Variation Orders, and Where the Margin Goes

What a variation order actually is

A variation order is a written record of a change to the agreed scope: an addition, a deletion, or a substitution. It is not an email saying yes, and it is not a conversation on site.

Four things make it one. What is changing. Why. What it does to the price, up or down. What it does to the programme, in days. Signed by both sides.

• —A description of the change, in the same terms as the original quotation
• —The cost impact as a number, positive or negative
• —The effect on the schedule in days, even when the answer is none
• —Both signatures, dated, before the work begins

Unsigned work is unpaid work

The single most expensive habit in this trade is doing the change first and pricing it afterwards. At the moment you are asked, you have leverage and the client has a decision to make. By the time the work is done, you have no leverage and the client has an invoice to argue with.

It is worse than a discount, because a discount is at least chosen. This is a negotiation you enter having already spent the money, and the usual outcome is that the change gets split, absorbed, or written off to keep the relationship.

It is an accreditation requirement, not just good practice

CASE requires accredited firms to have a documented procedure for handling variation orders. That makes paperwork a condition of the badge rather than an administrative nicety, and it is worth knowing if accreditation is something you hold or are working towards.

It also tells you what a client who has read one guide will expect. Homeowners are being told to insist on written, signed variations before work proceeds, so a firm that produces one immediately looks like the firm that has done this before.

Price the change, do not estimate it

A variation is quoted the way the original was: quantity, unit, rate. Carpentry per foot run, tiling per square foot, electrical per point. A variation priced as a lump sum invites exactly the question the original quotation was itemised to avoid, and this time the client has already committed and feels entitled to push.

Price it from the same supplier presets you built the original from, so the rate matches. A variation at a different rate to the same item in the main quote is the most common thing a client notices, and it costs more to explain than the variation is worth.

• —Same units, same rates, same structure as the original quote
• —Include the disruption, not only the materials
• —State the deduction clearly when scope is being removed

Deletions are variations too

When a client removes a feature wall, the credit is a variation and it should be issued as one. Firms are far quicker to document additions than deductions, which reads exactly as it looks: paperwork that appears only when it is in your favour.

Issuing the credit unprompted is worth more than the credit. It is the cheapest trust you will ever buy, and it makes the next addition an easier conversation.

Most variations are failures of the original quotation

Some changes are genuine changes of mind. A surprising number are things that were always going to be needed and were not written down: the professional engineer endorsement for hacking a masonry wall, at roughly $800 to $2,000, the permit, the disposal, making good outside the quoted areas.

Those are not variations to the client. They are the price going up, which is a different conversation and a worse one. The fix is upstream, in a quotation that states its exclusions properly, and it is the reason the exclusions list earns its place on the document.

Keep the chain in one place

A quotation, three variations and a final invoice that live in three different formats is how a job ends without anybody being certain what was agreed. Whatever you use, the test is simple: can you produce, in one minute, the total of the original plus every signed change?

If the answer is no, that is the number you will be arguing about at handover.