Where varied work has no comparable rate in the contract, a new one has to be built. The industry calls it a star rate, and the arguments about it divide neatly into two: whether a new rate was needed at all, and whether the one proposed is reasonable. Both are addressed in variation claim preparation.
The first argument is usually the more important. A star rate proposed for work that the contract rates could have covered will be resisted on principle before anybody examines the build up.
When a new rate is actually needed
Where the varied work is not of similar character to anything priced in the contract, so there is no rate to start from and nothing to adjust.
That is a narrower situation than it sounds. Most varied work resembles something in the bill, even if imperfectly, and the contract sequence prefers adjustment to replacement.
Genuine cases do arise: work of a different trade entirely, materials not contemplated anywhere in the contract, or operations that have no analogue in the priced documents.
How a defensible rate is built
From components: labour, materials, plant, with the outputs and quantities stated, plus the additions for overheads and profit that the contract allows.
Each component should be evidenced. Material costs from quotations, labour rates from the same basis used elsewhere in the contract, plant from actual rates rather than from published lists where those differ.
Outputs are the part most often challenged and least often supported. A rate assuming a particular production rate should say what it assumes and why.
Consistency with the rest of the contract matters. A star rate using labour rates significantly above those implied by the tender invites an argument that has nothing to do with the varied work.
What makes a star rate stick
Transparency. A build up that can be followed and checked is far harder to refuse than a lump sum with a description.
Consistency with the tender. Where the approach mirrors how the contractor priced comparable work originally, the rate reads as a genuine extension of the contract pricing rather than as an opportunity.
And proportionality. A rate that produces a figure wildly out of line with similar work elsewhere on the project will be examined closely whatever its internal logic.
The commonest objections
That the work was not of different character, so an existing rate or an adjustment should apply. This is the strongest objection and it is frequently right.
That the components are unevidenced, particularly outputs and plant time.
That the overhead and profit addition exceeds what the contract provides, which is a question about the contract rather than about the rate.
And that the rate has been applied to quantities that were not properly measured, which turns a rate argument into a measurement one.
Agreeing the rate before the work
Where the programme allows, submitting the proposed rate before carrying out the work converts a later dispute into a present negotiation.
It also gives the employer the option of instructing differently, which is sometimes cheaper for everybody and almost always better received than an account presented afterwards.
Where the work has to proceed first, submitting the rate promptly afterwards is the next best thing. Rates that appear for the first time in the final account are received as claims rather than as valuations.
Star rates and daywork
They are different mechanisms. A star rate values work by measurement at a newly built rate; daywork values it by recording actual resources expended.
Most contracts prefer measurement where it is possible, and treat daywork as applicable only where the work cannot reasonably be measured.
Using daywork because building a rate is harder is a common shortcut and a frequent reason for reduction, since the contract conditions on daywork are usually stricter.
What to keep
The build up itself, in the form submitted. The quotations and evidence behind each component. The measurement the rate was applied to. And the correspondence in which the rate was proposed and responded to.
Those four items answer almost every question that arises later, and they are easy to assemble at the time and tedious to reconstruct afterwards.
Keeping them per variation rather than per project also makes the eventual account far easier to present.
The rate that applies to the whole, not the extra
Where a variation increases a quantity substantially, the new rate frequently applies to the whole of the varied work rather than only to the increase, depending on what the contract says.
That can cut either way. A rate adjusted downwards for economies of scale applies to everything, not just to the additional quantity.
It is worth establishing which approach the contract takes before building the valuation, because the difference on a large variation is considerable.
Who builds the rate
Normally the contractor proposes and the employer side assesses, which means the build up has to be capable of being checked by somebody who was not involved in preparing it.
An assessor who cannot follow a rate will not accept it, however reasonable the underlying figures are. Presentation is part of the substance here.
Where the assessor builds a rate instead, the same standard applies in reverse, and a rate imposed without derivation is as weak as one claimed without it.
Where it fits in the account
Star rates are usually a small proportion of a variation account by number and a larger proportion by value and by argument.
Getting the sequence right, so that new rates are used only where the contract allows, removes most of that argument before it forms. That is cost control and variations work during the project.
Where an account is already contested and the rates are part of it, they are usually better addressed alongside the rest of the disputed items through final account dispute review than as a separate argument.
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.