However, all price agreements have some common features in the form of legal documents linking the facility owner and supplier. Without addressing special issues in different segments of the industry, the most common types of price agreements can be widely described to illustrate the basics. Such variations lead to thousands of claims in the UK and much more internationally every year. Liability for variations is not only relevant to claims for amounts due for additional work, but is also an important underlying factor in many other construction disputes, such as delays, interruptions, defects and project completion.

In my experience, variations can be a welcome source of additional work with contractor prices based on expected variations. Variations can provide opportunities and / or risks for a contractor, depending on the type of contract and the time of instruction. For example, IntelliSpeX construction management software reviews a contract like the JCT SBC / Q / 2016 edition with a list of quantities may include an option for a contractor to increase the profit of a high-rate item. Rather, it may pose a risk and potentially affect the contractor’s profit margin when an item contains a low rate.

In some cases, one party may think strongly about a particular problem, while the other party is not particularly concerned. For example, CMG Gas wants an employee on the site, while Pipeline Constructors, Inc. you may not mind. As described in the previous section, these differences in problem assessment negotiators offer opportunities. By giving the other party a minor problem, a negotiator can negotiate the progress of a topic more important to his company. Exchange order payments also differ in the contractual clauses for different types of contracts. Suppose the agreed exchange order payments for different types of contracts are shown in column 2 of table 8-2.

A previous termination becomes more likely with a later end date and therefore the chances of receiving a bonus increase, so the total of the resulting point also increases. If the scope of the project is well defined, an owner may choose to ask the contractor to take all risks, both in terms of the actual cost of the project and the project time. Any order of job change from owner must be extremely less or not at all, as performance specifications are provided to the owner at the start of construction. The owner and the contractor agree on the project costs that are at most guaranteed by the contractor. There may or may not be additional provisions to share any savings in the contract.

The flat rate or flat rate is determined at the beginning of the project, while variable interest and target estimates are used as an incentive to reduce costs by sharing cost savings. A guaranteed maximum cost agreement will fine a contractor for cost overruns and for not completing the project in time. With a guaranteed maximum price contract, amounts below the maximum are generally shared by the owner and the contractor, while the contractor is responsible for costs above the maximum. It is helpful to note from the start that the owner is not entitled to direct variations (Ashwell Nesbitt v Allan & Co Hudson’s Building Contracts Vol 2 on page 462).

Sometimes the owner wants to set a specific project limit or duration for meeting the contractor, to minimize the risk of the owner. These contracts are useful for small areas or when you can make a realistic assumption about how long it takes to complete the scope. Cost management is simplified when the builder maintains a well-maintained schedule of all variations requested by the customer. Critical information such as start date, end date, calculated budget and costs must be kept within the schedule. Fully integrated construction industry-specific software saves time by automating order management variation with the original contract.