delay. In this case, I would recommend the submission of two or three claims:
- The claim for the additional work would form one claim. This is because an agreement would be straightforward to achieve, and would usually be agreed by the quantity surveyor.
- The claim for the extension of time would usually require the input of planners and contractual personnel. It might possibly need a more analytical approach, so I would submit this as a separate stand-alone claim.
- Similarly, the claim for prolongation costs would flow from the extension of time. Preparation and evaluation would be by different personnel, so I would submit this separately.
Submit Claims for Preliminaries and Other Items Separately
The reasons that I recommend separate submissions are:
- Firstly, different claims are often prepared and assessed by different personnel
- Secondly, such an approach does not prevent matters that may be easily agreed in a timely manner from being settled whilst the more complicated matters are still being discussed.
This all helps to move things forward towards an agreement. Which is something that should be encouraged at all times.
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In respect of prelims for variations it depends on what is being varied. If the variation is just a change of materials e.g. from UPVC to S/S then additional prelims may not be incurred as the additional cost say of delivery would be included in the material uplift. Prelims are generally items that can not be included within the measured rates/items or apply to more than one measured rate. For example scaffolding for a particular item such as building a wall can be included in the rate but if also being used by the roofing works, plastering etc. should more correctly be placed in the prelim section. Another way of thinking about this is that prelims are costs incurred in running the site. Measured rates are costs incurred in constructing it.
With respect to OHP – these cover general office overheads and profit and not site overheads which should be in the prelims. e.g. use of stationary for site work should be in the prelims but general stationary such as for invoices are within OHP. It is common practice to apply a set rate of OHP to all variations.
Where disagreements occur between conctractors and QS’s over prices the general rule of fair and reasonable should apply. A contractor may price a variation at an inflated rate and not wish to explain or substantiate it. The QS may according to the contract give their own asssessment and the CA could instruct on this basis. It is not for the QS to decide if a rate in the BOQ is fair or not only if it can be used to value similar work as a basis. Only where there is nothing which can be used which is often the case in lump sums can he resort to bottom up approaches.
It has been mentioned about changes in conditiions. In short contracts there is unlikely to be significant changes of conditions but such things as increased complexity or such like do need to be thought about e.g. change of wall from square corner to rounded corner. There is not much difference in area of work but the complexity has increased. This will reduce the speed at which such work can be done and hence will cost more.
Mohammed ,
for specs change(from UPVC to SS Pipe ) without change in volume/qty of works are contractor is entitled for prelims & profit , yes you can claim for change in cost upon which your profit and prleims will be claimable.
for specs change(from UPVC to SS Pipe ) without change in volume/qty of works are contractor is entitled for prelims & profit .please advise
Hi Andy Hewit,
What could be our contractual basis ,when we claim for additional engineering cost with in variation claim?.
Cost consultancy always tries to ignore it by saying part of prelims.
Please advise.
Umer
Hi Umer,
Any variation must be evaluated to properly compensate the contractor for the changed works, plus any additional costs incurred.
If you have a design responsibility there may be grounds for additional engineering costs.
The project management, admin and engineering staff are time-related and would generally be priced in prelims or overheads.
If the additional engineering is carried out by staff during the period that they were deployed for the original scope of works, the contractor has not incurred any additional cost for the engineering and could not claim anything for the engineering associated with the variation.
If the contractor had to redeploy, pay an external consultant or increase resources for the variation engineering, the contractor would have incurred additional costs directly related to the variation. This would be claimable.
I hope this helps.
Kind regards
Andy
Need to know if you can claim additional costs at a party if people brings their children but the invitation told them not to
Hi Johann – very funny! 🙂 And yes, absolutely! Hope things are well your end. Regards, Nina.
For one of our claim for change in IFC drawing the cost consultant is denying for the additional cost claimed for Variation Order preparation (prelims) . How can I Justify our claim as there is no factual; evidence of the time spent on preparation of claim. Is there any specific clause in FIDIC (Lumpsum contract) which covers such issues??
Luke’s question was ‘Are you entitled to claim the time taken to prepare the variation?’
In my opinion you are not entitled to claim. Most contracts include variation provisions and procedures to be followed in case the contractor wishes to claim additional payment. You cannot claim for something that you are required to do to administer the contract.
This may sound rather harsh, because you could argue that had there been no variations, you would not have had to employ a QS to calculate the values, but it is in alignment with the following advice from the Society of Construction Law that claim preparation costs are not claimable:
“Most construction contracts provide that the Contractor may only recover the cost, loss and/or expense it has actually incurred and that this be demonstrated or proved by documentary evidence. The Contractor should not be entitled to additional costs for the preparation of that information, unless it can show that it has been put to additional cost as a result of the unreasonable actions or inactions of the CA in dealing with the Contractor’s claim. Similarly, unreasonable actions or inactions by the Contractor in prosecuting its claim should entitle the Employer to recover its costs. The Protocol may be used as a guide as to what is reasonable or unreasonable”
In reply to Wagih, yes, the contractor could claim for any additional engineering costs incurred incurred due to the variation, I would be inclined to include such costs in a separate item within the evaluation of the variation
In reply to Hanna’s question, I assume that you mean prolongation costs rather than preliminaries. This is often misunderstood. Contracts generally allow contractors to claim for additional cost incurred, so the contractor cannot base a claim for additional site and head office overheads on the preliminaries, because these are estimated cost as opposed to actual costs.
It would be necessary to prepare a claim for the additional cost incurred due to the additional time that the contractor was obliged to maintain time-related cost due to the extended period.
In addition to the cost of the physical work for a variation are you entitled to claim the time taken to prepare the variation? My belief is that these are legitimate costs incurred and therefore recoverable on the basis overheads and profit wouldn’t apply to a negative cost variation as they would a positive logically. Or is there a case law stating otherwise?
In a lumps sum contracts, in case there is a variation requires additional work in preparing shop drawings again, is the contractor entitled an additional amount as a prelim.
If extension of time has been approved by an architect, it is necessary for the contractor to apply in writing for the preliminaries required for the prolonged contract duration? Or how was the contractor claim for the preliminaries?
Hi Tinson,
Firstly, the tender drawings have absolutely nothing to do with the Contract. Whilst the Contract drawing may be the same as the Contract drawings, this needs to be verified.
Is the Contract remeasureable or a lump-sum price? If remeasureable, the variation will be included in the remeasure. If a lump-sum, the Contract price will be defined in the specification and Contract drawings, so in this case the two sets of drawings will need to be compared and the variation evaluated on an add and omit basis in accordance with normal QS practice.
I am unfamiliar with the term GFC, so cannot comment.
I hope this helps.
Hi, could you please advise?
We are claiming a variation for the change in quantity from tender drawings to the latest GFC drawings to the employer. Does anyone have a standard template as to what all factors need to be considered in such a case??
Hi Antony,
From your comment, I understand that the contractor is claiming that a change
to the rates and prices included in the contract is warranted, because of
a change to the design. In most construction contracts, it is not really
up to the client to agree or otherwise to new rates – this matter must be
investigated by the party who is appointed to administer the contract.
As with any claim, the onus is on the claimant to prove that his claim is
justifiable and that the contract entitles him to the additional amount
claimed. I would suggest that the first step in the process is that you
insist that the contractor submits a detailed claim to show the cost of
carrying out the original design in terms of labour, plant and materials
and how the revised design has changed this. Once you have this
information, you should be able to investigate its on the grounds of
reasonableness.
Please remember however, that underpricing the work in the first place
does not give grounds to claim just because the design has changed. There
must be a fundamental change in the means and methods of working brought
about by the changed design for a claim to be sustainable.
I hope this helps.
I would suggest that unless the design and construction methods have changed the rates remain. If it’s a straight add & omit excercise then the contractor is entitled to do just that regardless of the contract rates. If the client is requesting a quote or RFQ before carrying out the works then it’s at their descretion if the change happens.
We have an issue on the rate where the contractor purport he under priced and now want the rare changed based on the there has been change in design and that labour is intensive. The contract is signed and I have told them that unless the client agrees, the rate remain contractual. What we should do this for contractor to understand?