8 Reasons for Delayed Settlement Agreements in Construction
In the dynamic construction world, variations are an inevitable part of this landscape, introducing changes that range from minor adjustments to major overhauls of the project scope. However, settling these variations does not always follow a straightforward path. Delays in settling construction variations can lead to project overruns, increased costs, and strained stakeholder relationships. But…
In the dynamic construction world, variations are an inevitable part of this landscape, introducing changes that range from minor adjustments to major overhauls of the project scope. However, settling these variations does not always follow a straightforward path. Delays in settling construction variations can lead to project overruns, increased costs, and strained stakeholder relationships.
But what causes these delays? Are they a result of contractual ambiguities, inadequate communication, or perhaps the complexities inherent in the construction process?
Main reasons for delays in construction variation settlement
Unclear Scope Definition:
The lack of clarity in scope can result in disputes over whether some requested works are a variation/Change order or not and whether it should be compensated. This dispute typically leads to delays in settlement. A well-defined scope is critical for the successful execution of a construction project. If the scope is unclear or poorly defined, it leads to confusion about what constitutes a variation versus what was included in the original contract.
Lack of Contractual Language Clarity:
We can’t emphasize this enough. The contract language should clearly outline how variations should be managed, including the process for identifying, approving, and pricing variations/change orders.
The contract’s ambiguity can lead to disagreements on scope or dispute on handling variations which resulting in delays. This is particularly true if the contract does not clearly articulate the responsibilities and entitlements of each party in the case of variations.
Delayed Information or Miscommunication:
There is a reason that every contract has Time Bar clause and emphasize on the submission of Notices of Claims and Variation. Effective communication is essential in managing variations. Misunderstandings or miscommunications about the need for changes or the reason for change can lead to delays.
In addition, delays in notification of the potential variations might result in the waiving of entitlement due to non-compliance with the contract. These issues are compounded when multiple stakeholders have differing interests and perspectives.
Contract Maladministration :
The type of contract chosen for a project can significantly influence how variations are handled. Some contract types are more flexible in accommodating changes, while others are more rigid.
For example, in a lump sum contract, handling variations tends to be more straightforward. On the other hand, variations in unit price or guaranteed maximum price contracts demand detailed and timely records, following specific formats as dictated by the contract’s language.
Understanding how the contract should be administered plays a crucial role in early settlement, and lack of it can result in difficulties in managing variations efficiently and lead to delays.
Lack of Change Management Process:
A structured change management process helps in the timely identification, assessment, approval, and implementation of variations. Without this, variations can become chaotic and unmanageable, causing delays in the project and the settlement of variations. The change management process needs to be endorsed and agreed upon by all the variation stakeholders.
Budget Constraint:
Variations often lead to additional costs. Sometimes, clients ( whether an owner or main contractor) have constraints or lack the funds for necessary changes. Clear communication in this situation and working as one team will reduce the time of settlement.
Understanding Project Delivery Method:
The project delivery method (e.g., design-bid-build, design-build, construction management) influences how variations are handled. Similar to contract type, a variation in Design-bid-building is more straightforward to handle than a variation in design-build or progressive design-build methods. Ensure the alignment and understanding of contract type and delivery method ease the process of variation settlement.
Dispute Resolution Process:
Finally, the absence of a straightforward dispute resolution method can be a direct cause that leads to prolonged variation settlement. The contract should have a clear timeline of when the parties can initiate a dispute process if no agreement is reached. If no contractual clause governs how the disagreement on variation will be resolved, the settlement can take longer, leading to cost and time overrun.
In conclusion,
managing variations in construction projects requires a clear scope definition, a well-structured contract, effective communication, a suitable contract type, a robust change management process, adequate budgeting,a suitable delivery method and a transparent dispute resolution process. Failure in these areas can lead to significant delays in settling variations.
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