Author: Amin Terouhid, Ph.D, P.E.
Changes that are made to a contract scope of work and modifications of work conditions are among the key causes of conflict in construction projects. A contract changes clause can play an important role in properly allocating risks among the parties to a contract to ensure each party knowingly assumes risks that it is capable of managing.
The main objective of a contract changes clause is to establish a well-drafted procedure for allowing change to the project scope of work and modifications of work conditions that a contractor is subject to. The following table highlights some of the main considerations that need to be given to drafting a contract changes clause.
| ID | Items | Description |
|---|---|---|
| 1 | The right to make changes | A well-drafted contract changes clause needs to recognize proper rights to make changes. These rights are typically, but not always, given only to the owners. If the intent is to specify the individuals who are authorized to direct changes, this requirement must be included and clearly be stated in the contract. |
| 2 | The size of changes that can be made | The contract changes clause should clearly identify any limitations on the permissible adjustment to the subcontract price. |
| 3 | Notice requirements | Proper means of communication and issuing change directives need to be defined in the contracts. In addition, the contract should clearly specify the notice requirements that need to be satisfied prior to performing any additional work (e.g., performing additional work following an unwritten change directive) as well as any ramifications of failure in giving proper notices in a timely manner. |
| 4 | Estimating and pricing considerations | The contract should identify proper mechanisms for estimating and pricing change orders (e.g., defining pre-approved unit rates and force account procedures), and the roles and responsibilities of the contracting parties in defining the scope of change and providing the information needed for pricing change orders. |
| 5 | Change order resolution timetable | The contract should provide a procedure to specify the steps that need to be taken for the resolution of cost and time adjustments to the contract due to changes. A change order resolution timetable should also be contained as part of the procedure to define expectations from the time management and construction administration perspectives. |
| 6 | Conflict resolution procedures | Conflicts are inevitable especially in large construction projects. The more changes are made to the contract scope or work conditions, the more likely the conflicts are. As such, a well-drafted contract changes clause needs to define proper conflict resolution procedures to facilitate successful management and resolution of claims and conflicts. |
| 7 | Unwritten change orders | The contract should clearly state if unwritten change orders are permissible, and if so, under what circumstances. |
| 8 | Working under protest | It is important to ensure that a contract changes clause specify if the contractor is contractually required to proceed with a changed work even if the contractor is not in agreement with the directing party about the price of the changed work. |
| 9 | Time impacts | A contract changes clause should define the conditions under which time extensions are issued due to changes. It should also specify if the contactor needs to submit its time extension request in a specified format or within a defined time frame. |
| 10 | Productivity and cumulative impacts | A contract changes clause should specify if productivity or cumulative impacts are permissible to be accounted for in pricing change orders in the event of a change, and if so, how and/or within what time frames the contract allows the contractor to seek compensation for the adverse effects of changes on the contractors labor and equipment productivity or request for compensation due to unexpected cumulative impacts whose synergistic effects were unknown at the time of evaluating individual changes. |
| 11 | Emergency changes | It is expected that a contract changes clause defines if emergency changes are allowable to be made under a serious, unexpected, and often life-threatening or property-damaging emergency requiring immediate action, and if so, what the roles, rights, and obligations of the involved contracting parties are if such a need for change arises. |
Since changes to the contract scope or work conditions typically have significant impacts on construction projects, they potentially have time, cost, and productivity implications. Therefore, it is important to take proper steps in minimizing the likelihood and/or impact of conflicts between contracting parties. This article focused on one of these steps and identified some of the key considerations that need to be given to drafting a contract changes clause that exposes the involved parties to smaller risks arisen from changes that take place in construction projects.
If your project has been affected by multiple change orders and they have adversely affected labor or equipment productivity on-site, or if you are interested to investigate the extent of time and cost impacts due to change orders, Adroit will be able to assist in assessing these impacts. To find out more about Adroit’s Construction Claims Consulting services, call 352.327.8029 or contact us using this form.