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15 May 2024 • Tom Haley

Quantity surveying fundamentals: valuing variations

We continue our QS fundamentals mini-series, this time with a focus on valuing variations.

You might think this is a very “QS” topic because valuing variations falls very much in our domain. However, as you will see from this article, we interface with so many elements and data sources to produce a variation valuation.

As always, I will try and get across this subject to give you as many top tips as I can without taking up too much of your day.

Establishing entitlement

If you are fortunate, you will have a written instruction to vary the works in accordance with the contract, meaning entitlement is established.

However, often, you will not have a written instruction in hand. This is because, going back to last week’s article, changes arise in many ways at the various stages of the construction process, so you need to be on the ball picking these up and notifying them to your client with a request that the change be formally instructed under the contract. Ideally you will do this before your project team act on the change so that a decision can be made before time and / or cost impacts are incurred.

If you need to persuade someone that you are entitled to a change under the contract, do not underestimate what needs to be done to prove this: unfortunately saying it is a change, and repeating that over and over, won’t hit the mark. Instead, what you need to do is establish what has changed by reference to a variation clause in the contract and by reference to a document in the contract showing the agreed scope.

An obvious and easy example is you agreed to install 4 widgets, and, in design meetings, the client introduced an extra 2 widgets. In this example, when seeking to establish entitlement, you would need to reference the relevant drawing, specification, or other design document that shows 4 widgets as the agreed scope (also with reference to the relevant variation clause).

This simple example can become more complicated if you have design responsibility under the contract because you will need to establish that the change did not arise because you developed your design to comply with the contract documents but, rather, for something that is your client’s responsibility under the contract.

I have witnessed some very interesting conversations on whether a variation is ‘design development’ or not. The answer, as covered in last week’s article, is getting to the root cause of the change to determine who was responsible and applying the contract, rather than trying to retrospectively impose definitions to suit the particular issue in dispute.

Even that simple example shows how complicated it can be, so put the effort in when the change is made and record your position. Doing it at the time can be hard work, but doing it retrospectively is a lot harder!

Defining the scope of the change

So you have 2 extra widgets to install so the scope of the change is 2 extra widgets, right?

Well, not always. The full extent of the scope will be determined by the impact of installing 2 extra widgets on the agreed scope. What if those two widgets mean that the infrastructure supplying that component needs to be enhanced (e.g. the plant needs to be double the size)? What if it impacts on the scope of other packages because it means they need to do more, less or slightly different work? What if the specification of the widget is different because there is more?

This part of the valuation process is very important because it allows you to make an assessment against each part of the variation scope and, when you have to justify it to someone else, you can explain end-to-end what needed to be done and why. Your valuation will be far more robust and, as an added benefit, if it is a construction technology that is unfamiliar to you, then you get the opportunity to learn. For me, I really enjoy getting into the nitty gritty of engineering and / construction methodology that I don’t fully understand.

Sequence and duration

The dark art? I am sure my planning and delay friends will say the same about quantity surveying, but this part can often be complicated so don’t worry if it causes you some difficulties: that’s normal.

Your valuation needs to consider the impact of performing the variation work on both the sequence and overall duration. Using the extra two widgets example, this must mean you extend the programme bar by 50% because you are installing 50% more scope.

Simple? Maybe, sometimes, if you are extraordinary lucky it really will be that simple. Unfortunately, though, when the full extent of the scope is laid out (to include any re-design and / or additional procurement required) it tends to be a bit messier. There will be new bars required for additional activities, the logic links between the new work (and any re-work etc) with the existing bars will need to be connected so that the impact can be calculated, and existing bars may need to be broken into two where new bars are inserted and new logic links introduced.

That work will allow you to assess additional time, and if you set up the programme in the right way, the impact on resources (disruption), but it may not be enough to show that there has been a critical delay to the overall progress.

I won’t stray into non-QS territory here but, in a very simple example, the ability to show whether this caused additional time-related preliminaries will depend upon whether the event was the driving cause of delay when it occurred. Then there is the impact on labour productivity (disruption) which, again, simply, would need you to show what production rate you tendered, what you were achieving and what impact the change had on your production rate.

Valuing the variations

So, after swapping your legal hat, for your construction management / engineering hat, for your planning and programming hat, you get to the QS bit: making a valuation of the variation.

If entitlement is agreed, scope is defined and agreed, and impact on sequence and duration are agreed then, given there are valuation rules in the contract, agreeing the valuation should be a simple scientific process? In a perfect world maybe but if you add into that situation two QS’s trying to make copper wire by stretching a penny, you start to see some wild and wonderful methods of valuation.

My approach here is to follow the agreed valuation rules and be able to justify the rule you consider is applicable. In following that rule you should quantify and cost the valuation of the variation and support your valuation with calculations, marked-up documents, quotes etc.

It is likely that, with logic and science, you will ultimately persuade someone that your valuation is correct.

Final reflections

As a first point, any person who expects the above to be done in two, three or five days, and writes this into their contracts, is unfair. You should always insist on a reasonable period to notify variations and assess the impact when you are agreeing terms and conditions, otherwise you are probably setting yourself up to fail.

As a second point, what if everything up to the valuation was done using technology? What if you could ask an AI the entitlement question, the scope question or the planning and programming question, and it gave you the answer (or most of the answer)? What if the valuation in its entirety was completed by AI?

It feels an impossibility but is it as impossible as it seems? The process we follow to get the answers is logical and asks questions of the data. Why can’t an AI be trained to do this? Would this result in quicker agreements, more accurate forecasts and better-quality decision making?

Food for thought.

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