Context

A number of factors may necessitate a variation to an existing one-off supply contract (which is a purchase of a specific quantity of goods and or services). During the course of a contract, the initial scope of the project could be subject to variation arising from machinery of government changes requiring additional goods or services, changes in agreed rates, unforeseen circumstances , review of the project scope resulting from research undertaken in the course of the contract, an innovative or pilot project where the initial budget was an estimate of project costs. Longer term contracts are more likely to experience one or both of the preceding variations that justify a contract variation.

Policy Framework

There are two types of contract variations namely:

• Administrative variations which do not change the financial details of a contract. Examples include changes to the billing address, personnel assigned to the contract, sequencing of work, delivery schedule, and arrangements permitted by specific contract provisions.
• Financial variations which alter the financial details of a contract. Examples include changes to the price/cost, quantity, nature of the deliverables, and term of the contract (which increases the value)

The process for approval of a variation is based on the principle of high standards of probity and effective governance. This principle recognises that the party responsible for process approval (e.g. project manager or equivalent) in the first instance is best able to assess the factors supporting a variation and to provide expert advice on any additional contract management arrangements to be put in place.

Before approving a variation, consideration should be given to deciding whether the additional requirements supporting the need for a contract variation are ‘in scope’ or better managed under a new contract arrangement.

Key Requirements

1. Approval Process

1.1. Administrative variations

Approval of an administrative variation is the responsibility of the project/contract manager, or in accordance with procedures adopted by the APU.

1.2. Financial variations

Approval of a financial variation within a departments accreditation level is the responsibility of the financial delegate, and or in accordance with procedures adopted by the APU.

A variation in excess of a department’s accreditation level will require endorsement by the APU and approval by the Board.

It is the value of the variation, either a single amount or cumulative amounts, exclusive of the initial contract value, that will determine the process for variation approval. A case for variation approval is to note all cumulative variations.

The approval of a financial variation does not remove the obligation to report a breach of process if the variation is the result of a failure to comply with VGPB policy. Only after approval has been given is the department in a position to implement the contract changes for which approval was sought.

N.B. Some contracts include provisions for options to extend the contract term. These are not considered as variations unless they alter the financial details of the approved contract value.

2.Financial Variation Process Approval Framework for One-off Supply Contracts

Variation(s), exclusive of the initial contract value.	Variation Process Approval
Less than a department’s accreditation level	A financial variation (single or cumulative value) within a department's accreditation level is to be approved by the appropriate financial delegate, or in accordance with procedures adopted by the APU..
More than a department’s accreditation level	A financial variation (single or cumulative) more than a department's accreditation level is to be endorsed by the APU and approved by the VGPB

The appropriate financial delegate is responsible for a contract variation and commitment of funds after variation process approval.

Examples:

Example 1.
Context:
Tier 1 department ($1 million) where the APU has decided that variations with a cumulative value in excess of $200,000 exclusive of the initial contract value will require APU process approval

Variation (exclusive of the initial contract value)	Cumulative value	Approval financial delegate	Approval APU	Approval VGPB
Case 1
$180 000		√
$80 000	$260 000	√	√	N/A
$50 000	$310 000	√	√	N/A
Case 2
$250 000		√	√
$350 000	$600 000	√	√
$500 000	$1 100 000	√	√ (endorsement)	√

Example 2.
Context:
Tier 2 department ($10 million) where the APU has decided that variations with a cumulative value in excess of
$1 000 000 exclusive of the initial contract value will require APU process approval

Variation (exclusive of the initial contract value)	Cumulative value	Approval financial delegate	Approval APU	Approval VGPB
Case 1
$750 000		√
$200 000	$950 000	√
$150 000	$1 100 000	√	√	N/A
Case 2
$8 500 000		√	√	N/A
$3 500 000	$12 000 000	√	√ (endorsement)	√

1. Variations Disclosure Notification

Protocol for the Contracts Publishing System (CPS) requires the disclosure of any contract in excess of $100 000 and the disclosure of any subsequent variation to a contract sum listed on the CPS system.

2. State Contract Variations Approval Process

The variation approval process for State Purchase Contracts and Sole Entity Purchase Contracts is detailed in the State Purchase Contracts Policy and the Sole Entity Purchase Contracts Policy

Related DTF Templates and Forms:

Procurement Process Report - Contract Variations (84 KB DOC)

Version Control Information

Version Number	1
Release Date	17 June 2010
Further Information	Strategy and Policy, Government Services Division, Department of Treasury and Finance
Phone	(+613) 868 32944
Email	vgpb@dtf.vic.gov.au