WORKSHOPWORKSHOPMANAGING VARIATIONSMANAGING VARIATIONS

AgendaAgendaPart A: GeneralPart A: General The Contract & VariationsThe Contract & Variations Trigger EventsTrigger Events Actions on Trigger EventsActions on Trigger Events Example Variation RegisterExample Variation Register The perfect Variation SubmissionThe perfect Variation Submission Things that go wrongThings that go wrong Time & Disruption Claims Time & Disruption Claims Part B: Seller Company Related PoliciesPart B: Seller Company Related Policies Non Mandatory VariationsNon Mandatory Variations Mandatory Unapproved VariationsMandatory Unapproved Variations Booking Mandatory VariationsBooking Mandatory Variations Worked exampleWorked example Waiver for Mandatory Unapproved VariationsWaiver for Mandatory Unapproved Variations

PART A - GeneralPART A - General

The Contract and VariationsThe Contract and Variations

Nearly every set of general conditions Nearly every set of general conditions contains a “Variations” clause. These contains a “Variations” clause. These clauses generally provide that the main clauses generally provide that the main contractor may make changes in the contractor may make changes in the contract work without invalidating the contract work without invalidating the contract, and that the contractor (us) is contract, and that the contractor (us) is entitled to an appropriate adjustment in entitled to an appropriate adjustment in priceprice and and timetime. .

The Contract and VariationsThe Contract and VariationsAS4000 allows Variations forAS4000 allows Variations for

Adjustments to actual quantities is deemed to Adjustments to actual quantities is deemed to be a variation if a Bill of Quantities existsbe a variation if a Bill of Quantities exists

Latent Site ConditionsLatent Site ConditionsA written direction to vary the worksA written direction to vary the works

What are the implications?What are the implications?

The Contract and VariationsThe Contract and Variations E.g. Baulderstone Variation Clause 10.2E.g. Baulderstone Variation Clause 10.2

The Subcontractor shall execute any Variation for which a Variation Direction is issued. A direction in any other form to carry out a Variation shall be of no effect.

If the Subcontractor considers that any direction (other than a Variation Direction) involves a Variation then the Subcontractor shall immediately but no later than 2 Business Days after receipt of the direction and prior to acting upon the direction, so notify the Builder's Representative by a written notice entitled “Clause 10.2 Notice of Claimed Variation” setting out detailed particulars and supporting information as to the basis for which the Subcontractor contends that the direction involves a Variation.

What are the implications?

The Contract and VariationsThe Contract and Variations ImplicationsImplications

It is very easy to miss the time bar of 2 days There is specific wording that we have to use Things that can invalidate our claim:

Missing a time bar Getting the working wrong Not supplying information supporting our case

Subsequent clauses place obligations and time bars on the builder but at no time is our variation “deemed”

In this Contract, there is no requirement to price the variation at this time – just advising is enough

The Contract and VariationsThe Contract and Variations Know the related Contract Clauses Know the related Contract Clauses

backwardsbackwards Ask for instructions to be in writingAsk for instructions to be in writing Make sure we meet the time barsMake sure we meet the time bars Make sure we word things properlyMake sure we word things properly Have a standard response template ready Have a standard response template ready

to goto go Ensure customer instructions are in Ensure customer instructions are in

accordance with the Contractaccordance with the Contract

Trigger EventsTrigger EventsWritten site instructionsWritten site instructionsVerbal instructionsVerbal instructionsMinutes of meetingsMinutes of meetings Issue of updated drawingsIssue of updated drawings Issue of updated specificationIssue of updated specificationDamage to works caused by othersDamage to works caused by othersDelays and disruptionDelays and disruption

Actions After Trigger EventsActions After Trigger Events Raise a new variation on the Variation RegisterRaise a new variation on the Variation Register Request non-written instructions to be in writingRequest non-written instructions to be in writing Immediately (or not later than the time bar) Immediately (or not later than the time bar)

inform the customer that the instruction inform the customer that the instruction constitutes a Variationconstitutes a Variation

Prepare a Sales Estimate for the VariationPrepare a Sales Estimate for the Variation Submit price to customer with supporting Submit price to customer with supporting

documentationdocumentation Maintain a file with all related documentationMaintain a file with all related documentation

Example Variation RegisterExample Variation RegisterVariation # Item Reason Location Reference/Comments Value

Submitted Date

Submitted Claimed to Date %

Gross Claimed to

Date ($)

Sum Previously

Paid ($)

This Claim ($)

V001 Changes to Security Drawings Reduction in scopePaid under separate contract Sitewide letter C. Halcrow to S. Barnes $ 17,416.00 100% $ 17,416.00 $ 17,416.00 $ -

V002 Camera #64 Relocation Relocate camera 64 from canopy to roof Camera 64 Ref: Steve Dalton $ 2,350.00 100% $ 2,350.00 $ 2,350.00 $ -

V003 Relocation Gate 7 to Laundry Gate Relocate all security functions from Gate 7 to Laundry Gate Gate 7/Laundry Gate Ref: Daniel Collits $ 25,181.00 100% $ 25,181.00 $ 25,181.00 $ -

V004 Relocate Tailor Shop PTZ Camera Relocation of PTZ camera Tailor Shop Ref: Martin Budai $ 3,698.00 100% $ 3,698.00 $ 3,698.00 $ -

V005 Repair to Camera A Block Works Repair disabled camera A Block Ref: Steve Dalton $ 2,113.00 100% $ 2,113.00 $ 2,113.00 $ -

V006 Additional security Works Gatehouse Early works to gatehouse (January 2008) Gatehouse Ref: Daniel Collits $ 9,730.00 100% $ 9,730.00 $ 9,730.00 $ -

V007 PSSU Scope Reduction Reduction in scope - engineering costs associated with works to date PSSU Blocks

Ref: Steven Barnes + email to Gary Butler from Martin Krippel dated

03/09/07 $100,995.00 50% $ 50,497.50 $ 25,000.00 $ 25,497.50

V008 Additional Existing Pole Mounted Camera Between A Block & V Block Drawing revision Between A & V Block HONE:BH#0807, CD_X3002 HLA Letter

dated 18.12.2008 $ 4,480.00 25% $ 1,120.00 $ - $ 1,120.00

V009 Gatehouse Lighting Control Client additional requirement Gatehouse Security Subcommittee Meeting #25 (Item 2.4 – 23.2) $ 621.00 30% $ 186.30 $ - $ 186.30

V010 Rename Camera Z.24 Drawing CD_X3017[C] issued on 10/12/2008 had camera Z24 renamed to Z18. Walkway H-E CD_X3017[C] $ 1,210.00 0% $ - $ - $ -

V011 Relocate V Block Duress ButtonsDrawing CD_X3400[C] issued on 10/12/2008 relocated the duress buttons in the Block V

interview rooms.V Block CD_X3400[C] $ 1,760.00 0% $ - $ - $ -

The perfect Variation SubmissionThe perfect Variation Submission

Variation Reference NumberVariation Reference NumberParticulars of the variationParticulars of the variation

Explanation of why this is a variationExplanation of why this is a variationDocumentation supporting the argumentDocumentation supporting the argumentReferences to Contract Clauses, Specification References to Contract Clauses, Specification

changes, drawings that have changed etcchanges, drawings that have changed etcPricing detailPricing detailCopies of relevant documentationCopies of relevant documentation

The perfect Variation SubmissionThe perfect Variation Submission

The perfect submission will “stand alone”. The perfect submission will “stand alone”. i.e. be able to be read and understood by i.e. be able to be read and understood by

someone not intimately involved with the someone not intimately involved with the project. There should be no need for the project. There should be no need for the reader to go searching for other reader to go searching for other information (eg minutes, instructions, information (eg minutes, instructions, emails) in order to validate the variation. emails) in order to validate the variation.

Things that go wrongThings that go wrong Making groundless claimsMaking groundless claims Making claims when it the work in our ScopeMaking claims when it the work in our Scope Being time barredBeing time barred Not providing all the supporting documentationNot providing all the supporting documentation Surprising the customer toward the end of the jobSurprising the customer toward the end of the job Falling behind in managing the variations Falling behind in managing the variations Not using our Sale people as a resource to helpNot using our Sale people as a resource to help Not submitting the current Register with our monthly Not submitting the current Register with our monthly

progress claims progress claims Not making progress claims on variation work executedNot making progress claims on variation work executed Not insisting on the right written instruction from the Not insisting on the right written instruction from the

customercustomer

Time & Disruption ClaimsTime & Disruption ClaimsThis is going to be a separate workshopThis is going to be a separate workshopMeanwhile, get expert helpMeanwhile, get expert help

Non Mandatory Change OrdersNon Mandatory Change Orders

DefinitionDefinition Instructions which we do not need to commence Instructions which we do not need to commence

until we receive written agreement from the until we receive written agreement from the customer on Scope and pricecustomer on Scope and price

TreatmentTreatment Follow all normal variation steps (Slide 10)Follow all normal variation steps (Slide 10) Raise Variation Prospect in ePSFRaise Variation Prospect in ePSF No costs are to be incurred until we receive No costs are to be incurred until we receive

written approval to proceedwritten approval to proceed Normal booking rules applyNormal booking rules apply

Mandatory Change OrdersMandatory Change OrdersDefinitionDefinition Instructions which we must commence (under the Instructions which we must commence (under the

Contract) prior to agreeing the Price. Contract) prior to agreeing the Price. TreatmentTreatment Follow all normal variation steps (Slide 10)Follow all normal variation steps (Slide 10) Update EAC cost in ePSF to include the estimated cost Update EAC cost in ePSF to include the estimated cost

of executing the variation. of executing the variation. i.e slip the jobi.e slip the job Raise Variation Prospect in ePSF with estimated sell and Raise Variation Prospect in ePSF with estimated sell and

cost = $0cost = $0 Use the variation number from the Variation Register in Use the variation number from the Variation Register in

the slippage explanation and the Prospect namethe slippage explanation and the Prospect name

Booking Mandatory Change OrdersBooking Mandatory Change Orders

TreatmentTreatmentNormal booking rules applyNormal booking rules applyUpdate the cost in the Prospect (currently Update the cost in the Prospect (currently

$0) with the true estimated cost$0) with the true estimated costBook the variationBook the variationUpdate EAC cost in ePSF to remove the Update EAC cost in ePSF to remove the

estimated cost of executing the variation. estimated cost of executing the variation. i.e grip the jobi.e grip the job

Mandatory Change Orders – Mandatory Change Orders – Worked ExampleWorked Example

Steps in Process Backlog Prospect Cost Rev c/b Cost Rev Current EAC $80 $100 0.80 When Instruction is received…… - Advise customer, in accordance with Contract, that this is a variation - Estimate Cost and Sell - Update the Variation Register - Advise customer, in accordance with Contract, the Sell price of variation - Add the estimated Cost into EAC (i.e. slip the job) $5 - New EAC $85 $100 0.85 - Raise a Prospect with Cost = $0 $0 $8 Each month while waiting for response from customer…… - Update probablility of getting full value for the variation in the Prospect - Update Start/End date in Prospect - Ensure all variations are submitted with progress claims Variation gets approved……. - Update Prospect with Cost $5 $8 - Book Prospect $5 $8 - New EAC after booking $90 $108 0.83 - Reverse original slip (i.e. grip the job back) -$5 $0

- Final EAC $85 $108 0.79

Special Waivers for Mandatory Special Waivers for Mandatory Change OrdersChange Orders

What is a Waiver?What is a Waiver?Allows us to book a Variation Prospect at Allows us to book a Variation Prospect at

c/b = 1.0 so that we can earn enough c/b = 1.0 so that we can earn enough revenue to cover the cost of executing a revenue to cover the cost of executing a mandatory change ordermandatory change order

ConditionsConditionsWill not be considered for < US$100kWill not be considered for < US$100k

Special Waivers for Mandatory Special Waivers for Mandatory Change OrdersChange Orders

ApprovalsApprovals HBS Financial Controller up to US$500kHBS Financial Controller up to US$500k ACS Financial Controller above US$500kACS Financial Controller above US$500kWhat is required for approval?What is required for approval? Change order must be formal Change order must be formal Acknowledgement of change order sent back to clientAcknowledgement of change order sent back to client Contractual protocol existsContractual protocol exists Proven history of cost recovery with this customersProven history of cost recovery with this customers Solid legal laws in place to protect Seller CompanySolid legal laws in place to protect Seller Company

SummarySummaryDon’t ever get behind in your management Don’t ever get behind in your management

of variationsof variationsUnderstand the relevant Contract clausesUnderstand the relevant Contract clausesTidy paperwork is essentialTidy paperwork is essentialGetting variations approved is one of the Getting variations approved is one of the

most important tasks a PM can do. It will most important tasks a PM can do. It will make the difference between a good job make the difference between a good job and a bad one.and a bad one.