The Secret to Avoiding Cost Variations

Perway Construction Services
February 28, 2023

- Welcome everyone. You've probably heard of many horror stories in the building industry about variations. So potentially someone's just started their job and suddenly they've been hit with a 20 grand variation that the builder didn't allow for, and now they have to pay that in addition to what they've already agreed to pay. So in this episode we're going to look at ways of how to avoid variations and additional costs whilst renovating. So we're going to welcome back Jane from Distinct Renovations. And Distinct Renovations are a family run building company in Perth that specialize in building timber frame homes and renovations and extensions. So welcome back. Jane, and thanks for joining us again today.

- Hi, thanks for having me, it's a pleasure to be here again.

- Good, well, Jane, I'm just going to firstly, explain to homeowners that may not be aware of what variations are. So they're essentially changes to what's been agreed in your building contract. And so, you know, there's sometimes variations that are known and then there's obviously variations that are unforeseen and, you know, many homeowners who have renovated or built before experience many variations. So some of them can have a detrimental effect on homeowners because variations can add a huge amount of additional costs to what people have already planned for and budgeted for in a renovation. And, you know, it even affects their experience of the renovation and other things as well. So, you know, what, in your opinion, why do variations happen or how do they happen?

- So, I mean, I think there's some variations that happen that are out of anybody's control and that's generally behind walls or underground or under concrete. Those ones almost can't be avoided, sometimes they can, but I think the majority of variations that occur in say our contracts, and we have experienced a ridiculous amount of variations in the last year, because we were rushed to sign all these contracts, get everything done for the builder's grants. So that has made it even more obvious why variations do occur for most homeowners. And it purely and simply comes down to planning. If you do not plan for what you want, if you don't know what you want in your renovation, you are going to make changes and they're going to cost you more. So, you know, you think you like that tap, oh, I'll just put it in there to hurry up and get the contract signed, or I think I like that, I'm not really sure. Oh, I think I want, you know, I'm okay, I only want, you know, skirting tiles in the powder room, but then the building goes up, you've saved a bit more money. You've been shopping. You've spent more time planning your renovation and you change your mind and everything's a variation. So now we're going to change the tiling, now we're going to change the tap, now we're going to change this... Now a variation takes a builder a lot of time to do, a lot of time. Like, it's not just here we go, we'll just change it. So builders have to charge for their time. So that's why variations... I mean I've heard of builders that charge $500 for a variation fee. Some builders do charge none. But variations will have a margin on top of whatever it is that you change. So a variation generally will always cost you money unless you're taking something out. And the main reasons for variations, in my experience, other than the unknowns, are pure and simply because the homeowner wasn't 100% on their choice upfront, or it was a prime cost item that then varied later and was more expensive because they changed their mind on what they kind of wanted or whatever it may be. That to me, that is absolutely the main reason.

- Yeah, no, I agree. And on some interesting points there, Jane, you know, the known variations are pretty much the changes that the homeowner has made. And, you know, you used the example of changing the tap, but it can be so much more than that because if the homeowner isn't clear on, you know, you think of just changing one item for another, but you know, that other tap could require a different plumbing system or, you know, a different type of, you know, other issue, you know, with tiling or anything like that. So it can be so much more and the planning that needs to go behind that as well. So there can be a really, you know, it can be a fairly decent cost added on to what you've already budgeted for, within your home renovation. So I think that it's really important that people are clear on what they want before they, you know, sign the contracts and before they start the job, and it's putting that effort and time into the forefront of your plan and in that pre-construction stage and not rushing things so that people are, you know, really sure of what they want. So that's included in the builders, you know, detailed proposal, it's included in the price and the contracts so that people know, okay, this is what I want and don't get me wrong, it is okay to make changes. Obviously it's your home and your dream space at the end of the day. So, you know, if you, obviously you can change your mind or you've seen something really awesome, you know, whilst the renovation is happening, but it's important then to communicate that straightaway, with the builder so they can arrange for that change as quickly as possible and agree to it, you know, as you said, there's, you know, many builders put a large margin on variations for that reason, because it is, a lot of time that's added on to the process and also it pushes out your job timeframe as well. You know, so if you're making some changes, you know, it's a day here, a day there, and suddenly, if you've got 10, 20 changes, there's an extra potential two weeks added on to your renovation job. So if you're even potentially, renting somewhere else or staying somewhere else during that renovation, there's another two weeks of rent. So you just need to be aware of these additional costs. And before you start making these changes and it's just to inform you, obviously, if people want to make the changes, that's fine, but it's just to make people aware so that they can make informed decisions rather than just off the cuff because it does blow budgets quite a lot. I think, you know, that's the known ones. And then obviously the unforeseen ones that you touched upon, you know, they are unavoidable. I think on the previous conversations that we've had, soil reports might be done and you don't understand them, you know, you aren't aware that there's potential rock. So when you start to do the initial ground works and you hit rock, then you know, people do face extra charges because it's not a charge for the builder to wear. It is a charge that has to be passed on to the homeowner. Other issues that we've seen in particular in Perth are asbestos, you know, that you're not aware of. We do asbestos testing and investigations prior to renovating. However, there is times that, you know, it was one job that it was under the slab in the garden. Do you know, we weren't aware of, you know, that could even be possible. But it's these things that are unknown, you know, and it's just really hard to allow for them. So that's another time that a variation can arise. And especially in renovations in old homes, it's really difficult to know what's behind the walls, under the roof, previous poor workmanship, you know, may mean that when you're actually coming to do that job and that specific stage of that project, that even though the builder's been out, he's reviewed the area, made the assessments and investigations. Sometimes it's just impossible to know what things are going to be like until you're actually in the throws of the job. So, you know, that's under the roof, there can be, you know, other issues with under the house, you know, behind the walls, under the floorboards. So it is difficult to know, but those are the unforeseen things. And I think that in our minds, if you have a builder that is spending a lot of time in the pre-construction stage, attending your site, bringing his trades or her trades to site as well, to, you know, review what's included, understanding what the homeowner wants. And especially if that homeowner is really, you know, has made all of the decisions of what they want that final outcome to look like, and they really understand the final goal of the renovation. Then when the builder and the trades then have attended site and they've done their investigations, they've provided the proposals to the builder and the builder has really considered everything. You know, the only chance then of variations is for those unforeseen things, you know, that can happen. So I think that's one way to really avoid variations, you know, and as much as possible they can never be eliminated totally. But I think it's just about minimizing them as much as possible and even, you know, even allowing for a contingency. So if you have, you know, budgeted a certain amount for your job, you know, if you've got a 200 grand renovation, so even just allowing 20,000, 10% contingency, and you're holding that off in a separate account, just to account for potential variations that may arise. I think that is a really smart way to do things so that you're not dealing with unexpected surprises during your renovation.

- Yeah, definitely.

- Yes.

- Contingencies are very important.

- Yeah, no, I think that that is, I think again, we talked about it in a previous episode, Jane, about the level of detail that's included within your quotes and your detailed proposals. And we briefly talked about, you know, prime cost items and provisional sum items. Would you like to expand on that at all, about how, if you have a detailed proposal and if you've a fixed price and you know exactly what you're getting, how that can eliminate variations?

- Yeah, so definitely. We were discussing it in the other episode. So I think if you can try and get your builder to have no prime costs, no provisional sums, other than site works because as we've just been talking about, it's really hard to get to pin that down. But if you can avoid having allowances for tiles, tapware, toilets, everything, cutting. Like if you specify every single thing with your builder up front, and they have that then specified in the quote there's little room for variations, and the only variations that should come up will be those unknown items. And then if you want to change your mind, then you know, those are variations. But I would also suggest speaking with your builder about what is your variation process? How does it work if I want to make a change, what do I do and how does it work? And what's the time delay? And what's it going to cost me? Because if you don't know that, and then you've accepted the quote, everything's good to go. And then you go to sign a contract and there might be a variation, you know, it might explain to you how their variation procedure is. Or they might not explain it to you until you've actually signed up to them. But ask them upfront, what's your variation process? If I were to make a change, how does it work with you guys? And how much is it going to cost me? Because as I said, I've got a friend that's building through a bigger builder and he got charged $500 for a variation. And the actual variation cost him $80.

- Okay, yeah.

- You've gotta ask your builder. I mean, we tend to, I don't know what you guys generally do, but we tend to allow one or two variations at no cost because we just feel that, look, we're a small builder we work closely with you, but when you start making 10 variations, that could be 20 hours of my time, trades time... You can't keep making variations. So ask your builder what the variation process is, so you're aware because you will want to make changes. I've yet to meet or work with a homeowner that hasn't made a variation that wasn't an unknown. So they wanted to change the tiling. They wanted to change the tap ware. We get that, and look, to be honest, I build a lot for myself constantly changing, constantly. Oh no, hang on, this looks different. Let's do this. You know, so it's human nature and it's what we do, but understand the variation, cost, time and process with your builder upfront, so that you understand. Provisional sums, prime costs, try and avoid them as much as you possibly can. There might be one or two, and your builder will be able to explain to you, hopefully why they're in there. But yeah, just as much as you can avoid them because they're unknown items. And until you decide what you're doing, and then it's going to cost you more potentially later. So just try and avoid them if you can.

- Yeah.

- And then going back to our previous conversation about quoting, again, if you don't have prime costs, if you don't have provisional sums, then you can compare, you know, like for like.

- I think, excuse me, some, you know, business models, they give you that in their contracts then allowances for the prime cost, a provisional sum. So I think even on that as well, that if homeowners have a specification list, sorry, a selections list, and even a checklist on that, so that they have identified the exact make, the exact model, the exact color of the product that they want and that's included within their contract, then it just, you know, eliminates any discrepancies. So the builder's aware, okay, that's the product that they want, the client's aware of what they want. So, you know, there's no room for any change. Obviously when it comes to the job, there could be slight changes that potentially the product isn't available at that stage. And that's a problem that we're facing within the industry at the minute is, you know, with the materials, you know, that there's things that aren't available, or there's not as many with the deliveries into Perth, there's not as much stock, so things may be unavailable. So it's important also to check when you are making your selections, that you know, that they've got a timeline, that they have availability of stock within as well, because, you know, we don't need to be disappointed when it comes to the actual job. And then to find that something that you had your heart set on is no longer available. So I think just add to that, you know, that, excuse me, renovating should be, you know, a really enjoyable situation, you know, it should be an experience that you really are excited about. And, you know, it can be tarred with variations because obviously it's an unexpected cost that can delay a project. So it is important to be clear about what you want and really have an relationship with that builder before you start your job. You know, you need to trust your gut, that you've got someone that you can work with, that's not going to, I'm not going to say it be contractual, obviously you need to have a contract for a reason, it's there to protect the consumer and protect the builder, but, you know, that is explaining things to you. and that hopefully the communication lines will be there, that, you know, contracts won't need to be used. As long as the process for changes is allowed for. So within Perway, we do have, if a client wants a variation, they have to complete a change order request. And then that is, you know, sent through to the office. Then it's reviewed, you know, the costs are calculated and then it's sent out to the homeowner with the additional cost. And if they're happy, they're aware then, okay, well, my budget was, you know, 150 grand for the job. And now it's going to be, you know, 165 because I've added on all of these extras. So that they're aware of that, you know, this is what we've allowed for. This is what the builder has agreed to do the job for, but now this is going to increase. And it's just making people aware before they actually, you know, agree to do that, that this is the cost, so that rather than all of the variations being left to the end as well because then that's just, again, another big disappointment and people don't know, they aren't aware of what that budget blowout could be. So, yeah, I think that having that good fit, good communication with the builder as well, is extremely important to eliminate any issues down the line.

- Yeah, definitely. Yeah, and variations should definitely be, yeah. like you need to know, not just what this is going to cost, but what the final cost is, including your new variation. That's important, especially if they're getting bank finance and that sort of stuff.

- Well, Jane, thanks a million for that. I hope it's been very informative for anybody that's following us.