The word “variation” when it relates to managing service providers on infrastructure projects can elicit a wide range of emotional responses from people, depending on where in the project they sit and the current commercial state of the project. These emotions can range from joy for the possibility of additional work for a contractor, to fear and resentment from a client who unexpectedly has to fund something they think is or should already be allowed for. Whilst a well scoped tender or request for proposal goes a long (long) way towards minimising the likelihood of variations, we can’t and shouldn’t have a mindset of zero variations. Some variations are legitimate and we need to be fair and firm in our approach to managing service providers.
Recognising that unforeseen (and occasionally opportunistic) things do happen, the following tips will help you manage variations at the junctures that they do happen.
1. Get it in writing!
As the end client, being notified early by your contractors that “a variation is in the works”, is a good first step, but we must demand that any notification is in writing for our own good records and management. Referring to a 3 month old variation conversation will only create muddy waters and make your life difficult.
- Know your contract.
I heard a Project Director recently tell his project staff that they should know the contract better than the contractor. The contract document isn’t a weapon kept under lock and key for use in the case of a dispute – it is there to help you manage the project. Understanding the risk allocation for the project, what to do in case of a dispute and how you manage variations. It is one of your best project management tools – know it.
- Allocate risk between you and the service provider.
It is important that you are clear on expectations around who owns risk between you and the service provider from the start. This risk allocation process not only allows service providers to price accordingly but to understand your rationale around project risks and outcomes you are looking to achieve. Further, getting aligned internally on risk allocation as a client removes ambiguity for the service providers around mixed messages coming from the client on what needs to be delivered by who.
- Don’t have a pre-conceived mindset.
The stresses of a project can often push us towards a decision on management of a variation claim before we have given it appropriate consideration. The mindset we promote constantly is that of being Firm and Fair. You don’t want to be a push over or easy-beat, but also not unfair in your dealings with your contractors. One of the keys to a successful project is having a mutually beneficial relationship with your supply chain where win/win outcomes are genuinely achieved.
- Check the maths.
Ok, this sounds too basic right? I thought so too, until a procurement officer told me in a training course I was running; that more than half of the respondents to a recent tender submission had mathematical errors in their final price submission. Literally, all the columns didn’t add up correctly in the price table. The subsequent conversation with other participants in the room showed that this issue was more of the rule, rather than the exception.
- Check for double dipping
Once you are done with the maths, your next job is to look for double dipping. Make sure you are not being charged in the variation for things like overheads, equipment or labour that is already included in the main contract. This isn’t a case of looking for evil or underhanded behaviours, but it is your job to make sure you don’t pay for something twice. To make this clear up front, utilise a project expense table up front in your procurement that clarifies what you as the client will be paying for, what is a pass through project expense and what is part of the rate of the service provider. This is something that needs to be tailored for the project and the nature of the procurement.
- Benchmark prices and rates.
Most organisations have access to data (or consultants) to test the market rates that you have been given as part of a variation claim. This is critical, especially on the larger variations, to make sure you are not being over-quoted for the work. I am not suggesting “price check” pricing unless you are prepared to award the variation to another party, but paying a consultant for advice could be a very small price to pay. Alternatively, maintaining your own database and in-house expertise is a great option but it is critical that the information remains current.
- Close out before the end of the contract
This is another “no-brainer”, but time and time again I hear that a job has been completed, but variations are still being dealt with or closed out. It is critical that this is undertaken in a timely manner to ensure that the tough conversations are not avoided and that closure around potential disputes are resolved quickly.
- Finally, understand the impacts of the variations.
It isn’t always about the money. There can be (and often is) a ripple effect on project factors such as schedule, quality, critical path, and personnel availability to name a few. The non-financial cost of variations is often more than the dollars so it is important that you work through the downstream impacts as part of the negotiation of the variations.
There are plenty more ways to manage variations and proactive actions you can do as the client that will make life easier when variations are claimed, such as record keeping, site notes and photos, and regular open communications with your service providers.
These tips can help you with managing variations on your next project. They need to be combined with an appetite to work constructively with your service providers to drive win/win outcomes by being early and up-front with your approach to working with them.
This blog was originally posted on our easygovernment website.