Valuing variations: which rule applies

Under JCT, variations are valued using a set of rules applied in order. The detail sits at clauses 5.6 to 5.9 of the Standard Building Contract, and the RICS guidance on valuing change follows the same hierarchy. The principle is simple: use the pricing already agreed in the contract wherever you can, and only move further away when you have to.

The hierarchy

1. Contract rates

Where the varied work is of similar character to work in the contract bills, executed under similar conditions and without significant change in quantity, it is valued at the rates in the bills. No negotiation, no argument. The parties already agreed this price.

2. Pro-rata, or star rates

Where the work is of similar character but conditions or quantity have changed significantly, the contract rates form the basis and a fair allowance is made for the difference. This is where most genuine disputes live, because "fair allowance" is doing a lot of work in that sentence.

3. Fair rates and prices

Where the work is not of similar character to anything in the bills, it is valued at fair rates and prices. You are now outside the agreed pricing and into the surveyor's judgement.

4. Dayworks

Where the work cannot properly be measured and valued, it is valued on a daywork basis: prime cost plus the percentages in the contract. Dayworks are a last resort, not a convenience, and records must be submitted while the work is being done rather than reconstructed afterwards.

5. A lump sum quotation

Under the Schedule 2 quotation procedure the contractor prices the change up front, including time and loss and expense, and the employer accepts or does not. Where it is used properly it removes the argument entirely, because the price was agreed before the work started.

What actually gets disputed

In practice the argument is rarely about arithmetic. It is about one of three things.

Which rule applied. The contractor says the conditions changed significantly, so a star rate is justified. You say the work was similar in character and the bill rate stands. Both positions are arguable, and the one that prevails is usually the one that was written down at the time with a reason attached.

Whether it was instructed at all. Work done on a verbal instruction, or on a drawing revision nobody confirmed, becomes a claim rather than a variation. The record of who instructed it, and when, is worth more than the valuation.

Time and loss and expense. A variation that carried an extension of time and a loss and expense entitlement is a different animal from one that did not. If that is not recorded on the variation, the entitlement resurfaces at the final account as a surprise.

Variations belong in the valuation

A point of mechanics that trips people up. Under JCT a variation is valued in the periodic valuation, as a line in the certificate. It is not paid separately on the side.

Keeping variations in a parallel spreadsheet and paying them outside the certificate causes two quiet errors. Retention on the variation is often missed entirely, because retention is deducted in the certificate. And the same variation occasionally gets counted twice, once as a certificate line and once as a separate payment, which is the sort of thing found during a final account audit rather than during the works.

A short checklist for each variation

• Who instructed it, in what form, and on what date
• Which valuation rule applies, and the clause you are relying on
• If not contract rates, the reason the earlier rule did not apply
• Extension of time in days, or a clear note that none is claimed
• Whether loss and expense arises, remembering it is not normally subject to retention
• Whether it has been certified, and in which valuation

Six lines. They take a minute at the time and they are the difference between a variation you can defend and a number you have to justify from memory.