If you are a contractor or project manager, you may not know how to make money from client variations in construction projects.
If contract variations are not managed properly, each time you are requested to quote a variation, your business is likely to be losing money, because:
- You have to halt or adjust the construction schedule – losing production and costing you money
- You are not charging for YOUR time to prepare the variation order and therefore leaving money on the table.
Because the variation is affecting the production schedule, costing you money and time, you rush through the variation, not thinking through it and cut corners on labour and materials estimates.
So what can you do about this?
My first recommendation is to include a Contract Variation Administration charge on all contracts.
The fee covers the time expense associated with adjusting the production schedule, the time required to assess the scope of work and materials required to complete the variation.
My second recommendation is to have a set price formula for all variations. Having it set as a formal procedure makes it fair and equitable for every client. It will also save you the time you spend working out “what you think it’s worth”. The set price formula could be simple and straight forward:
- $750 – Contract Variation Administration Charge
- 100% – Mark-up on materials
- 50% – Mark-up on the labour estimate, including project management
Without both a Contract Variation Admin Charge and a Set Price Formula for all variations, it will be difficult to price consistently and to make variations a profit centre of your construction business.
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