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Andy from The Trades Coach Part 2: Managing variations

As the old saying goes, “The only certainties in life are death and taxes”. In the building industry, that should read, “The only certainties in life are death, taxes, and variations”. 

There is seldom a project completed without some change to the original plan or scope, and this can lead to work being done that is not well documented or not billed to the client on a timely basis. Variations are therefore a major potential cause of profit leak from a business – as well as causing disputes with a client. It is essential that you, your client, and your build team clearly understand what variations are and you have a reliable system to capture and process them through the job management and billing areas of your business. If you are using Rave’s functionality in this area, you are better off than many of your competitors. 

Variation lesson 101 is identifying what a variation is. Seems obvious perhaps, but I like to say variations come in different flavours, including:

Lump-sum Variation

This is where a specific amount of work is either added or deducted from the project scope and it can be exactly quantified in dollar terms. The variation should define the scope and the cost of the change.

Charge-up Variation

This is where additional work is either requested by the client, or becomes necessary due to unforeseen circumstances, but the exact cost cannot be determined before the additional work starts. For example, rot is uncovered in framing during demolition, and additional time and material is needed to fix the problem, but just how much is difficult to know, especially at the start.

Zero-cost Variation

This is a change to the scope of the project that will have no cost implications but should still be documented. For example, a change to a colour scheme by the owner after they had already provided this on a selections list.

Now that the definition of what is a variation is clear, attention needs to be directed to how best to manage variations so the interests of the builder and the client are protected. Here are five tips that you should consider.

Educate your client:

While you may have a clear idea of what is or isn’t a variation, your client may be doing their first build and have absolutely no idea of the term and the implications of variations on the ultimate cost of the project. It is on YOU to spend time to show your client what the term means, give examples and then tell them how you will document, seek approval and then bill them for changes to the project scope.

This education process should be done BEFORE the project starts, not after you issue your third invoice and the client asks “What are these extra costs on your latest invoice?”. You risk losing the client’s trust, and them becoming adversarial to every subsequent invoice you then issue.

Develop standard templates:

To make the process as simple and consistent as possible, it is recommended that you develop a standard format for presenting a variation to the client for approval and then a standard format for billing the client. Variations can be complicated and so using a standardised system, will help to speed up the process, make it easier for the field staff to follow and allow your client to become familiar with the process. 

Treat charge-up jobs as if they are fixed price:

Just because a job is on charge-up does not mean you do not need to capture, seek approval for, and track variations to the project scope and cost. I see many instances of charge-up jobs ending in tears due to the budget blowing out and the client feeling they have been shafted by the builder. The use of Rave’s client communication portal will go a long way to ensuring the client is kept informed at every stage and any queries can be dealt with at the earliest opportunity.

Take lots of photos:

A picture speaks a thousand words. A video, ten thousand. In the building process, conditions change quickly and time is money. If a quick video or photo is taken and then sent to the client, decisions can be made faster and the project kept on timeline better. Photos are also good back-up evidence to support a variation claim and is less likely to lead to a client questioning the extra cost. Again, Rave has this well covered via the client portal.

Get all variations approved in writing:

There is a lot happening on a building site and is often a classic example of organised chaos! Because so much is going on; multiple sub-trades are coming and going, lots of decisions are needed, problems need solving, the likelihood of things being missed is high. You are dealing with humans after all. The best policy is to get the request for the variation in writing, even if that is an email. Any approval of the proposed work should be documented. If the variation order cannot be documented, it is important to note the time and date of the request in your diary.

Finally, it’s important to touch on the ethics of variations.

There are some builders out there who will low-ball the sales price on a project and then make up the initial shortage of profit by pushing through multiple variations. Often these variations are for work that should have been included in the original scope. Please don’t be one of these builders – if you are reading this article, you probably aren’t! Variations are a necessary part of the building process, but they should be used ethically, and only so the builder receives fair compensation for the work required while the client receives the best value. You want a happy client at the end who will refer you more work, even if the project costs more than they originally had hoped. It’s all in the way you handle it.

If you’d like to contact The Trades Coach for help.  Head to our website or email me at andy@tradescoach.co.nz.

Andy Burrows

The Trades Coach

Phone: 09-912 1901 or 027 6886721

Website: www.tradescoach.co.nz

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