Industry Trends & Insights
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When Variations Eat Into Your Margins
How better records and faster approvals can protect your bottom line.
Unapproved changes, disputed valuations and missing records can quietly erode construction profits. Learn how to manage variations before they become expensive disputes.
Team ConInnova
Introduction
Ask any site foreman how long a change takes to build and you'll get a number in days. Ask how long it took to get approved and priced, and you'll get a long pause followed by a sigh. The slab is poured and the variation is still sitting in someone's inbox.
That gap between doing the work and agreeing the money for it is where a lot of margin quietly goes missing. Most of it is fixable, and it raises a fair question: should you ever start the work before the price is settled?
Where the time actually goes
Approvals that wait for the right person. A change gets raised on site, then passes through a project manager, a consultant and a client who wants a second opinion. Each handover adds days, and the crew has to choose between standing around or pressing on.
Instructions that arrive half finished. A verbal "just sort it" on a Friday afternoon is a variation to the person who said it and a courtesy to the person who didn't write it down. When nobody recorded what's changing, who wants it and what it replaces, the price argument is really an argument about what was asked for.
Valuations that don't match. You priced the change with the real cost of getting your crew and gear back to the job. The other side priced it from the original rates and trimmed anything they thought you should absorb. Both numbers can be honest and still sit a long way apart.
Evidence built after the fact. The hard part to prove is rarely that the work happened. It's what it cost over and above the original scope. Time sheets that blend original and extra work, undated photos and emails that never confirmed the instruction all make a fair claim look shaky.
What the contract is nudging you towards
The current standard form contract, NZS 3910:2023, was released in December 2023 and it leans hard on agreement. It raises the expectation that the parties agree variations, their value and any extensions of time, and it has the Contract Administrator work with the contractor to get there. A separate Independent Certifier handles entitlement and can decide the final account if the parties can't agree. Early warning duties now run both ways too, so the principal is expected to flag issues as well as the contractor.
The 2013 version already had a useful signal. A contractor who knew of something likely to affect price or time had to tell the engineer in writing as soon as possible, and law firm commentary at the time noted that late notice could reduce a variation's value, because the other side could argue earlier warning would have cut the cost.
Government guidance from the 2020 lockdown spelled out the proof side. The onus is on the contractor to put forward the proposed value with supporting detail, costs should be backed up (open book where possible), records should be diligent, and any offsetting savings must be disclosed and deducted.
None of that is exotic. It puts the burden of speed and proof on the person who did the extra work.
The money clock doesn't wait
Under the Construction Contracts Act, a payer has 20 working days by default to pay a claim or send a payment schedule saying what they'll pay and why. If they do neither, the full claimed amount is treated as a debt, and the Court of Appeal's 2022 Demasol decision confirmed the payer needs to challenge a claim through a payment schedule, with the arguing coming after the paying.
That cuts both ways. It's a strong tool when your claim is clean and a trap when you're the one holding a subbie's claim you disagree with and you let the date slide. Whether an unagreed variation can sit in a payment claim depends on your contract, so check before assuming.
The debate: should work ever proceed before the cost is agreed?
The case for pressing on. Programme matters. Stopping a crew costs real money, a stalled critical path can cost more than the variation itself, and a good client relationship often runs on trust. Plenty of jobs would never finish if every change had to wait for a signed number.
The case for holding off. Work done before agreement is the work you fight hardest to get paid for. If the instruction was vague and the cost evidence is thin, you're asking someone to pay for something they never approved. The contract's variation process exists for a reason, and skipping it can put your recovery at risk.
Where most practical people land. Not a flat yes or no. Proceed when there's a written instruction, even if the price is provisional. Agree a rate, a cap or a day-works basis in writing first. Record everything separately from the day you start. If the other side won't put anything in writing, that tells you something about how the final conversation will go.
What to actually do about it
Get the instruction in writing before the crew starts. A two line email saying "confirming you've asked us to do X, we'll price it by Friday" beats nothing.
Agree a pricing method even if you can't agree a price. Day works, schedule of rates or a not-to-exceed figure keeps the work moving.
Track extra work separately from day one. Separate time codes, dated photos and a short daily note beat a long reconstruction later.
Give notice early and keep it factual. What changed, why it affects cost or time, and a rough size of the impact.
Set a decision date. Ask when you'll hear back and diarise it. Silence is easier to chase when you've got a date to quote.
Escalate sooner than feels polite. The contract's process is there to be used.
Bottom line
References
Hesketh Henry, "What You Need to Know About the New NZS3910:2023" (10 April 2024) - https://www.heskethhenry.co.nz/insights-opinion/what-you-need-to-know-about-the-new-nzs39102023/
Sharp Tudhope, "Notable changes to NZS3910:2023 for civil and commercial construction contracts" (15 March 2024) - https://sharptudhope.co.nz/news-articles/notable-changes-to-nzs39102023-for-civil-and-commercial-construction-contracts/
MinterEllison, "NZS3910:2023 | Getting to know New Zealand's new standard form construction contract" (11 December 2023) - https://minterellison.co.nz/insights/nzs3910-2023-getting-to-know-new-zealand-s-new-sta
Cavell Leitch via Mondaq, "NZS3910:2013 - new requirement for advanced notification to engineers in construction contracts" (29 September 2015) - https://www.mondaq.com/newzealand/construction-planning/430212/nzs39102013-new-requirement-for-advanced-notification-to-engineers-in-construction-contracts-contractors-beware
New Zealand Government Procurement (MBIE), "Guidance on construction sector variation claims during COVID lockdown" (2020) - https://www.constructionaccord.nz/assets/Construction-Accord/files/guidance-on-construction-sector-variation-claims-during-covid-lockdown.pdf
Hesketh Henry, "Payment Claims and Payment Schedules" (March 2019) - https://www.heskethhenry.co.nz/assets/uploads/2019/03/Payment-Claims-and-Payment-Schedules.pdf
Duncan Cotterill, "Court of Appeal issues reminder about importance of following the payment claim process" (25 October 2022) - https://duncancotterill.com/insights/court-of-appeal-issues-reminder-about-importance-of-following-the-payment-claim-process/
