Where no contract rate fits and no adjustment is appropriate, most contracts fall back on a fair valuation. The term sounds discretionary and is not: it describes a valuation built from the same kind of components the original pricing used, applied to the varied work. Getting that right is part of variation claim preparation.
The word fair causes most of the trouble. It invites both parties to argue about what would be reasonable in general, when the question is narrower: what is this work worth, valued consistently with how the contract priced everything else.
What fair valuation actually involves
Building a value from labour, materials, plant and the additions the contract allows, applied to the measured quantity of varied work.
The components should be consistent with the contract pricing where that is possible. A fair valuation using labour rates unrelated to the tender invites an argument about consistency rather than about the work.
It is a valuation rather than a reimbursement. The work is valued on what it ought reasonably to cost, done efficiently, rather than on whatever it happened to cost on the day.
What it is not
It is not actual cost. A contractor that worked inefficiently does not recover the inefficiency simply because the valuation basis is fair valuation.
It is not daywork. Daywork is a separate mechanism with its own conditions, usually applying only where measurement is impracticable.
It is not an opportunity to recover losses from elsewhere on the project. The valuation relates to the varied work and nothing else.
And it is not a negotiation starting point. A fair valuation inflated on the assumption that it will be cut tends to be cut further than it would otherwise have been.
Where cost records do help
They are evidence of what the work involved, even though they are not the measure of its value. Resources actually deployed support assumptions about outputs.
Where the valuation assumes a production rate and the records show something close to it, the valuation becomes much harder to resist.
Where the records show something far worse, that is worth understanding before submitting. Either there was a reason connected to the variation, which belongs in the valuation, or there was not, which belongs in nobody’s claim.
The preliminaries question
Fair valuation of the work itself frequently leaves the time related costs unresolved. Whether preliminaries are recoverable, and on what basis, depends on the contract and on whether the variation extended the period.
Treating preliminaries as an automatic percentage addition is common and frequently wrong. Where the contract provides for them separately, they belong there.
Where a variation genuinely extended the programme, the time related cost is usually a different claim under a different provision, which is why it is worth separating rather than absorbing.
Overheads and profit
Most contracts provide for an addition, either at a stated percentage or by reference to the tender. That provision governs.
Claiming an addition above what the contract allows is a common error and an easy one to refuse. Claiming nothing where the contract allows it is also common and simply loses money.
Head office overhead recovery for prolongation is a separate question altogether and belongs with loss and expense rather than with variation valuation.
Presenting it so it can be assessed
Show the components. A fair valuation presented as a single figure with a description is an invitation to be reduced to whatever the assessor thinks reasonable.
State the assumptions, particularly outputs and gang sizes, so that the disagreement if there is one can be about a specific number rather than about the whole valuation.
And measure the work properly. A good valuation applied to a disputed quantity is still a disputed figure.
How assessors approach it
Usually by building their own version and comparing. Where the two are close, agreement follows quickly; where they differ substantially, the difference is almost always in one or two assumptions rather than throughout.
Finding that difference early is what resolves these items. Exchanging totals without components makes it impossible.
An assessor who will not show their own build up is making the same mistake in reverse, and it is worth asking for it.
When to use it
Only when the earlier steps in the contract sequence genuinely do not fit. Jumping to fair valuation because it feels more generous is the commonest reason a variation account is sent back.
Where it is the right basis, say why: identify the work, explain why no contract rate is of similar character, and only then value it.
That reasoning takes a paragraph and it removes the first and strongest objection before it is made, which is worth more than any amount of detail in the build up itself.
Where it meets measurement
A fair valuation still has to be applied to a quantity, and that quantity has to be measured on the same basis as the rest of the contract.
Measuring varied work loosely, or on a different basis from the bill, produces an argument about quantity on top of the argument about rate.
Where the contract was measured under a standard method, varied work should follow it, which makes the whole account consistent and much easier to agree.
The figure both sides can live with
Fair valuation produces a range rather than a single number, because reasonable assumptions differ. Both parties building the valuation properly will usually land within a few per cent of each other.
Where the two figures are far apart, the cause is almost always one assumption rather than a general disagreement, and finding it is quicker than arguing about the totals.
That is why exchanging build ups rather than figures resolves these items faster than any amount of correspondence about reasonableness.
Keeping it practical
Agree the basis early, even if the figure comes later. Most disputes about fair valuation are really disputes about whether fair valuation applied at all.
Keep the measurement and the build up together, per variation, so the item can be assessed on its own.
That discipline is cost control and variations work during the project, and it is why well administered contracts settle variation accounts quickly.
Variations that have not been agreed?
Variation claim preparation sets out the instructed scope, the measured difference and the valuation built on the rule the contract actually provides, with the evidence attached to each line.