Variations under a contract are encountered occasionally and can be valued by a number of methods. The price can be agreed by the Client and Contractor directly, more usually by means of a quotation mechanism subject to analysis by the Quantity Surveyor. The contract may contain a Schedule of Rates to be used to value variations or standard published rates may be used as Dayworks.
If the Contract contains a Bill of Quantities then the rates in the Bill of Quantities may be used as the basis of valuation. Most standard forms of contract which adopt Bills of Quantities have a four tiered approach to the valuation of variations.
- Valuation using bill of quantity rates or schedule rates
- Valuation on the basis of rates analogous to 1 above
- Valuation on the basis of fair valuation or fair rates or reasonable prices
- Valuation on the basis of dayworks
Which of the above “Rules” will apply as the as the basis of the valuation will depend largely upon the timing of the variation order, the location of the work, the quantity of the work involved and the circumstances in which the work is executed. If it can be established that these factors preclude the valuation on the basis of bill rates then the valuation will usually be based on fair or reasonable prices.
Usually, the valuation will also include profit. In circumstances where it can be shown that the contractor would not have made any profit at the tendered rates, it is suggested in that case that there would be no entitlement to the addition of profit in a fair valuation. The decision is not clear on this point, but it is difficult to envisage other circumstances referred to.
Kelly & O’Callaghan Limited strive to keep all variations economically feasible and we incorporate variations into our cash-flow forecasts.