Guest Blog: Are you Working for Free on your Construction Project?

Is your company working for free? What you need to know

This sounds a strange question! Which construction company works for free? Yet it’s something that happens often on construction projects. Contractors regularly unwittingly carry out work for which they aren’t paid. I’m not talking about dishonest clients who don’t pay their contractors, which is another story all together, rather, it’s because contractors haven’t claimed for the work they’ve done.

Why contractors don’t claim their additional costs

Some reasons construction companies don’t claim their additional costs incurred due to changes and variations are:

1. The contractor’s project manager isn’t familiar with the project scope of works and what was priced in their tender or bid

2. The project manager hasn’t read the contract document

3. The project manager isn’t taking note of the work being carried out or when and what the client has provided

4. The contractor’s person preparing the invoices to the client isn’t familiar with the construction site conditions or the construction work that’s been completed

5. The contractor doesn’t have the required knowledge or training to understand that they are entitled to be paid a variation

6. The construction project manager is focussed on delivering the project and neglects the financial aspects

7. The construction company is fearful of upsetting the client so doesn’t submit a claim

8. The construction project manager believes financially everything will work out fine at the end of the project

Is this your company?

Reasons for variations

Most construction contracts will change and vary from the works that were originally tendered for, and priced. Construction contractors must ensure that they are paid for all additional work. Variations occur for a number of reasons including:

1. Additional scope – extra work which wasn’t allowed for in the client’s tender document and consequently wasn’t priced by the contractor

2. Errors and omissions in the document – resulting in the contractor not pricing or allowing for certain items, restrictions and specifications which they now have to include

3. Changes to drawings – this may include doing additional work, or having to redo completed work when the changes are issued late

4. Delays due to:

   • late access to work areas due to circumstances beyond the contractor’s control

   • late issue of information and drawings

   • the client making changes to the completed works

   • unforseen weather conditions

   • unforseen project conditions

   • the client’s contractors or workers impeding or preventing access

   • the client-provided services being unavailable, being of insufficient quantity, not provided to the point specified, or provided late

   • the client-supplied equipment or materials arriving late, in insufficient quantities, or not to the correct quality

5. Changes in specifications

6. Changes in working conditions such as:

   • unexpected ground conditions, for example, rock

   • encountering hazardous materials on the site

   • the discovery of artefacts

   • the unexpected presence of underground water

7. Changes of commercial or contractual conditions

8. The client delaying or changing milestone dates, or requesting the schedule to be accelerated

9. Drawing errors and drawing coordination problems

10. Changes of law within the state or country

11. The client or their contractors damaging completed work

Do some of these items sound familiar? I’m sure you have all experienced some or all of these conditions on your projects.

What you need to do

It’s vital to read through and understand the construction contract and tender documents, as well as the related correspondence. It’s important that the contractor regularly compares construction drawings and specifications with those issued at tender stage to ensure that they haven’t changed.

Continually ask the questions:

• ‘Are we constructing what we tendered for?’

• ‘Are the site conditions as expected at tender stage?’

• ‘Has the client fulfilled all their obligations in the contract?’

Sometimes the variation is as simple as submitting a revised rate for an item or task because the description of the item priced at tender stage has changed, for example because:

• The height or dimensions have changed

• The quantity has changed

• The specification is different

The client must be notified of variations as soon as the contractor becomes aware of them, and certainly within the time specified in the contract. Failure to do so may mean that the contractor loses their right to claim.

The contractor should ensure that the person preparing the variation has the required knowledge and experience to prepare the claim. If there’s any doubt as to the validity of the claim, or what should be included, seek advice from experts within the company or from outside providers. The cost of getting proper advice is often far outweighed by the revenue that can be earned by an expertly formulated and drafted claim.