An analysis of the impact of variation orders on project performance

Abstract

This study investigated the impact of variation orders on project performance in order to take proactive measure to reduce them. The study had the following objectives, namely (1) to investigate the prevalence of variation orders on construction projects; (2) to determine the cost impact of variation orders; (3) to examine to what extent variation orders added value to construction projects; (4) to determine whether the activities associated with variation orders may be regarded as waste; (5) to identify the predominant origin agent as well as the causes of variation orders; and (6) to establish the nature and extent of the impact of variation orders on overall project performance. Literature relative to the research area was extensively reviewed. The data gathering approaches included an exploratory study on costs of variation orders on two construction projects, interviews with three top management personnel in construction contracting companies, the audit of site instructions with regard to waste and their value-addedness and self-administered questionnaires. A purposive sampling method was followed to identify participants into the study. The audit of site instructions revealed that most variation orders were beneficial. However, 14% of site instructions had waste associated with them. It was possible to quantify apparent waste associated with variation orders by means of an ‘origin-cause matrix’ designed for that purpose. Problematic situations arising from the occurrence of variation orders included discrepancies between the claimed and certified amounts. Variation orders impacted project performance with regard to cost and time overruns and disputes between parties to the contract. Most variation orders involved additional works. The complexity of works was the most predominant factor influencing the occurrence of variation orders. The reduction of the occurrence of variation orders was traced back to the pre-contract stage given that the most predominant origin agent of variation orders was the client and then due to an unclear brief of works to be executed. Suggestions regarding the reduction of variation orders include (1) adequate planning in advance is required by all involved parties before works start on site, (2) consultants should do a thorough concluding design and working drawings and contract documents should be complete at tender stage, (3) clients should provide clear brief, (4) enhance communication and all parties should be proactive at all times, (5) works should be supervised with an experienced and dedicated supervisor and (6) consultant should ensure that the design/specifications fall within the approved budget and the budget team should be appointed and participate during the design phase. The study suggests further investigation regarding the development of a more equitable basis of valuation of cost recovery which was beyond the scope of this research.