In this article, we explain how to make a variation claim and what you should look out for.
You’ll hear from a commercial contract lawyer exactly how to submit a variation claim.
Submitting a variation claim is an important way to ensure that you are paid for your services and/or the goods you sell. If you want to submit a variation claim to your client, there are a number of steps you should follow.
A variation is a change to the fee, scope of services or goods being supplied, timing or sequence of work to be performed.
Author: Farrah Motley, a commercial lawyer with experience in writing international supply agreements and helping Australian businesses to reduce legal risks
This article discusses the following topics related to making a variation claim. If you want to skip ahead to the relevant section, click the link below:
- How to make a variation claim – what does your contract say?
- How to make a variation claim – have you contributed to the need for the variation?
- How to make a variation claim – how is your relationship with your client?
- What to do if your client rejects a variation
- Can you refuse to carry out further work?
How to make a variation claim – what does your contract say?
The first step to making a variation claim is to read your contract. The contract provides the framework that needs to be followed in order to claim a variation.
What is your scope?
The first step to determining whether you are entitled to claim a variation is to review the scope of work that you have promised to carry out under your contract. A variation is a change to what has been promised under the contract, so it’s important to understand the boundaries of what has been promised.
What does the variation clause say?
Variation clauses greatly vary from contract to contract, however, they commonly include the following components:
- a time limit within which to claim a variation
- a description of the form the variation claim must be submitted in (for instance, many require a variation claim to be made in writing)
Some variation clauses may also contain a requirement that the variation notice must specify that it is made under a particular clause or that it has a particular title.
How is the variation valued?
Variations are generally valued by both parties agreeing to the additional or reduced fee.
However, if an agreement cannot be reached, the variation clause may set out some ‘fallback’ valuation methods. This may include applying a formula to the increased work or the client assessing the value of the variation and telling the supplier how much the fee will be increased or decreased by.
Is there a contractual time bar?
Failing to comply with a contractual time bar can be fatal to successfully claim a variation. When it comes to variations, a contractual time bar might look something like this:
If Party A fails to comply with all of the requirements set out in clause X, including the requirement to submit a variation claim within 2 Business Days, Part A will be barred absolutely from making a claim against Party B and will have no further claim whatsoever against Party B in relation to the varied works.
The bottom line is that you should always strictly comply with a variation clause. If, however, there is no contractual time bar contained in the contract, you may still have a right to claim a variation. However, because you have breached the contract, your right to claim a variation may be limited by any detriment your client has suffered as a result of the non-compliance.
For example, if you submitted a variation claim one day late and, because of that, your client hasn’t complied with the variation clause in their head contract and their claim is rejected, you may (even though there is no contractual time bar) nevertheless not be entitled to claim a variation.
As a commercial contract lawyer, I see clients use time bars against their service providers – sometimes even when they have verbally agreed to a variation in a meeting.
How to make a variation claim – have you contributed to the need for the variation?
If you have contributed to or caused the issue that has given rise to the need for additional work or time, your right to claim a variation may be impacted.
Variation clauses will often state that the right to claim a variation will be reduced where the party claiming has caused or contributed to the issue through their wrongdoing.
How to make a variation claim – how is your relationship with your client?
Consider your client’s general approach to variation requests
It is important to consider whether your client is generally opposed to variation claims and takes an antagonistic approach, or whether they are more amenable and understanding.
It is always important to take this into account when determining how you will approach requesting a variation. For instance, it may be better to have a friendly conversation with a client contract before submitting a formal claim.
Consider environmental factors which may impact your client
If your client is operating in an industry or on a project where timelines or budgets are tight and profit margins rely upon a high level of efficiency and minimising cost increases, you need to be aware of this.
You can do this by thinking about ways to reduce your variation claim, any reasonable workaround solutions, or out-of-the-box methods. Sometimes, being able to demonstrate and explain to your client that you have made genuine attempts to avoid or reduce the claim is enough to turn the client’s mind to genuinely consider your claim for a variation.
Consider potential future opportunities
Don’t cut your nose off in spite of your face. If there is an opportunity for future work, take this into account when determining how, when, and if you submit a variation claim.
If your client takes an antagonistic approach to variations and has a pipeline of work coming up, they may look to other suppliers.
A commercial contract lawyer can help you to identify when you should take into account future opportunities and when you should push for a variation.
What to do if your client rejects a variation
Can you refuse to perform the contract?
You can only refuse to carry out your contractual promises if the contract expressly authorises you to do so.
If you refuse to perform the contract and you do not have the explicit right to do so, you may be repudiating the contract.
There are serious implications for repudiating a contract and this must be avoided.
Can you afford to wear the cost of the variation?
If you want to avoid submitting a variation claim, you may still be required to carry out the variation and absorb the cost of doing so. Before you take on this additional work, consider whether you are able to wear the cost.
It is important to ensure that you are paid for the work you do. Running a business is different from operating a charity and for this very reason, you should claim a variation if you are asked to carry out extra work.
Is your client willing to negotiate?
Variations are not usually cut and dry. There may be a myriad of other issues impacting the supply of goods and/or services. For example, your client may be experiencing financial difficulties, or you may have caused an issue on another aspect of the project.
When this happens, your client may want to enter into negotiations. If negotiation is on the cards, you must still ensure you comply with the contract.
It is recommended that you engage a commercial contract lawyer to assist with negotiations.
Can you terminate the contract?
If your client has unreasonable expectations around the additional work requested and lacks the funds to pay for the additional work, you may wish to terminate the contract.
Again, you must ensure that you only do so if your contract entitles you to terminate and that you follow the process set out.
And remember, always seek the help of a commercial contract lawyer.
Farrah Motley | Director
PROSPER LAW – A Commercial Law Firm for Businesses
M: 1300 003 077
A: Suite No. 99, Level 18, 324 Queen Street, Brisbane, Queensland Australia 4000