I review a LOT of construction and engineering contracts. People often ask what I look for. Here are 4 risks to look out for in variation clauses.
When I do a contract risk review, there are a whole heap of nasty traps I look out for. If you’d love to know what the main things are, you can download my “Top 10 contract risks” checklist here.
Reducing contract risk is important. But I always try to focus on my clients’ key priorities, which often have nothing to do with contract risk. Most clients’ highest goals are achieving great project outcomes and improving profitability. My job is to find ways to use the contract to help reach those goals.
Scope creep is one of the enemies of profitability on construction projects. Poor variation management can cause serious erosion of the service provider’s margin. One of the root causes of poor variation management is inadequate attention to the variation clause.
Variation clauses set out the expectations of both parties about variation management. They should contain guidelines about communication, timing and payment claims. Often they’ll contain strict deadlines about when actions need to be taken. It surprises me how often people fail to check and understand these guidelines, then find themselves in a pickle when they are time-barred.
In this video I share 4 risks to look out for in variation clauses. These are the 4 factors I always check, because generally a clear, reasonable variation clause is a benefit to both parties. It’s worth negotiating some changes to make scope creep more manageable.