Construction projects never go exactly to plan. Even with thorough planning, unforeseen events crop up during every project. When such events result in significant changes to the scope of the works, they may trigger a “variation”. Variations are one of the most common issues that affect both the cost and timeline of construction work. Poorly managed variations can quickly butcher the contractor’s profits.  

In the Australian construction industry, many projects are carried out under the AS4000-1997 General Conditions of Contract. Like many standard form contracts, AS4000 contains specific provisions for handling variations, found in clause 36.  

WHAT IS A VARIATION? 

A variation refers to any change to the scope of work that was agreed upon in the original contract. This might involve adding or omitting work, changing the materials to be used, or adjusting how the work is carried out. Under clause 36 of AS4000, the superintendent (the person responsible for administering the contract) has the authority to direct variations, but the process needs to be carefully followed. 

Common reasons for variations include: 

• Unforeseen site conditions, such as unexpected ground conditions or material shortages; 
• Design changes, often due to evolving client requirements or technical adjustments; 
• Discrepancies in contract documents, leading to gaps or conflicts in what was agreed; or 
• Errors in bills of quantities, where the work required doesn’t match the estimated quantities in the contract. 

THE IMPORTANCE OF VARIATION CLAUSES 

Handling variations poorly can lead to costly disputes between the principal (the project owner) and the contractor. Without clear processes in place, variations can be a major cause of budget blowouts, delays, and relationship breakdowns on a project. 

Clause 36 of AS4000 outlines how variations should be managed, to help ensure that: 

• The principal understands the cost and time implications of any change to the project;  
• The contractor’s margins are protected, and they are fairly compensated for any additional work; and 
• The potential for disputes is reduced, with a structured process for managing changes. 

HOW VARIATIONS WORK UNDER CLAUSE 36 OF AS4000 

The AS4000 contract sets out a step-by-step process for managing variations. The key elements include: 

1. Written Directions: Under clause 36.1, a contractor must receive a written direction from the superintendent before starting any varied work. This step cannot be skipped—without a written instruction, any additional work performed will not be considered a variation, and the contractor may not be compensated. 

2. Proposed Variations: Clause 36.2 contains an optional process allowing the superintendent to issue a notice of a proposed variation. In response, the contractor must assess whether the variation is achievable and provide an estimate of its impact on the project’s timeline and costs. This helps the principal understand how the change will affect the project and make an informed decision. 

3. Contractor-Initiated Variations: Sometimes, the contractor may request a variation for their own convenience. Clause 36.3 permits this but leaves it at the superintendent’s discretion to approve. If approved, the contractor will not be entitled to a contract sum adjustment or an extension of time unless specifically agreed upon. 

4. Valuing Variations: Clause 36.4 outlines how variations should be valued. Typically, the value of the variation is calculated based on agreed rates, and if no rates apply, a reasonable cost is determined by the superintendent. The order of precedence for pricing ensures that both parties have a fair basis for calculating costs. 

PRACTICAL TIPS FOR MANAGING VARIATIONS 

Managing variations effectively requires careful communication and documentation. Here are some practical steps you can take to avoid disputes and ensure smooth project delivery: 

1. Insist on Written Directions 

Always insist on receiving a formal, written direction before starting any variation work. While it may seem faster to act on verbal agreements, this opens the door to disputes later on. If no written direction is provided, the work may be considered outside the contract, leaving you with no right to additional payment or time extensions. 

2. Document Everything 

Clear, documented communication is key to avoiding disputes. When a variation is proposed, respond promptly with a detailed assessment of how it will affect both the project cost and timeline. If you’re requesting a variation, submit your request in writing, outlining why it’s needed and its potential impact.  

Using pre-agreed templates for variation requests and approvals can streamline this process. These templates should clearly capture the change in scope, cost implications, and the time required to complete the variation. Email templates or construction management software can be used to make this process more efficient. 

3. Understand the Superintendent’s Role 

The superintendent has a key role in managing variations under AS4000, including issuing directions and determining the value of variations. Make sure you understand the scope of their authority and keep track of all variation-related communications to ensure that any instructions you receive are valid and enforceable. 

4. Clarify Time Extensions 

AS4000 does not automatically grant a time extension for variations, so it’s necessary to follow the contract’s procedures for claiming additional time. Make sure you notify the superintendent of any delay caused by a variation, and submit your extension of time claims promptly to avoid disputes over missed deadlines. 

5. Agree on Pricing Early 

Wherever possible, agree on the cost of a variation before starting work. This can help avoid disputes over pricing down the line, especially if the variation is complex or involves significant changes to the scope. If you can’t agree on pricing upfront, make sure you document any assumptions you’re working from to minimise disagreements later. 

COMMON CONTRACT AMENDMENTS 

Many Australian Standard construction contracts are amended to suit specific project needs, and clause 36 is no exception. Some amendments are designed to reduce risk for the principal, while others help the contractor manage their variation risks more effectively. 

For example, the contractor may want to extend the time allowed to claim variations, or insist that all variation directions are issued in writing. On the other hand, the principal might seek to limit variation claims for minor changes to the work, or impose a cap on overheads and profits claimed for variations. 

HOW I CAN HELP 

Variations are an inevitable part of construction projects, but they don’t have to lead to disputes. By following the variation procedures in AS4000-1997 and ensuring clear, documented communication, you can protect your interests and keep your project on track. 

Do you need help drafting or reviewing variation clauses (or any other contract terms) for your next project? Reach out today to ensure your contracts are set up to handle changes smoothly, without unnecessary risk or costly delays.